Roseville Estate Pty Ltd v Bouris

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 8516 of 2003

Roseville Estate Pty Ltd	Plaintiff
v
Jackie Anne Bouris	Defendant

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JUDGE:	Hansen J
WHERE HELD:	Melbourne
DATE OF HEARING:	22-24 June 2005
DATE OF JUDGMENT:	23 February 2006
CASE MAY BE CITED AS:	Roseville Estate Pty Ltd v Bouris
MEDIUM NEUTRAL CITATION:	[2006] VSC 49

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Mortgage – By wife of her property to secure loan to husband – Loan for his costs of criminal proceeding and for him to make restitution to victim – Loan by company controlled by husband’s brother – Wife a volunteer – Transaction not understood or explained – Unconscionable conduct – Garcia v National Australia Bank Ltd (1998) 194 CLR 395.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. D. Strong	Riordans Lawyers
For the Defendant	Mr M. A. Black	Willerby’s

HIS HONOUR:

Introduction

On 13 March 2003 the defendant signed a mortgage of her house property at 102 Koetong Parade, Mt Eliza in favour of the plaintiff as mortgagee as security for advances made to her husband pursuant to a loan agreement also signed on that day by her husband as borrower and the defendant as “security provider”. The agreement related to advances that had been made (called “the existing advances”) and an advance that was to be made (called “the current advance”). They were made in relation to a criminal proceeding in which the husband was charged with a number of counts resulting from his theft of money from his former employer, Dairy Farmers. The existing advances were $53,300.00 and had been made between 20 March 2002 and 7 March 2003 for the purpose of the husband meeting the costs of defending the proceeding. Then, following a contested trial in the County Court, on 28 February 2003 he was convicted of twenty four counts of theft and one count of attempted theft[1]. The total of the amounts referred to in the theft charges was $205,670.60 The matter was adjourned for a plea in mitigation on 14 March 2003 with the husband’s bail being continued in the meantime. Then, the matter of restitution having been raised by the husband’s lawyers, the plaintiff determined, after the discussions and events referred to below, to advance $205,670.60 for that purpose. This is the amount referred to as the current advance in the loan agreement. The advance was made by a cheque in that amount payable to the Registrar of the County Court which was produced at the plea hearing. The total of the advances referred to in the loan agreement was therefore $258,970.60.
[1]He was acquitted by direction of 39 counts of using or giving a false invoice.

At the conclusion of the plea the husband was remanded in custody for sentence on a date to be fixed. On 24 March 2003 he was sentenced to a total effective sentence of 21 months’ imprisonment with a non-parole period of 10 months which he duly served with an allowance for the pre-sentence detention.

I refer below to the terms of the loan agreement. For the moment I note the following. The husband has not made any repayment under the loan agreement. The plaintiff has not proceeded against the husband to recover the advances. Nor has the plaintiff sought to enforce the mortgage against the defendant. However, it lodged a caveat (dated 14 March 2003) over the defendant’s said property on 24 July 2003 in which it claimed an equitable interest as mortgagee. Then, on 24 September 2003 the defendant took steps for the removal of the caveat by making application to the Registrar of Titles under s.89A of the Transfer of Land Act 1958. That led to the plaintiff on 24 October 2003 commencing the present proceeding for a declaration that it is entitled in equity to an estate or interest in the defendant’s said land as mortgagee.

To this claim the defendant, without counterclaim, contends that the mortgage is not binding on her on the basis of the equity dealt with in Garcia v National Australia Bank Ltd[2]. It should be noted that the amended defence is a pleading of some width and counsel for the defendant said that he also relied on the principles concerning unconscionable conduct referred to in Commercial Bank of Australia Ltd v Amadio[3], but Garcia was clearly identified as the primary basis of his case.
[2](1998) 194 CLR 395.
[3](1983) 151 CLR 447.

Parties

I should elaborate on the identity of the parties and their relationship to one another.

The plaintiff, Roseville Estate Pty Ltd, is the trustee of a family trust. The directors are Richard John Bouris and his wife. Richard has a brother Terence Andrew Bouris, and two sisters. Their surviving parent is their mother Gloria Bouris. Richard, Terence and Gloria gave evidence for the plaintiff. For convenience I will refer to them by their first names.

Jacqueline Anne Bouris, who is the defendant, is Terence’s estranged wife. She gave evidence under her maiden name of Alexander to which she has reverted. For convenience I will refer to her by her first name.

The only other person to give evidence for the plaintiff was its solicitor Elizabeth Anne Hodgson. The only other witness for the defendant was her father Donald John Alexander.

Pleadings

I have sufficiently described the claim in the amended statement of claim. It does not seek enforcement of the mortgage but merely a declaration to the effect that pursuant to it the plaintiff holds an equitable interest in the subject land.

The amended defence:

(a)does not admit that the defendant signed the loan agreement but alleges that if she did the agreement was void or not enforceable.
(b)admits that she signed the mortgage but alleges that the mortgage is void and does not confer any enforceable interest on the plaintiff.

Then, in paras 5 – 20 the amended defence alleges a number of matters as the basis of each of the above pleas. Among the matters alleged are these:

(a)Para 5 – The defendant was under a special disability in having no commercial or legal training or experience and little understanding of commercial documentation; Terence was in a position of ascendancy to influence her to execute documents at his behest without her comprehending them; the defendant did not benefit from the advances.
(b)Para 6 – The plaintiff owed a duty to the defendant to ensure that she understood the nature and effect of the loan agreement and mortgage; to give her a proper and adequate opportunity to read the loan agreement and mortgage; to give her a proper and adequate explanation of the legal effect of the loan agreement and mortgage; and give her an opportunity to obtain independent legal or financial advice.
(c)Para 7 – The defendant executed the loan agreement and mortgage at the behest of Terence without comprehending their nature and effect.
(d)Para 8 – Accordingly the defendant was not bound by, or obliged to the plaintiff in respect to any advance of funds under, the loan agreement or mortgage and has an equity to set them aside.
(e)Para 11 – When Terence procured the defendant to sign the loan agreement and mortgage he told her that the money lent would only have to be repaid if he (Terence) had a windfall gain such as a Tattslotto win, that the documents were a mere formality for his purposes at a plea hearing, and that Richard would never make a claim against her land.

Without overlooking the whole pleading this is a sufficient reference to indicate the nature of the matters raised by the amended defence. In his final address counsel for the defendant put his case on the Garcia basis. It was not until counsel for the plaintiff in his final address queried whether an Amadio basis was relied on that counsel for the defendant said that he did rely on that basis. Plainly the pleading is wide enough to embrace both equities. For completeness I mention that the amended defence also alleged a contravention of s.52 of the Trade Practices Act 1974 and s.9 of the Fair TradingAct 1999; neither counsel dealt with this aspect in their submissions.

In a reply that was delivered to the original defence, but was treated as standing as a reply to the amended defence, the plaintiff raised a number of matters to some of which I should refer.

First, in para 1.3 the plaintiff alleged that the defendant had legal or commercial experience relying in that respect on matters set forth in particulars. These matters were that prior to 2003 she had purchased the property at 102 Koetong Parade, Mt Eliza with mortgage finance from the Bank of Adelaide; in or about May 1999 she purchased a 50% shareholding in T B & P S Investments Pty Ltd (“Investments”), became a director of that company and with her husband conducted Taps Restaurant at Mt Eliza; and she and Terence borrowed from the ANZ in connection with the purchase of that 50% shareholding on the security of a mortgage debenture given by Investments. All of those matters are correct. It was further alleged, as a particular, that in February or March 2003 the defendant negotiated a loan of approximately $40,000 from Salvatina D’Anastasi to be secured by a mortgage over her said land; as to this all that was established by the evidence was that on 5 June 2003 a second mortgage to Salvatina D’Anastasi was registered on the title of the defendant’s said property. As a separate matter it was established that for the purpose of raising funds with which to pay legal costs of Terence’s defence he and the defendant had sought a loan of $40,000 from the ANZ which loan was ultimately approved but too late in relation to the trial in February 2003 with the consequence that Terence sought and obtained funding from Richard via the plaintiff. It is convenient to note that I am not satisfied on the balance of probabilities that that ANZ loan was taken up.

Secondly, it was denied that the advances of funds were made solely for Terence’s purposes. In particulars to this plea the critical matter relied on is that Terence and Jacqueline wished to make restitution believing that this would or might result in his receiving a lesser term of imprisonment or a suspended sentence. Further, Jacqueline was concerned that in his absence she would have difficulty in running Taps, and was concerned for the effect on her children if Terence was away for a lengthy period.

Thirdly, the reply proceeded to set out the order of events and facts in relation to the matter of providing funds for restitution and the provision of the documentation, and alleged that in the circumstances the plaintiff had reasonable grounds to believe and did believe that the defendant understood the general nature and effect of the transaction. I refer below to the evidence as to these matters. It was further alleged that by signing and returning the form of acknowledgement (being one of the documents) the defendant represented to the plaintiff that she understood the true intention, nature and effect of the loan agreement and mortgage, that the defendant knew the plaintiff would rely on the representation in advancing the restitution sum, that the plaintiff did so rely and that the defendant was estopped from denying she understood the true intention, nature and effect of the loan agreement and mortgage.

Fourthly, it is alleged, in para 3.6, that in early April 2003 at Hodgson’s request, the defendant re-signed the loan agreement and mortgage in view of she and Terence having witnessed each other’s signatures. I refer below to the evidence concerning this occasion.

This is not a complete reference to all matters raised in the reply but is sufficient to indicate the issues.

The documents

It is convenient at this point to identify the documents which the defendant and Terence signed on 13 March 2003. The documents were prepared by Hodgson as solicitor for, and on the instructions of, Richard on behalf of the plaintiff. I refer below to the evidence as to matters prior and subsequent to the preparation and execution of the documents. For the moment I merely identify the documents and to the extent necessary their relevant terms.

As I mention below, the documents having been prepared, by arrangement Terence collected them from Hodgson at about midday on 13 March 2003. The documents were provided to Terence with a covering letter dated 12 March 2003 in the following terms:

“We refer to previous communications in this matter and, in particular,   to our telephone conversations with Mr. Terry Bouris this week.
The Lender has asked that we prepare security documents in respect to the Lender advancing monies to the Borrower.
Accordingly, please find enclosed the following:
1.     Loan Agreement (in triplicate).
2.     Mortgage Schedule (in duplicate) and copy.
3.Acknowledgement of Memorandum of Common Provisions (2) and copy Memorandum of Common Provisions for you.

4. Borrower Acknowledgement and Consent.
Please do not sign this until you have read the enclosed documents.

5. Security Provider Acknowledgement and Consent.
Please do not sign this until you have read the enclosed documents.

6. Requisitions on Title.
7.Statutory Declarations (2). You will see that one of these relates to Jackie Bouris’ change of name upon her marriage. Please attach a copy of your marriage certificate to this Statutory Declaration.
8.Authority and Disbursement Statement.
9.Our Account for payment by the Borrower.
10.Solicitor’s Certificates – Borrower and Security Provider.
11.Copy Caveat – to secure our client’s mortgage pending sale of the house property
12.Copy Deed of Assignment of Book Debt and Notice of Assignment

We note that we act for the Lender in this matter. The Borrower and Jackie Bouris (as Security Provider) should consider obtaining their own independent legal advice before signing the documents.
If the enclosed documents are acceptable to you then please have them executed by the Borrower and return them to us as soon as possible.
If you have any queries, please contact us.”

In relation to the first sentence in that letter, Hodgson said that her only communication with Terence had been the telephone communication on 12 March 2003.

I now refer to each of those documents.

The loan agreement

The agreement commences with some recitals in which by reference to a schedule to the agreement the parties and certain other matters are identified and defined. The “existing advance” of $53,300.00 and “the current advance” of $205,670.60, are together called “the principal sum”. It is recited that the defendant as “security provider” has agreed to provide the lender (the plaintiff) with security over her property at 102 Koetong Parade, Mt Eliza. It is recited that the borrower (Terence) has agreed to provide and procure security (“the securities”) over all of his assets from time to time and specifically a third mortgage over Jacqueline’s said property . It is finally to be noted that the schedule specified the term of the agreement as seven years from the date thereof, an interest rate of 6.30% per annum and a default rate of plus 2% per annum.

Clause 1 was headed Covenant to Advance and Repay and provided as follows:

(a)In cl 1.1 that subject to execution of the agreement and the securities and the lender’s solicitor effecting to their reasonable satisfaction check searches and enquiries, the lender shall forbear to require the immediate payment of the existing advance and shall forthwith lend the current advance to the borrower.
(b)Clause 1.2 then set out the borrower’s covenant to repay, thus:
“The Borrower HEREBY COVENANTS with the Lender:
1.2.1To repay to the Lender by regular monthly instalments of principal and interest (quantum as agreed between the Lender and the Borrower in writing from time to time) within seven days of the 1^st day of each month in arrears the Principal Sum and interest thereon in accordance with this Agreement.
1.2.2Subject to the provisions of Clause 3 hereof, to repay to the Lender the Principal Sum or so much thereof as is owing to the Lender from time to time together with interest thereon at the expiration of the Term.”

Clause 2 provided for the borrower to repay interest on the principal sum or the amount from time to time owing monthly in arrears. Clause 2.3 provided that if any interest is not paid within seven days of the due date the lender may in its sole discretion capitalize that interest so that thereafter it forms part of the principal sum.

Clause 3.1 contained what might be called a standard listing of events on the happening of which early payment may be required. Clause 3.2.1 provided that the borrower may make repayments of all or part of the principal sum during the term of the loan.

Clauses 7 and 9 are important as they are concerned with the extent of Jacqueline’s obligations. They contain a scheme which, in a nutshell, is that her property at 102 Koetong Parade and the Taps restaurant business be sold, and the net proceeds be paid to the lender. With that introductory reference, cll 7 and 9 provide as follows:

“7. Security Provider
The parties hereto hereby acknowledge and agree that:-
(a)The Security Provider’s Property is subject to a first mortgage to Adelaide Bank Limited which currently secures the sum of appx. $154,000.00.
(b)The Security Provider’s Property is or shortly shall be subject to a second mortgage to Sally D’Anastasie which currently secures or will secure the sum of $40,000 for a term of three years.
(c)The Security Provider and the Borrower hereby undertake to promptly perform all obligations under the said first mortgage and the said second mortgage and in particular shall continue to pay all monies due thereunder as and when they fall due and shall ensure that the amounts secured by the said first mortgage and said second mortgage are not to [sic] increased.
(d)The Security Provider shall provide a Mortgage over the Security Provider’s Property in favour of the Lender. The Lender shall secure this Mortgage by lodging a Caveat over the Security Provider’s Property and may if it so chooses also register that Mortgage.
(e)The Security Provider’s said Mortgage shall be collateral to this Agreement
(f)The Security Provider’s obligations to the Lender shall be limited to the balance of the sale price of the Security Provider’s Property as detailed in sub-clause (i) and the balance of the sale price of the said restaurant as detailed in Clause 9 together with any costs incurred by the Lender as a consequence of any default by the Security Provider hereunder.
(g)The Security Provider hereby advises the Lender that the Security Provider’s Property is worth appx. $260,000.00.
(h)The Security Provider hereby undertakes to immediately place the Security Provider’s Property on the market and provide evidence thereof to the Lender. The Security Provider shall do all things reasonably necessary to sell and settle the sale of the Security Provider’s Property as soon as possible.
(i)The balance of settlement monies from the sale of the Security Provider’s Property (sale price less agent’s commission, legal costs, and amounts required to repay the said first mortgage and the said second mortgage over the Security Provider’s Property) which the Borrower and the Security Provider estimates to be appx. $60,000.00 shall be paid to the Lender out of sale proceeds of the Security Provider’s Property.

9.“Taps” Restaurant
The Borrower and the Security Provider jointly own a restaurant known as “Taps” which is located in leased premises at 32-34 Mt. Eliza Way Mt. Eliza Victoria. The Borrower and the Security Provider borrowed the sum of $70,000.00 from the ANZ Bank to acquire the said restaurant business. The amount owing under that loan facility is currently appx. $50,000.00. The goodwill and plant & equipment of the said restaurant business are not otherwise encumbered. The Borrower and the Security Provider hereby undertake to the Lender to immediately place the said restaurant on the market and provide evidence thereof to the Lender. The Borrower and the Security provider shall do all things reasonably necessary to sell and settle the sale at the best market price as soon as practicable. Any proceeds from the sale of the said restaurant (less agent’s commission, legal costs, repayment of ANZ loan, payment of accrued staff entitlements and any necessary adjustments with the purchaser) shall be paid to the Lender to reduce the Principal Sum and interest thereon.”

The mortgage

The mortgage secures the estate in fee simple in the property at 102 Koetong Parade. The principal sum, how and when it is to be repaid, the rate of interest and how it is payable are described as follows - “As secured by a Loan Agreement dated …. day of March 2003 between Terence Andrew Bouris (as borrower) and the Mortgagee (as lender)”.

The mortgage incorporated a memorandum of common provisions containing the provisions of the type usually found. The mortgage itself then went on to set out a covenant by the mortgagor to pay the principal sum and interest in the manner and at the times specified. It was further stated that the mortgage was provided as security for advances made to Terence by the mortgagee pursuant to a loan agreement and that the mortgage was collateral to such loan agreement.

Acknowledgement of memorandum of common provisions

This was an acknowledgement by Terence and Jacqueline that they had received and read a copy of the memorandum of common provisions and that they form part of the mortgage over the property at 102 Koetong Parade Mt Eliza. The memorandum was a twenty eight page document of complex provisions.

Borrower acknowledgement and consent

This is an acknowledgement by Terence as borrower addressed to the mortgagee in which he acknowledges and warrants, among other things, having received a copy of the loan agreement and mortgage relating to his loan, that he had been given the opportunity to read those documents, that he read the acknowledgement and consent before signing those documents, and that although advised to consult a solicitor he had of his own free will decided not to employ a solicitor to act on his behalf. He declared that he understood the true intention, nature and effect of the documents which he had fully read including the consequences of any default.

Security provider acknowledgement and consent

This document is important and I set it out in full:

“Borrower:Terence Andrew Bouris of 25 Cliff Road, Frankston. Victoria. 3199 (“the Borrower(s)”)
Mortgagee:Roseville Estate Pty. Ltd. (ACN 088 101 204) of Level 1, 14 Fink Street, Brighton. Victoria. 3186. (“the Mortgagee”)
Security Provider: Jackie Anne Bouris (formerly Jackie Anne Bitting) of 25 Cliff Road, Frankston. Victoria. 3199 (“the Security Provider”)
Property Secured: 102 Koetong Parade Mount Eliza Victoria
Facility Type: Loan Agreement (“the Loan”)

TO: The Mortgagee
I/We the Security Provider (s) hereby acknowledge and warrant that:-
1.I have received a copy of the Security Documents listed in the Schedule below which relates to the above loan from the Mortgagee.
2.I have been given the opportunity to read the Security Documents.
*3.I have been advised by the lender to obtain legal advice on my obligations under the Security Documents but have chosen not to. I understand the true intention, nature and effect of the Security Documents and my obligations under them.
*3.The Security Documents have been fully explained to me by my solicitor who is the witness to this Acknowledgement. I understand the true intention, nature and effect of the Security Documents and my obligations under them.
4.I understand that the Mortgagee will rely on this signed Security Provider’s Acknowledgement and Consent when providing the Loan or other banking facilities to me.
5.I acknowledge that where there is more than one signatory to this Acknowledgement and Consent, this Acknowledgement and Consent will be binding on each signatory immediately on signing even though it might not have been signed by any other signatory.
6.This Acknowledgement and Consent was read and signed by me BEFORE SIGNING the Security Documents requiring signature by me.
7.I acknowledge that I have been advised to obtain legal advice before signing the Security Documents.

SCHEDULE
(“Security Documents”)
(a)Loan Agreement
(b)Mortgage (including the Memorandum of Common Provisions filed at the Land Titles Office as Number AA690) over the Property Secured being the whole of the land in certificate of Title Volume 10122 Folio 069.
DATED theday March 2003
……………………………
Security Provider – Signature
……………………………
Jackie Anne Bouris
………………………….
Solicitor/Witness

………………………….
Print Full Name

who states the signatories are personally known to him/her OR have been adequately identified by production of driver’s licence/passport**
_______________________________________________________________
*Delete whichever paragraph is inapplicable.
**Where the witness is not a solicitor, then copies of drivers’ licences or passports (of each signatory) must be attached to this acknowledgement.”

Requisitions on title

This document was addressed to “Jackie Anne Bouris (“Mortgagor”)” re “Mortgage from Roseville Estate Pty Ltd ACN 088 101 204 (”the Mortgagee”) and in the heading identified the property at 102 Koetong Parade, Mt Eliza. It then set out a series of requisitions on title.

Statutory declaration

Apparently there were two declarations but the only one in the Court Book is a declaration by Jacqueline as mortgagor acknowledging that she had agreed to provide a mortgage over the property at 102 Koetong Parade as security for a loan. The declaration was made for the purpose of establishing satisfaction of the provisions of the Sale of Land Act 1962. It concluded with a statement by Jacqueline that in consideration of the lender agreeing to advance the loan monies she-

(a)indemnified the lender against any liability of any nature whatsoever which may result from the lender proceeding to settlement of the mortgage without having obtained the relevant usual rate and planning and other certificates prior to the advance of monies and
(b) acknowledged that the lender shall rely on the contents of the declaration which she declared and warranted to be true and undertook to remedy on demand any deficiency or inaccuracy therein.

Authority and disbursement statement

By this document Terence and Jacqueline irrevocably authorised the mortgagee to complete or amend the mortgage loan agreement to give good security and enable registration of the mortgage. It further authorised the mortgagee to advance $205,670.60.

Account

This was Hodgson’s account addressed to Terence for $1489.68 for disbursements.

Solicitor’s certificates

There were two certificates, one for the borrower and one for the mortgagor to complete. Each certificate is addressed to the plaintiff as “the Lender” and is in form a certificate to be given by a solicitor. It is sufficient to refer to the certificate pertaining to the security provider (Jacqueline) which is in the following terms:

“I,………………………………………………of …………………………….
Being a Solicitor holding a current practising certificate under the Legal Profession Practice Act 1996 HERBY CERTIFY:-
1.THAT I have fully explained the terms and conditions of the documents described in the Schedule hereto (“the document”) to Jackie Anne Bouris (formerly Jackie Anne Bitting) (“the signatories”) who identified him/herself and produced documentary identification to confirm his/her identity to me and who appeared to fully understand the nature of the documents and his/her obligations thereunder and of the consequences to him/her of any default thereunder.
2.THAT I witnessed the execution of the documents by the signatories.
3.THAT I have recommended that the signatories seek independent financial advice in relation to the documents and to the transaction to which the documents relate.
4.THAT I am a solicitor instructed and engaged by the signatories and independently of the Mortgagee.
BORROWER:  Terence Andrew Bouris
SECURITY PROVIDER:              Jackie Anne Bouris
SECURITY PROPERTY:              25 Cliff Road, Frankston. Victoria 3199
SCHEDULE
(i)Loan Agreement dated the    day of    March           2003
(ii)Mortgage over Certificate of Title Volume 10122 Folio 069.
(iii)Memorandum of common Provisions retained in the Registrar of Titles Office in No AA690.”

Caveat

This caveat was in the usual form. I have referred to its terms elsewhere.

Deed of assignment and notice of assignment

This assignment arose from the fact that the first of the series of advances which constituted the existing advances was made by another of Richard’s companies. Thereafter the advances were made by the plaintiff. By the deed the initial lender assigned to the plaintiff the balance outstanding on that advance. The notice was a notice to Terence as debtor .

Some observations about the loan agreement and mortgage

In his opening counsel for the plaintiff observed that cl 7(f) of the loan agreement limited Jacqueline’s obligation to payment of the net proceeds of sale of her property and the net proceeds of sale of the Taps business. Of course she had control of her own house property, and she and Terence as the directors and shareholders of Investments could join in selling the Taps business. Once they had been sold and the net proceeds of sale paid to the plaintiff, as provided in the loan agreement, Jacqueline’s obligations under the mortgage would be complete, it was said. That is correct, assuming performance in accordance with the loan agreement and absent any relevant default. It was acknowledged that Jacqueline could have a personal liability if she failed to observe an obligation imposed on her under the agreement such as, for example, failing to act in the matter of the sales as required by cll 7 and 9. Further, in the event of such a failure, would the limit of any claim against her for breach be the amount that ought to have been received on the sale of her property or the Taps business including interest if there had been a timely sale, or might damages potentially extend to other heads of loss such as consequential loss suffered by the plaintiff? I heard no debate on this although it is an important matter in understanding the extent of Jacqueline’s obligations and potential liability under the loan agreement and mortgage. Finally, as already mentioned the concluding part of cl 7(f) expressly provides for Jacqueline to pay any costs incurred by the plaintiff as a consequence of any default by her. I heard no debate as to the extent of the cover contemplated by the said “costs”.

The plea

It is next convenient to refer to the plea hearing to identify in summary what was said by counsel concerning the matter of restitution. That is because Jacqueline was present in court during the plea and she was cross-examined as to what she heard said by counsel in the plea[4]. All told, the transcript of the plea runs to 71 pages and I make the reference as summary as practicable.
[4]See at [134].

The plea covered the usual range of matters, namely matters personal to the prisoner, the provision of a psychological assessment report, written references and testimonials and some oral evidence, and submissions as to penalty. At an early stage of the hearing, when Dairy Farmers made an application for a compensation order, counsel informed the judge that since the verdict Terence had obtained a loan to repay Dairy Farmers the full amount and that he had a cheque payable to the Registrar of the County Court. Counsel returned to this matter later, placing much reliance upon it. Counsel said that the borrowing had been effected through Terence’s brother and was secured by documentation. Later, he called Richard. Towards the end of his evidence in chief Richard said that Terence had obtained a loan for restitution through him and that security for the loan was a third mortgage over a house owned by Jacqueline and that a mortgage debenture was going to be taken on the business but was not as it had been decided to sell the business. He said that the debenture would be done later if the business did not sell soon. The “security documents” were then produced through him. Having looked at the documents the judge asked Richard if he was expecting some repayment out of the funds from the sale of the business, to which Richard said they were “expecting repayment from proceeds of the house which is listed for sale now and residue of funds from the sale of business after – Terry already has a business loan on that business”[5].
[5]Court Book 24.

In the totality of the plea these references constituted a small part of that which was said. There were, as may be expected, other references to the fact of restitution, but without going into the nature and effect of the documentation which Jacqueline had signed.

Background

There is a sixteen year age difference between Terence and Jacqueline. He was born on 21 March 1957 and was thus aged 48 at the time of the present trial. Terence said in evidence that Jacqueline had turned 32 in June 2005 prior to the present trial.

Each had had a prior marriage. Terence was 22 when he first married. By his first marriage he had two children, Carly who was born on 8 February 1983 and Lauren who was born in 1987. It was during this marriage that in 1992 he commenced employment with Dairy Farmers. Whilst so employed, it would seem in about 1993, he and his wife separated. He continued at Dairy Farmers where he was employed in senior management with power to contract work and authorise expenditure. It was in the course of this employment that he devised a false invoicing scheme by which he stole money from Dairy Farmers. The crimes took place between October 1996 and May 1999. He was dismissed in April 1999 when the fraud was discovered.

After being unemployed for three months Terence purchased the Taps restaurant with a partner. The business was owned by Investments in which Terence and his partner had an equal interest.

Terence met Jacqueline in August 1999. At the time they each lived in their own house in Koetong Parade, Mt Eliza. Jacqueline had just separated from her first husband and was raising her two children Georgia and Brandon who were then aged about seven and five. At the time of the trial they were 13 and 11.

Jacqueline was looking for work to support herself and her children. Terence offered her employment at Taps, which she took up, and subsequently a relationship developed between them. They decided to buy out Terence’s partner and run the business together. This was done with the assistance of a loan from the ANZ part of which was paid out of the proceeds of sale of Terence’s house which he sold for this purpose. Terence did most of the dealing with the ANZ. Jacqueline acquired the interest of the former partner. She also became a director of Investments which continued to be the owner of the business. This occurred in 2000, it would seem several months before Terence and Jacqueline married in October of that year.

Thereafter Terence and Jacqueline ran Taps, co-ordinating their time at the restaurant to fit in with family demands. The restaurant was open seven days a week.

After living at Jacqueline’s house it was decided that a larger house was required to provide accommodation for the two families. Thus, Terence and Jacqueline rented a house at 25 Cliff Road, Frankston to which they moved and where they were living at the time of the criminal trial. Jacqueline rented out her house at 102 Koetong Parade. On 8 October 2001 a mortgage to the Adelaide Bank Ltd was registered on the title to 102 Koetong Parade as a first mortgage. It remains so registered.

One day before their marriage, whilst Terence and Jacqueline were working at the restaurant, police from the Fraud Squad attended with a warrant to search Terence’s house. They spoke to Terence who told Jacqueline that he had to go to his house and he left with the police. Terence said in evidence that it was that day that he and Jacqueline learned “that was happening” meaning a police investigation. Jacqueline said, and I accept, that this was the first time she became aware of Terence having any suggested improper dealings with his previous employer. Prior to the police arriving Terence had not discussed with her the circumstances of his sacking from that employer. Subsequently, charges were laid against him. Terence told Jacqueline that the charges regarded a merchandising business that he ran and they were claiming that he had invoiced for work that had not been done. He told Jacqueline that he did not take the money and that he was innocent. He told her not to worry about it.

In due course Terence faced a committal hearing at the Magistrates’ Court. Jacqueline was aware of the hearing but did not attend. She offered to go but Terence said she was needed at work.

Initially Terence’s legal costs associated with the committal were funded out of the business. Subsequently, Richard, at Terence’s request, funded the costs to the amount of $53,300.00. Jacqueline was aware that Richard lent money for the costs. As mentioned earlier, Terence and Jacqueline had attempted to raise $40,000 on a second mortgage over Jacqueline’s house for legal costs but that funding came through too late for the trial.

Terence was duly committed for trial. Having been committed, Jacqueline said that he “always claimed that he was innocent, that there was never any – enough evidence to prove that he was guilty”. He assured her “that it would all be okay and he would be found innocent”.

Then came the trial. Jacqueline attended two days at the most. They could not afford to employ extra staff to cover Jacqueline if she was away from the restaurant, and Terence said it was not necessary for her to be there every day. He reported to her each day on how the trial was going. According to Jacqueline, he said that every day was a good day. He told her that basically the majority of the days were in his favour.

The day before the trial started Terence told his mother of the charges. She had had no idea. Gloria said that Terence and Jacqueline had kept it from her because she had had a slight stroke and they were worried about her health. Gloria attended the trial each day.

Richard attended the trial most days.

When the jury returned their verdicts Gloria and Richard, but not Jacqueline, were at court.

Terence telephoned Jacqueline and advised that he had been found guilty to which she replied that she could not believe it. She said in evidence that her general reaction was that she could not believe it because he had told her that he was innocent and she believed him. I have no hesitation in accepting this evidence and that Terence had led her into this belief. He had said the same thing to his mother who was shocked and very upset when he was convicted. Gloria said of Terence that he “always put a good spin on things”. Of course the conviction constituted proof of serious fraud upon his former employer, carried out over more than two years, and which he had denied at his trial. Further, it is convenient now to note, it was apparent from his demeanour early in cross-examination before me that he was still in denial. In addition, it is to be noted from the plea and sentencing remarks that there was a matter on which in 1992 he was without conviction fined an aggregate amount of $1,500 on charges of making a false report to police and obtaining property by deception. These charges arose out of an insurance claim following a burglary at his house where he added a television set to the list of stolen items, which set had in fact been secreted at work. As the sentencing judge said, it disclosed a tendency to take advantage of a situation in a dishonest way.

It is further to be noted about Terence that he bore an evident bitterness towards Jacqueline as a result of her having had an affair with another man within, it would seem, a matter of months of his being imprisoned. In addition, as referred to below, she had sold the Taps business and retained the proceeds, whatever they may have been. Save that Terence and Jacqueline are estranged these matters were not gone into doubtless for reasons of relevance.

I consider also that in giving his evidence Terence had an interest to support the plaintiff’s case both out of loyalty to his brother and for financial reasons. Of course I do not overlook that for her part Jacqueline had an interest to defeat the plaintiff’s case.

Restitution

Following his conviction and bail being arranged Terence discussed his options with his lawyers. Richard and Gloria were present. The options ranged from prospects of an appeal to requirements for the plea. As to the latter, an option was paying restitution to Dairy Farmers. Following the meeting Terence and Richard discussed restitution further. Terence said he was unable to raise the restitution amount in the time available. He said that he had the asset of Taps which he and Jacqueline had been attempting to sell, as to which Richard recalled figures around $250,000.00 to $300,000.00 but they could not raise that amount quickly. The only other asset was Jacqueline’s house which had some equity in it. Richard said that he could probably loan Terence the amount if he wanted to pay restitution. Richard said that there would have to be an agreement. The difficulty was how the loan would be repaid. According to Richard they discussed the payment of an amount when Taps was sold and when Jacqueline’s house was sold. There was no arrangement for the balance because Terence would not have much capacity to repay. Richard assumed that Terence would continue to conduct a small wine business. I interpolate that this wine business was a small wine wholesaling business which Terence described as generating “some income”, about $400 or $500 per week. There was no evidence as to gross or profit figures.

The discussion between Richard and Terence was general and did not produce an agreement that Richard would lend the restitution sum or as to the terms of such a loan. Terence could not agree then and there. It was left on the basis that he would discuss the matter with Jacqueline. Following the discussion with Richard, Terence drove home and discussed the events of the day with Jacqueline.

At this point onwards it is convenient to refer separately to the evidence of the witnesses which I now do.

Terence

Commencing with Terence, he said that in their discussion he and Jacqueline talked “about the potential of a reduced gaol term and the slight possibility of a reduced gaol term” if restitution was paid. They discussed Richard’s offer and that if they paid Richard back they would have “very little”. He said their focus was on keeping the family together which made them believe restitution was a viable option at that stage. He said that they discussed the equity in Taps and Jacqueline’s house and selling them to repay Richard. As to the sale of the house, they agreed that being together was more important than money, it would be a huge set back financially, but together they would overcome that. It was also discussed that even if Richard was not paid in full he would not leave them destitute when Terence got out of gaol, if he went there. The discussions occurred over the next day or two.

Terence also had discussions with Richard and Gloria.

Within a matter of days, although the evidence is a little inexact as to when this occurred, Terence and Jacqueline met Gloria at her house and discussed the situation. Jacqueline’s children were present at the house. Terence gave evidence about this meeting. The discussion ranged over a variety of issues. Among other things discussed was restitution, whether it was right or wrong bearing in mind there was no guarantee of a reduced or no gaol term and the financial consequences. Terence said in evidence that Jacqueline supported restitution, that she wanted it more than anything else, saying that it was only bricks and mortar and their family was more important than that, and that she would do anything to stay together. The reference to bricks and mortar meant if they did not have a house. He said that some sums were done on what they thought the equity in the business and the house would be, and his mother raised the point about changing her will. They talked about having trouble selling the business and about putting Jacqueline’s house on the market and where Jacqueline and the children would go if he went to gaol. The conversation “changed direction numerously”. He explained the reference to where Jacqueline would live as meaning that the rent on the house in Cliff Road was too high. They discussed Jacqueline living with Gloria. For her part Gloria was critical of the wisdom of the restitution path. Terence said that by the end of the discussion Jacqueline and he “had pretty much decided at that stage, yes we would go ahead with it”. Jacqueline said that she “will do anything that will give us a chance to stay together and that includes the sale of … our family home, the sale of the business”. But, he said, the decision to make restitution was not made at the meeting.

Terence said that he and Jacqueline decided to accept Richard’s offer on the drive home from the meeting with Gloria or later that night.

Terence told Richard that they accepted his offer. I find that Jacqueline was not present when he so advised Richard.

Richard told Terence that he would have to get some papers organised. Terence could not recall if he said “loan agreement” but he remembered “mortgage”. Part of the reason was not only to formalise the loan but also to provide the court with evidence that it was not a gift.

Terence said that he gave Richard’s solicitor some details for the completion of the forms and the mortgage. He spoke to Richard a few times about progress. He said that he and Jacqueline discussed that “these things needed to be signed fairly quickly” and needed to be completed by the date of the plea. He collected the documents from Hodgson’s office and brought them home. It was in the afternoon, he and Jacqueline sat down, “we didn’t read the documents in absolute detail because we both knew what it was. We’d discussed it at length prior to this”. Elaborating on what happened, Terence said that they went through the documents together, they identified the places they needed to sign, Jacqueline was the only one who had to sign the mortgage. This process took an hour or more. The gist of their conversation was that it was a shame it had come to this.

Terence said that he then took the documents to the restaurant where he left them with his daughter Carly for Richard to collect them.

In cross-examination Terence denied that he and Jacqueline had decided that the best option was to go ahead with restitution without discussing what that would entail. He could not recall any discussion with Richard at which Jacqueline was present. He and Jacqueline had discussed that her house should be on the market immediately. He said that he had said to Jacqueline something along the lines that Richard would not insist on repayment and that the money would only have to be repaid if he and Jacqueline received a windfall like a Tattslotto win or had a successful business, but that was in the context of the balance of the money after repayments by the business and the house. At the time they believed those assets exceeded the value of the loan. He acknowledged it was going to be difficult for Jacqueline to survive with the children, noting that Gloria had offered to have them and that Jacqueline would work.

Further in cross-examination, Terence said that he collected the documents from Hodgson, having arranged with her to do so, around lunchtime on the day before the plea. He could not remember if he took the documents to the house or restaurant, he was fairly confident it was the house. They sat down. They had to identify which document was which and who needed to sign what. He agreed that each document had a signing tab pointing to where the document needed to be signed. “They did not merely flick to each tabbed page and sign. It took a lot longer than five minutes.” He also denied the suggestion that he said to Jacqueline that he wanted to sign quickly and go home because he did not want to be at the restaurant when Richard came to collect the documents. He denied that he did not want Richard and Jacqueline to discuss what the documents were and the transaction was.

As to the repayment of the loan, Terence knew that in all likelihood he would go to gaol and have no capacity to make payments. He knew that Richard would not insist on monthly payments being made. He still has not made any repayment. He denied that the only basis of repayment was if he had a windfall gain.

At the end of his cross-examination Terence said, in relation to the Taps business that while he was in gaol Jacqueline brought him some papers to sign saying that it was in their best interests for the business to be in her name only, so he signed the papers. Then, while he was still in gaol, she sold the business and he had not seen the money.

In re-examination Terence said that at the meeting with his mother and Jacqueline the word “mortgage” was not used but “loan” was. The terms were sort of interchangeable in all their discussions. “It was more the fact of the commitment to the money and what it meant to us rather than the term of what it was”. He added that the rent on 102 Koetong Parade was about $250 per week and they had been living on about $300 a week. The rent on Cliff Street had come out of Taps.

Gloria

The next witness is Gloria Bouris. Prior to her meeting with Terence and Jacqueline at her home she had a telephone conversation with Richard in which he told her what he expected of Terence and Jacqueline if he lent the money for restitution. It was that the business and Jacqueline’s house be sold and the net proceeds be paid to him. He also wanted Gloria to change her will so that Terence’s share of her estate would go to Richard and his wife as further payment of the debt. Richard would also have liked his sisters to contribute towards any amount remaining out of their share in her will. She did not do the latter but had altered her will so that Terence’s share goes to Richard. She also recalled that Jacqueline had or was to sign a caveat on her house.

Gloria saw Terence and Jacqueline at her home shortly after this conversation. In the discussion she said that she wanted Terence to appeal. She did not want restitution to be made. She did not want Terence and Jacqueline to go into such debt. There would be nothing for Terence when he came out of gaol. She tried to persuade them not to go that way. “But Jackie said that so long as she and Terry were together she didn’t care about the house. It was only bricks and mortar, that she’d live in a little flat and get a part-time job. I was unsuccessful.” As to repayment, there was the sale of the business and the house and her will. As to whether anything was said about the mechanics of the loan, she said a loan agreement was to be drawn up, she was not sure if a mortgage or a caveat was mentioned, one was but she could not recall which.

Subsequently Gloria spoke to Richard and told him that Jackie had said that she did not care about the money, as long as she was with Terence and she would live in a little flat somewhere and the house was only bricks and mortar, she did not care. She told Richard what she (Gloria) had said in the conversation.

In concluding her evidence in chief Gloria said that she had no recollection of discussing with Jacqueline’s father, at Jacqueline’s home when Terence was in gaol, the loan or its purpose or repayment.

I now refer to some evidence of Gloria in cross-examination. As to the meeting with Terence and Jacqueline at her place, Gloria said it had already been verbally decided that there would be a loan agreement if Terence wanted to borrow the money from Richard but she did not know if it had been legally done. In their discussion she asked Terence what he thought about that and he said it was fine. Terence and Jacqueline would be jointly liable.

Gloria said that when these discussions occurred she and Jacqueline were upset and coming to grips with Terence having been convicted. She nevertheless rejected the suggestion that her recollection was not perfect.

Later, in reference to the wine business, she said that they were selling wine to restaurants and clubs but it was not going to be enough for Jacqueline to live on until Terence came out of goal. I interpolate that apparently Jacqueline continued the business for a while but it is now defunct.

Finally, Gloria denied evidence of Jacqueline’s father that she had said to him that the mortgage was never to be enforced.

Richard

I next refer to Richard Bouris. He referred to his initial discussion with Terence about restitution, and Terence’s inability to raise the money prior to the plea. He told Terence that he was willing to lend him the money for restitution. If he did repayment would be made from the sale of the restaurant and Jacqueline’s house. There was no arrangement for payment of the balance because Terence would not have much capacity to repay. He assumed he would continue with the small wine business which was his only way of earning money apart from a job.

In the following days Richard had discussions with his wife and mother. His mother was opposed to restitution. Apart from favouring an appeal Gloria did not want Terence and Jacqueline burdened with the debt. Richard and Gloria discussed in general the terms of the loan. He would use money of his family trust and wanted it documented, there would be loan agreements and a mortgage on whatever property was subject. I interpolate that the difficulty in accepting this evidence was, as he frankly conceded, that at an unstated point he moved from recounting his conversation with his mother to saying what was in his mind. I therefore do not know how much of what he had said was in the former category.

As I understood Richard’s evidence, the next step was that on the Monday he and Terence met with Terence’s lawyers to discuss the plea hearing, following which Terence told him that he and Jacqueline had decided to go ahead on the course of restitution and therefore they would take up his offer.

The next day Richard rang Hodgson and instructed her to commence documentation for a loan. They discussed in general terms how it would be structured. He told her that the only repayments that could be made initially were to come from the proceeds of sale of Taps restaurant and the sale of Jacqueline’s house in Koetong Parade and he had no idea when the balance could be repaid. He did not give her specific instructions as to what to include in the documents; he relied on her judgment.

Richard did not receive a copy of the documents in draft nor in their final form before they were signed by Terence and Jacqueline.

For the purpose of preparing the documents Hodgson required information in particular concerning the house and restaurant. For this purpose, on 6 March 2003 she wrote to Richard referring to a conversation with him the day before and enclosing a schedule for completion to enable security documents to be prepared. It required information concerning Jacqueline’s property and the mortgages thereon, the Taps business and items of financial detail. Among other things, the schedule recorded that Jacqueline was to provide a third mortgage security over her house to secure the loan and to immediately place her house on the market for sale with the balance to be paid to the plaintiff and that Taps was to be sold with the balance to be paid to the plaintiff. Richard passed the schedule to Terence for him to endorse the required information. I interpolate that Terence wrote in the information and returned the schedule to Richard. The duly completed schedule was sent to Hodgson from Richard’s facsimile number on 8 March 2003.

Richard said that he knew that Terence was to collect the documents from Hodgson and have them executed. Richard had arranged to collect them from Taps on his way home from the Mornington Peninsula on the day before the plea hearing.

As to whether during this time Richard had a view about how far the proceeds of sale of the house and business would repay the loan, he said that had he been told an amount it would have been by Terence. From recollection the net proceeds of sale of the house were around $70,000 or $80,000. The restaurant was a vague concept as they had been trying to sell it for $250,000 to $300,000 and he had no idea of its worth.

Richard could not recall speaking to Jacqueline between the verdict and the plea hearing. I interpolate that I find he did not speak to Jacqueline in that period about the matter of restitution or at all. As he said in cross-examination, he left it to his mother and Terence to have discussions with Jacqueline.

Richard then gave evidence of a conversation with his mother. This was led as to his basis for a belief that another person had explained the transaction to Jacqueline or that she understood the transaction. Gloria had told Richard of her meeting with Terence and Jacqueline at which restitution and other options were discussed. She told Richard that she was opposed to restitution in the form of borrowing from him. She told Richard that Jacqueline said she would do anything to keep Terence out of gaol or along that line and that selling the house was not a problem because it was only bricks and mortar and she would do anything to keep them together, words to that effect.

Richard then referred to having collected the documents. When he got home he looked at them. They had not been correctly witnessed.

The next day was the plea hearing. Richard delivered the documents, and the restitution cheque, to Terence’s counsel.

I now refer to some evidence in Richard’s cross-examination. He denied a suggestion that the restitution money was a gift and that the primary purpose of the documentation being prepared was that it be available for the Judge on the plea to give an air of legitimacy to the transaction. He further denied that there was an underlying understanding that Terence and Jacqueline were not obliged to repay unless they received a windfall gain which enabled them to do so. Richard said that at the time he had an idea that Terence would “do some time” but hoped that he might not “but that was weighed against a possible eight year head sentence with four years on parole with no restitution”. Richard knew that in all likelihood Terence would not be able to make monthly payments. And it was the prerogative of the plaintiff whether to charge interest. He had no intention of charging them interest immediately.

Richard did not recall that the words in brackets in cl 1.2.1 of the loan agreement were inserted to cover the situation that being in gaol Terence would not have the capacity to make monthly payments. He assumed those words were part of a normal loan agreement that gave the lender the right to charge interest but did not make it essential for it to do so. Further, he could not recall whether at the time of the plea he understood that cl 1.2.1 also required payments of principal.

As to that, the first time he saw the documents was on 13 March when he collected them around 6.00pm. They were handed to him in a sealed envelope by Terence’s daughter Carly at the restaurant; Terence and Jacqueline were not present. That evening he looked at the documents to check the signing but did not read them then or the next morning before court.

Richard said that he left it to Hodgson to look after the plaintiff’s interests and trusted her to draw the documentation appropriately. He believed he had not seen a draft with the full loan agreement. He may have seen a draft of the schedule; I interpolate that that would be consistent with the schedule having been sent to him by Hodgson and subsequently having been sent to Hodgson from his facsimile number.

Richard said that his understanding of Jacqueline’s position, conveyed to him by his mother, was that Jacqueline was saying that she would do anything necessary in order to try and keep Terence out of goal or reduce his sentence.

Richard agreed that Terence had not made any payment and that the plaintiff had not commenced a proceeding for repayment.

Richard was asked some questions concerning discussions with Jacqueline’s father. Richard said the discussions mostly related to the state of the restaurant business. He did not recall discussing the loan or the exact repayment of it. He did not recall saying that he had no expectation of being repaid. He did not say he would not enforce the mortgage against Jacqueline’s property. They mostly talked about the business and preparing it for sale.

Finally, Richard did not recall asking Hodgson to ensure that Jacqueline receive independent legal advice on the documentation.

Hodgson

I have now referred to all of the plaintiff’s witnesses except Hodgson, who although she gave evidence first it has seemed to me to be convenient to defer reference to until now. That is because the other witnesses provide the context in which she was instructed to and did prepare documentation and acted as she described in her evidence.

Hodgson practices as a solicitor under the name Anne Hodgson and Co Lawyers at her home address in Carnegie. Richard first contacted her concerning this matter following Terence being convicted by the jury. He talked to her of money he had lent to Terence and of possibly lending further monies to assist with an attempt at restitution by Terence. Then or subsequently the amount of the restitution sum was discussed and it was decided that the lender would be the plaintiff and that the term of the loan be somewhere in the region of five to seven years. There were subsequent conversations, she thought around mid March but could not recall the precise date, in which there was discussion about security for the borrowing. The discussions were in line with a third mortgage being taken over Jacqueline’s house property and the restaurant called Taps at Mt Eliza owned by Terence and Jacqueline being sold and the proceeds used partially to pay the loan. She discussed with Richard whether to begin preparing documentation given that the conversation she was referring to was very close to 14 March and it was agreed that she should begin to prepare the documentation although she recalled that Richard was to go back and further discuss matters with Terence. Accordingly she proceeded to prepare documentation. She had a standard package of security documentation which included a loan agreement and mortgage together with other documents she referred to. In the course of preparing the documents she did not have a conversation with Terence or Jacqueline. She confirmed sending the letter with attached schedule to Richard on 6 March 2003, and the return of the schedule duly endorsed with information.

Then, the documents having being prepared they were collected from her office by Terence on 13 March 2003. She saw Terence when he came to the office, that was her first meeting with him. She had organised with him by telephone the day before that he would collect the documents. As to what she understood Terence would do with the documents there was a little confusion in her evidence, she first saying that he collected them on the understanding that he would organise execution but then almost immediately saying that he agreed in their telephone conversation and at the meeting in her office that he would organise execution of the documents. I can immediately interpolate that whether it was her understanding or an agreement with Terence seems to me to be of no significance. It is apparent, and I so find, that the purpose of Terence collecting the documents was to have them executed by Jacqueline and himself and that was understood by Hodgson and was accordingly the reason why the documents were delivered into Terence’s hands. Furthermore, Richard was aware that the documents were being handled in this way for the purpose of execution.

Sometime after 14 March Richard gave the documents to Hodgson. Looking at the mortgage of Jacqueline’s house property[6], she completed it by inserting the “14^th” as the date in March 2003 of the loan agreement and of the mortgage. Someone else had written the “13^th” as the date of the mortgage which she crossed out. Hodgson also inserted the 14^th of March 2003 on the annexure page to the mortgage. The document had been signed by Jacqueline and her signature witnessed by Terence. Hodgson could not recall if the mortgage had been executed by the plaintiff at that stage.
[6]See at Court Book 174.

The loan agreement also had been executed by Terence and Jacqueline witnessing the signature of the others. Hodgson did not recall whether it had been executed by the plaintiff.

The same manner of witnessing execution was true of the other documents enclosed with the 12 March 2003 letter, all of which were returned by Richard, in that they had been executed where required by Terence and Jacqueline and witnessed by the other.

Following the return of the documents Hodgson spoke to Richard stating that it would be preferable if an independent witness had attested execution by Terence and Jacqueline. Then, on Richard’s instructions, she sought to contact Jacqueline to have her re-execute the documents. She spoke to Jacqueline informing her that the documents needed to be properly witnessed and by arrangement Jacqueline attended at her office for that purpose on 1 April 2003. For this purpose Hodgson had arranged for a neighbour to attend to witness Jacqueline’s signature. Hodgson did not want to be the witness, because, as she said, she did not want it to be seen that she was in any way influencing Jacqueline’s decision to execute the documents. So, Hodgson said, she made it clear to Jacqueline that she was not her solicitor, that she was not acting for her. Hodgson said that Jacqueline appeared perfectly comfortable with this and, confirming her signature on the documents to Hodgson, the neighbour then witnessed her signature. Hodgson said that documents were the loan agreement, the mortgage, the security provider’s acknowledgement and consent, and the statutory declaration. Jacqueline also confirmed the answers to requisitions on title[7] and signed them dated 13 March 2003. I interpolate the finding that the answers had been endorsed thereon by Terence. I further note that in listing the documents which Jacqueline confirmed had been signed by her Hodgson did not refer to the other documents which Jacqueline had signed. Hodgson said that following this process of confirmation of Jacqueline’s signature and witnessing, she had a conversation with Jacqueline. She explained that, as with her, Terence needed to have his signature re-witnessed. Jacqueline agreed to give Terence the documents to resign when she visited him in gaol and she would return the documents. For this purpose she took the necessary documents. Hodgson said that the documents were never returned to her although in subsequent conversations Jacqueline promised to do so.
[7]See at Court Book 160-162.

Further as to the conversation on 1 April, Hodgson said that they spoke about the sale of the house and whether there was anything an estate agent might recommend Jacqueline do to enhance the property to increase its value for sale. Her recollection was that Jacqueline was meeting with friends who Jacqueline indicated were an accountant and an estate agent either that day or the next in respect to putting the house on the market and in relation to the sale of the restaurant.

Hodgson said, further to the matter of returning the documents executed by Terence, that she spoke to Jacqueline on occasions, wrote to her for return of the executed documents and provided a further set of the documents when Jacqueline said she had lost the documents provided in April. The letters were sent as follows. On 1 July 2003 Hodgson wrote enclosing an express post envelope and requested the return of the documents urgently[8]. On 11 July 2003 Hodgson wrote to Terence and Jacqueline forwarding a copy of her letter dated 12 March 2003 and the documents contained in that letter and a self addressed express post envelope for use in returning the documents to her[9]. Hodgson recalled that at one time Jacqueline told her that the documents were with her accountant and, at another time, that following moving house the documents had been lost. That was when she sent the further copy. The documents were never returned. To circumvent this Hodgson gave Gloria copies of the documents to be signed by Terence and these were duly signed by him, dated 19 July 2003 and duly witnessed.
[8]Court Book 292.
[9]Court Book 298.

I turn then to cross-examination of Hodgson. She confirmed that she had one telephone conversation with Terence before the date on which he collected the documents and that was to organise collection of the documents for execution. In the course of that conversation she had some discussion with him about loans in respect to the business to get an idea of the value of the security being offered. In arranging that Terence would collect the documents from her office he gave as the reason that it would be difficult for Jacqueline to get away from the restaurant and that it would be easier for him to pick them up and take them back to her. Hodgson said that the first time she spoke to Jacqueline was after Richard returned the documents to her. She understood that Richard was aware that the arrangement was for Terence to collect the documents from her on 13 March 2003 for execution and she was aware that Richard would collect them on his way back from Portsea and deliver them to her at some stage.

She had placed on the documents signing tabs to indicate where they needed to be signed. I interpolate that it was clear from her evidence overall that this was so and I find it to be the fact.

As to either Jacqueline or Terence having legal advice in respect of the documents, Hodgson said that he collected them at twelve noon on the day before the plea and that it would have been possible to get legal advice if he had chosen. The arrangement for collection was made late on the previous day.

Hodgson said that she believed that she said to Terence that Richard asked for evidence and details of the property and the restaurant being on the market and that he said he would get that evidence to Richard. She was aware that the house was in Jacqueline’s name. She made no contact with her to ascertain whether or not the house was on the market or was going to be.

Turning to the conversation with Jacqueline on 1 April 2003 Hodgson agreed that she did not take any step to ascertain whether Jacqueline had sought independent legal advice in relation to the transaction. She explained that the re-witnessing of the documents was to avoid an argument over valid execution.

On 24 July 2003 she lodged the caveat dated 14 March 2003 on Richard’s instructions in view of the time it was taking to get the documents executed. When the caveat was lodged the ground of claim stated in it was amended by her clerk [10].
[10]As amended the ground is “Pursuant to a Loan Agreement dated the 14^th day of March 2003 between the Caveator (as Mortgagee) and Terence Andrew Bouris of 25 Cliff Road Frankston Victoria 3199 (as Mortgagor)”.

Further as to the conversation with Jacqueline on 1 April, Hodgson said that they talked about what was happening with the sale of the house and the restaurant and Jacqueline told her she was seeing an estate agent and an accountant that day or the next in relation to those matters. She agreed that what Jacqueline said was that she was seeing an accountant in relation to the business, both in relation to the sale of the business and fixing up the books of the business, and that that accountant had a wife who was a real estate agent. She denied that that was raised in the context of the business and not the house because they also had a conversation about what she might do to make the house property more saleable. Hodgson said that she said to Jacqueline to talk to the estate agent about that so that she could maximise the value upon sale.

Hodgson then said that her first conversation with Richard about the possibility of a loan occurred in late February, and about two weeks later in early March she received instructions to prepare documents.

Finally, on it being put to her that on 13 March she had given the documents to a convicted thief for him to arrange execution Hodgson said that “It was a family arrangement”. It was then put to her that she did nothing to ascertain that Jacqueline got an explanation in relation to the transaction, to which she replied that she was not her client. On being further pressed she agreed that she had done nothing more to ascertain that Jacqueline got legal advice in relation to the agreement and the whole arrangement and that she had put the documents into the hands of a convicted thief to get them executed.

In re-examination Hodgson identified a diary note of her attendance on Jacqueline on 1 April and read the relevant entry. That part of the diary note commenced “House and Restaurant” and reads as follows:

“Friends – A/ct and estate agent seeing them for advice tomorrow. House is tenanted $290 - $320k valuation of house by letting agent. I suggested she ask agent anything to do to improve it for sale e.g. garden to add value to the property for sale. Res on market. Jacquie’s father tidying up books. Tax owed, super owed. On table $220k. Would consider $170k plus stock. A party interested. She will get a cheaper place to rent herself.”

Hodgson said that she made the note during the meeting or finished it immediately.
Jacqueline

I turn now to the evidence of the defendant and her father.

Commencing with Jacqueline and picking the story up at the point when Terence came home on the day on which the jury had found him guilty, that night they discussed the verdict and the trial. Jacqueline said that they discussed "the disbelief in the verdict, how could this happen, what went wrong? We discussed what the next stage was in this whole process". Terence told her there was a plea hearing two weeks away, that he needed to gather references for the plea, "that his legal team had suggested to him that they somehow now say that he had a gambling problem as his excuse for taking the money", and they also suggested that he repay the money as the judge would look favourably on that. That night or the next day Terence said that Richard had offered to repay the debt for him. When he made that suggestion, knowing that Richard had already funded the trial, Jacqueline asked Terence how they were ever going to get the money back to him. Terence said that Richard would never place any demands that the money be repaid, that Richard only required the money to be repaid if they had a windfall or did well out of a business, then they would be obliged to repay him.

Jacqueline then gave evidence about the meeting at her mother in law's house at which Terence and her children were present. They gave the children something to occupy them because they were not aware of the situation at the time. As to the length of the discussion, Jacqueline said they were there for about an hour all up. They discussed the options that they had. That was appealing the case, which could mean that Terence could be in gaol while awaiting the appeal. Again, they discussed how this could happen. Terence's mother believed him and was most upset by it all. They discussed accepting Richard's offer to repay the money for Terence. As to Richard's offer, they discussed in fairly general terms how they would be able to repay Richard. The restaurant was already on the market. She did not know what it was worth at the time, she did not know what the outstanding debts were of the business and so she did not know if there would be any money left from the business to give back to Richard. They discussed the possibility of selling her house, and what Terence and she would do after he got out of gaol, if that was what was going to happen.

Jacqueline remembered that the discussion took place about a week after the guilty verdict. At that stage, Jacqueline said, she had not at all come to terms with the verdict.

Further as to the discussion at Gloria's house, Jacqueline said that Richard's solicitors or legal team had suggested that if they were to suggest this offer and make restitution some sort of a loan agreement would need to be set up to provide to the judge at the plea hearing to basically just say that this was a loan and it was not one brother helping another. She said that there were no discussions about any terms or conditions that would be contained in the loan agreement, no discussion about her providing a mortgage, no discussion about her house being sold as a condition of repaying Richard, and nothing was decided at the conclusion of the discussion. Jacqueline said that she guessed it was "just a discussion to see how everyone felt about the matter and it was really up to Terry and I to decide and we didn't decide on that day."

Jacqueline was then asked whether she subsequently decided what she was going to do to which she replied "I believe we did but I don't know when. I have no clear memory of when we actually said we will accept Richard's offer." She did not recall any further lengthy discussion with Terence about Richard's offer and what it would entail for them. She did not recall making a clear cut, defined decision with Terry to go ahead with the offer. As to whose decision it was to go ahead with the offer, Jacqueline said she "thought it was both of ours but I'm not I just don't recall ever making that actual decision, yes, this is what we will do." She said that she did not instruct anyone to do anything in order to put the offer into effect. After the discussion at Gloria's house the only discussions she had about repaying any money advanced by Richard were with Terence. Those discussions were "Just in general that if we were to accept Richard's offer, yes, we would have to repay if we had a windfall or, as I said, did well out of a business. He assured me that Richard would not place any demands on us to repay the money.” She said that between the guilty verdict and the plea hearing she did not have a discussion with Terence or anybody else about her needing to provide a mortgage or about putting her house on the market, and between those dates she had no discussion with Richard Bouris.

Jacqueline said that she first became aware that there would be some documentation drawn up about the arrangement the day before the plea hearing when Terence came to the restaurant in the afternoon saying that they needed to sign some documents for the Court tomorrow. She said that Terence said that they needed to be provided to the Court to say that he was borrowing the money from Richard for restitution. He assured her that they were purely for the Court to show that it was not just a gift, that it was an actual loan and that he would be required to repay the money. She was not aware of what documentation he brought to the restaurant. After Terence came into the restaurant and told her what needed to be done he said that he wanted it done now because Richard is coming to collect them for court tomorrow from here and he did not want to be here when Richard got there. He did not say why he did not want to be there. They went about signing the documents in the following way – they sat down at a small table at the back of the restaurant, Terence sat on her right, he flicked through the documents, he signed and then passed them to her and said "you need to sign here". The documents had yellow "sign here" stickers marked throughout them which identified where they were to be signed. Terence shuffled the paper over to her and said "you need to sign here, you need to witness me here" and they went through the documents like that. The process took about 10 minutes. Jacqueline said that she did not read anything and was not aware of what she was signing. She said that Terence told her that it was to legitimise the restitution amount that Richard was paying for him. She said she had not seen drafts of any of the documents before that day. This occurred in the afternoon, she was guessing maybe three o'clock, she had to pick her children up at 3.30 p.m.

He referred to matters which Jacqueline had advised him of when he came to Melbourne. As to restitution, she said that Richard had put up the money to make restitution. She did not say anything about the circumstances and conditions of the restitution. He became aware of conditions in relation to the restitution in the following circumstances. Within a fortnight of the sentencing he had gathered some papers together and needed answers concerning the accounts. When Jacqueline went to see Terence at gaol at Shepparton she took his papers. She also had some papers for Terence to sign. When she returned the next day she gave Donald “the invoice and everything and questions” that he needed answered, and she was in the kitchen making dinner when he heard her say words to the effect that he has done it again. When he inquired, she said that he had not signed the document or this document properly and when he inquired she handed him "the deed". Donald said that it was called a deed of arrangement, he was not sure of the contents but he went through it and became aware that there was an agreement in place that balanced off what Richard had paid to the court, Terence was due to pay back to him at a time Richard could decide. Donald said that he became disturbed about the contents "because it was the first time I'd ever seen anything like this and – and I said, well, have you had any advice on this issue and she said no." He said he was asking her from a personal point of view whether she had received legal advice herself and she said that Richard's solicitor prepared the deed and she had had discussions with her about it. He discussed the ramifications of the document with Jacqueline, it seeming to him that she lost all the equity in the house, what little she had at that time. Her response was to ask to be shown where it said that and he did. Her reaction was that it was just a bit more on top of what she was already landed with, because at that time the issue was financial and her husband was not there. He said there were financial problems with the restaurant and this was not a major issue at that time.

Donald then gave some brief evidence of discussions with Gloria and Richard. One night when Gloria came over to Jacqueline's house, 14 or 15 days after the sentencing, he raised the question that there was a deed and Gloria said that the deed was there but it was not going to be binding on Jacqueline, it was an agreement between Richard and his brother that Terence would always pay back Richard. Donald said that he asked why the deed had to be put in place and Gloria said that it was to do with the sentencing.

Then, some months after the sentencing he met Richard and they discussed primarily the financial circumstances of the restaurant. Donald said that Richard did not push that he wanted his money, he said he would discuss repayment with his brother when he got into a suitable environment to be able to repay him.

Finally, Donald had a number of telephone conversations with Terence while he was in gaol as a result of being on the list of numbers that he could make calls to. Terence never discussed repayment of the restitution and never suggested that Jacqueline would lose the house because of the deed that was in place.

There was some brief cross-examination of Donald. First, it was put to him that Gloria had not said what he had described, with which suggestion Donald disagreed.

Donald was then asked as to when he was in Melbourne in April 2003 assisting Jacqueline with problems arising from the state of the accounts of the restaurant, he was aware that the restaurant was on the market for sale. He replied that he thought it had been put to the accountant to investigate putting it on the market but there was nothing in place when he was there for it to be for sale. There was discussion of it but he did not think there was any agreement in place as such because he did not recall seeing it. He was asked if Jacqueline had in mind a price to put on the restaurant and replied that she had some idea but it was all airy-fairy, ranging between $150,000 and $300,000, and added that until people had a grasp of the financials they could not put a proposal. He recalled a discussion about a price of $170,000 plus stock. He said that Jacqueline and himself never discussed an actual price, they were trying to arrive at the net value of the business. The price of $170,000 plus stock was offered from the party trying to sell the property, that is, it came from the agent who said "Perhaps we can get this price." He was not told by the agent or anyone that there was a party interested in purchasing the business.

At the same time in April he discussed with Jacqueline selling her house in Koetong Parade, but only as part of a consolidation to see where she might end up. She might have to sell everything. She did not tell him anything about meetings with estate agents with a view to placing the house on the market. He would have asked her how much the property was worth.

Donald said that the document that Jacqueline brought back from her visit to Terence in prison as to which she complained about the way he had signed was in the vicinity of twelve to fifteen pages he thought. It definitely was not one or two pages. Terence had not signed the document and he thought Jacqueline had not. He did not know what became of the document.

It may have been in late June when he had a conversation with Richard. In that conversation Richard offered to help sort out the financials of the restaurant. He wanted to do that so it could be sold. Donald disputed that Richard did not discuss the question of repayment of his loan.

Donald was then asked a couple of questions in re-examination concerning the discussion with Richard. He said that there was discussion about what would happen with any proceeds from the sale of the restaurant, Richard was acting on behalf of his brother to see if there was any left for Terence at the end of the day.

Decision

It is convenient to commence by identifying the area of disputation. While the real issue in the case is whether the defendant is bound by the mortgage, there is a separate issue concerning the declaration sought by the plaintiff.

On the plaintiff’s claim the defendant has a fall-back position. That is that the plaintiff’s caveat should be ordered to be removed. The submission runs on these lines.

(a)The proceeding was commenced, in accordance with s.89A(3)(b) of the Transfer of Land Act, to substantiate the claim of the caveator in Jacqueline’s property at 102 Koetong Parade, following the defendant’s application under s.89A for the removal of the caveat. On being advised of the commencement of the proceeding, the Registrar of Titles advised the defendant’s solicitor that no further action would be taken on her application. The caveat thus remains on title.
(b)The caveat has a fatal flaw. While it correctly claimed an equitable interest as mortgagee, the mortgage not having been registered, the stated ground of complaint was misconceived. It refers to a non-existent mortgage. It states that the claim is pursuant to a loan agreement dated 14 March 2003 between the caveator as mortgagee and Terence as mortgagor. Terence, of course, was not the mortgagor of the subject property. The defendant was the mortgagor, but that mortgage is not referred to in the caveat.

(c)       Hence:
·     The caveat was not maintainable against the defendant’s land and it should be removed.
·     The proceeding was not one to substantiate a claim over the defendant’s land.
·     The allegation in the statement of claim that the defendant disputed the claimed equitable interest was correct in fact and as a matter of law. Therefore, there was not and could not be any issue between the parties and the proceeding should be struck out.

It should be noted that following these points being made by counsel for the defendant at the outset of the case, the statement of claim was amended. The amendments included pleas that by the loan agreement the defendant promised to provide the plaintiff a mortgage over her property, and that by reason of the loan agreement or the unregistered mortgage given by the defendant the plaintiff was entitled in equity to an estate or interest in the land as mortgagee. There remained the original allegation of the caveat in which the plaintiff claimed an equitable interest in the defendant’s property which interest the defendant disputed. The amendment served only to make even clearer, in combination with the defence and the reply, that the real issue concerned the mortgage.

Nothing further was heard of these contentions of counsel for the defendant until the very end of his final address when he submitted that the estate or interest claimed in the caveat had not been substantiated and that, at the very least, there should be an order that the caveat be removed under s.89(7)(a) of the Transfer of Land Act.

This submission was responded to by counsel for the plaintiff as follows. First, if the mortgage was not “vindicated” by the judgment the caveat will not have been “vindicated” and may be removed by order under s.89(7)(a).

Then, secondly, if the mortgage is held valid the caveat should not be removed on account of the alleged false interest claimed in it. There was no difference between the equitable mortgage created by the loan agreement, which was a promise to give a mortgage, and the execution of a form of mortgage collateral to that mortgage. There was only one equitable interest as mortgagee, created by the loan agreement and assured by the mortgage itself. Hence, the proceeding was one to substantiate the same estate or interest that the caveat was intended to protect.

Moving from there, the question then was whether the error in describing Terence as mortgagor, and possibly in referring to the loan agreement rather than the mortgage, was fatal to the caveat. It was submitted that that consequence did not follow. There was no intention to claim an estate or interest created by some equitable mortgage from Terence as mortgagor. There was an obvious misdescription of the mortgagor but the intended estate or interest did exist. It was not a case of an estate or interest that did not exist, as in M. L. Johnston & Sons Pty Ltd v Ostrek Pty Ltd[16], the only case relied on by counsel for the defendant, and counsel for the plaintiff referring to no authority but submitting that if the mortgage was valid the caveat should remain. I would add only this, that the caveat would surely require to be amended, assuming that it was within the scope of the authorities to permit amendment[17]. I add further that there would require to be considered the question whether, even if the caveat was ordered to be removed, it was appropriate to grant the declaration.
[16](1992) V Conv R. 54-441.
[17]Midwarren Estates Pty Ltd v Retek and Stivic (1975) VR 575.

Having identified the contentions that arise from the misdescription in the caveat I turn to the fundamental issue for determination. That is whether the defendant can establish ground for declaratory relief to the effect that the mortgage is not binding on her. If the defendant fails in this endeavour the plaintiff will be entitled to the declaration it seeks, subject to the matters referred to above.

Submissions

As mentioned earlier, the defendant’s case was based primarily on the equity on which Garcia was decided, although the Amadio basis was also relied on. Understanding the plaintiff to rest on Garcia, counsel for the plaintiff addressed himself to that case in his final address until, as mentioned earlier, counsel for the defendant said he also relied on Amadio.

If I may say so, the concentration on Garcia was appropriate in light of the circumstances of the case. I add that counsel did not differ on any matter of principle, the case was treated as one to be decided on its facts in light of the relevant principle. In these circumstances it is not necessary to engage in a review of the authorities. I was referred to Garcia and Amadio and, in addition, Bank of Victoria v Mueller[18] and Yerkey v Jones[19]. Without overlooking any other passage in the authorities counsel for the plaintiff took the convenient course of referring to the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ in Garcia at [31] which follows a discussion of and a quotation from the judgment of Dixon J in Yerkey[20]. This was where Dixon J distinguished between two kinds of case, the first being where a husband exercised actual undue influence over a wife to procure her to be his surety, and the second “in which there is no undue influence but there is a failure to explain adequately and accurately the suretyship transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband, or the circumstances in which her liability may arise”[21].
[18][1925] VLR 642.
[19](1939) 63 CLR 649.
[20]At 684-686.
[21]Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 404-405 [23].

Their Honours then said, at [31] and [33], that:

“[31] The principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:
(a)in fact the surety did not understand the purport and effect of the transaction;
(b)the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);
(c)the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d)the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
[32]…

[33] It will be seen that the analysis of the second kind of case identified in Yerkey v Jones is not one which depends upon any presumption of undue influence by the husband over the wife. As we have said, undue influence is dealt with separately and differently. Nor does the analysis depend upon identifying the husband as acting as agent for the creditor in procuring the wife’s agreement to the transaction. Rather, it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction’s purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable.”

Counsel for the plaintiff submitted that the present case was not a Garcia type case because, of the four factors referred to in the passage quoted above, (a) and possibly (d) were not satisfied. As to (b) it was effectively conceded that the defendant was a volunteer, there having been no financial benefit to the defendant, although with a faint argument of benefit in the possibility of a reduced sentence and having Terence home and working earlier than might otherwise have been the case without restitution. As to (c) it was conceded that it was satisfied. As may be gathered from this summation the principal submission of the plaintiff was that Jacqueline understood the purport and effect of the transaction. The submissions as to (a) and (d) were put in the following way.

At the outset it was said that any supposed harshness to Jacqueline should be seen in context. Richard only offered the loan because in the limited time available Terence and Jacqueline were unable to raise the funds for restitution. It is thus seen that Richard came to the aid of his brother and his wife. So understood, there was no harshness in the plaintiff demanding the sale of assets to fund repayment to the extent they could with a timeframe for payment of the balance of seven years.

Counsel next addressed the question of Jacqueline’s state of awareness of what was involved in the transaction. Counsel’s approach was to emphasise that “the basic commitment” of Terence and Jacqueline was to proceed with the sale of the assets to finance the restitution. On that basis the mortgage did not add anything but a degree of enforceability to the basic commitment which was to sell the assets and pay the proceeds over. Counsel then turned to the evidence to seek to make the submission out, first noting that there was a conflict of evidence as to what was said at the meeting between Terence, Gloria and Jacqueline.

Counsel first said that I should not act on uncorroborated evidence of Terence. He was a convicted fraudster who had an interest to keep himself out of gaol for as long as he could, and there was an immediate tension between his personal interest and the interest of his wife and her assets.

As to Gloria, counsel said that the most important part of her evidence was the account of the meeting. Contrary to the submission of the defendant’s counsel that her evidence was vague yet became clear when it got to matters that helped the plaintiff’s case, counsel submitted that her evidence was clear and definite. The meeting was important, she prepared what she was going to say, and she was against the restitution proposal. Thus, it was submitted, reliance could be placed on her evidence. The effect of the submission was that where there were conflicts between her evidence and Jacqueline’s, I should prefer the former as being more likely to be correct on the balance of probabilities. Counsel then addressed submissions as to the discussion with Gloria.

If, counsel said, the matter was regarded from the way Gloria put it, the tenor of the conversation was inconsistent with Jacqueline and Terence being under no more than a moral obligation to repay the monies advanced. He relied on Gloria’s statement that she was against the proposal because they would have nothing when Terence got out of gaol. The only reasonable interpretation of that was that she was referring to the house and business having been sold to repay Richard and that, apart from the small wine business, represented their equity. It was improbable that Gloria would have made that statement if she had thought that there was no legal obligation to repay, and that repayment would be made when Terence and Jacqueline felt able to do so. If Jacqueline had thought there was no legal obligation it was strange that she did not say so at the time.

In these circumstances, said counsel, it should be concluded, on the balance of probabilities, that Jacqueline did not misapprehend the extent of the obligation. Thus understood it is seen that Terence, Gloria and Jacqueline were discussing the serious ramifications of “the very transaction in the broad, that found its way into the terms of the loan agreement”. That is, counsel said, insofar as the transaction involved the key elements of repaying Richard from the proceeds of sale of the house and the business, that was clearly known to them.

Counsel then made clear that he relied upon Gloria’s evidence to establish that Jacqueline understood the purport and nature of the transaction which was, primarily, the commitment to use the assets to repay the loan. The mortgage was a collateral and incidental security that made the commitment more enforceable but did not alter the nature of the commitment. Then, as to whether the word mortgage was used or discussed, “there was little to go on”. Gloria said that mortgage or caveat was referred to at the meeting, and only caveat in her earlier conversation with Richard. It was submitted that I could infer that mention was made of a mortgage or a caveat but, counsel conceded, it was clear that it was not a central feature of the discussion.

Turning then to element (d) in Garcia counsel conceded that the plaintiff did not take steps to explain the transaction to Jacqueline but nevertheless submitted that the element was not satisfied because the plaintiff (by Richard) found out that a stranger (Gloria) had explained the transaction to Jacqueline. To establish this submission counsel relied on the evidence of Richard and Gloria as to their conversation concerning her meeting with Terence and Jacqueline. Counsel conceded that there was not much in the evidence as to what was said, but Gloria had said that she told Richard what she had said at the meeting. It was enough that Gloria had pointed out the disadvantageous features of the transaction, namely the loss of the equity in their assets.

For these reasons, the case based on Garcia failed, the defendant did not satisfy factor (a). Factor (d) was “a fall-back position”.

A little later counsel made some submissions about Jacqueline’s evidence. It was a feature of her evidence that her recollection failed her at crucial points. Examples were her failure to recall the nature of the discussion about documentation and being surprised when the documents arrived, and not recalling her statements about not caring about the house, that it was bricks and mortar.

Then, on counsel for the defendant saying that he also relied on Amadio, counsel for the plaintiff addressed some very brief submissions as to why the defendant could not succeed on that basis, which were responded to with equal brevity by counsel for the defendant. He submitted that Jacqueline’s special disability arose in the situation she found herself in following the conviction of her husband and relied on matters in the amended defence. I do not consider it necessary to refer to all that counsel said on this aspect. I will return to it if necessary.

Nor do I find it necessary to set out the submissions of counsel for the defendant in the way that I have the submissions of the plaintiff’s counsel. I do not disregard them, they are on the transcript. Essentially, the submissions of the defendant’s counsel related to the Garcia case and were brief in directing themselves to the facts.

Decision

It is first necessary to say something about the witnesses. I have sufficiently commented upon Terence’s lack of credibility and the realistic concession of counsel as to that. It is unnecessary to repeat what has been said already but it is important to recall that he is a convicted fraudster who had a conflict between a natural desire to spend as little time as possible in gaol and the interest of his wife in the financial security of herself and her children. I take those matters into account in considering his evidence and the evidence of Jacqueline. Where their evidence is in conflict I prefer her evidence. I should say further that I would not accept evidence of Terence merely because it might be consistent with or corroborated by evidence of a witness other than Jacqueline. That is for the fundamental reason that such evidence may be in conflict with evidence of Jacqueline which I prefer and the facts as I find them to be.

I found Gloria to be an honest witness. At the same time, her evidence was vague due to lack of recollection as, for example, as to whether the word mortgage was mentioned. This was a crucial aspect. I find that it was not mentioned. I find too that altogether too much was sought to be wrought out of the defendant’s words as to bricks and mortar and that it was only a house.

Richard too, I found to be an honest person, but suffering an evident and unsurprising lack of memory as to the content of his telephone discussions with Gloria as to which no contemporaneous record was produced. Regarding his evidence, where he had an obvious difficulty with memory as to his conversation with his mother prior to her meeting with Terence and Jacqueline, and regarding that of Gloria and having regard to the early stage at which they spoke, and having regard to Jacqueline’s evidence as to the discussion at the meeting, I am not only not satisfied on the balance of probabilities that the word mortgage was used but I find that it was not used in those conversations between Richard and Gloria. It is pertinent to note that notwithstanding an order that witnesses be out of court Richard, taking advantage of his position as a director of the plaintiff, sat in court throughout the giving of the evidence of the plaintiff’s witnesses and was the last witness for the plaintiff. He thus had the opportunity to hear the witnesses and the cross-examination before he gave evidence.

It is further to be noted about Richard, who has been successful in business, that he took the course of not speaking to Jacqueline and took no step to have an independent person such as a solicitor speak to her to see that she understood the nature and effect of the transaction she was undertaking by the documents she was to sign. Yet the precariousness of her position was obvious on his understanding of the transaction. He would also have understood the nature of Terence, and the tendency of his character, that Jacqueline was a much younger person, and that Terence had a strong personal interest that was in conflict with Jacqueline’s interest in her personal financial security. In these circumstances he left the preparation of documentation to Hodgson who deliberately did not advise Jacqueline in any respect.

Hodgson acted on the instructions of Richard in the preparation of the documents. She did not act for Terence and Jacqueline and deliberately gave neither of them advice as to the transaction or the documents. She was quick to say, when pressed as to her having been prepared to give the documents to a convicted thief to arrange execution, that it was a family arrangement. Of course Jacqueline was not her client but there was no suggestion that Terence and Jacqueline had solicitors acting for them and being realistic, with the documents required for court the next morning, there was precious little time or likelihood of them together, let alone Jacqueline separately, engaging a solicitor, obtaining advice, and having any necessary negotiation concerning the documents. Yet Hodgson must be taken as being aware of the principles of law concerning a wife being surety to her husband, particularly where the husband was a fraudster and the purpose of restitution was to achieve a reduction in his sentence. The consequence of this may be described thus: Richard, I find deliberately, did not speak to Jacqueline and instructed Hodgson who deliberately did not advise Terence or Jacqueline because neither was her client. Yet the internal conflict was obvious to her, I find. I accept that she was entitled to take the attitude she did but the result was as I have described.

As to Hodgson’s conversation with Jacqueline on 1 April 2003, in my view far too much was sought to be made of this. On the one hand was Hodgson who knew exactly her instructions and the nature, terms and effect of the documents she had prepared. On the other hand was Jacqueline who did not have that knowledge or awareness. Each approached the conversation from a totally different position. Furthermore, as I find below, Jacqueline had signed the documents having been misled by Terence as to the arrangement and did not know that the documents included a mortgage.

Jacqueline impressed me as an honest and reliable witness. She attended carefully to questions, was articulate and answered responsively. It was a considerable advantage to observe her in this respect. Also noticeable was the manifest distress which recounting some of the events caused her and which reflected the trauma of the time. In particular her description of the events of the day when Terence was sentenced and the realisation of gaol struck into her was compelling and sad.

The final witness was Jacqueline’s father who was obviously honest and gave evidence from his best recollection.

I accept Jacqueline’s evidence of the relevant events. I find that throughout the period from Terence being convicted to the plea hearing and subsequently Jacqueline was upset and distressed. Her husband had falsely led her to believe in his innocence, a belief she doubtless desired to have in believing in her husband, and suddenly the situation changed. I find that they were a loving couple and that Terence had taken the role of a loving father to her children following her recent broken marriage. The discussions that followed the conviction occurred in a short time in highly distressing and emotional circumstances. I find that at the meeting at Gloria’s house no agreement was reached to go down the restitution path. I find that there was a discussion of pros and cons and what that path may mean in their being a loan to repay Richard. I accept that in the discussion Jacqueline made statements to the effect that it was only a house and bricks and mortar. I do not accept that those statements reflected that an agreement was then and there made to accept Richard’s offer, of course it was not, and if and to the extent that Gloria so passed on those remarks to Richard as reflecting an agreement she misrepresented the situation. I find the probability and the fact to be that the comments made by Jacqueline to that effect were made in the course of a discussion undertaken in emotional circumstances that was not addressing an agreement as reflected in the ultimate documentation but in the context that if there was a loan there would be an obligation to pay Richard one day and in that sense that one day the house may be sold. As to the business, Terence and Jacqueline had already decided to sell it. Otherwise Jacqueline’s apprehension of the situation was as she stated. Further, a mortgage was not referred to.

To be clear too I accept Jacqueline’s evidence that Terence told her that if they accepted Richard’s offer they would have to repay the loan if they had a windfall or did well out of the business, and that Richard would not place a demand on them to repay the money. I find that Jacqueline had this understanding in her mind up to and when she signed the documents.

Furthermore, I accept Jacqueline’s evidence as to the signing of the documents on 13 March 2003. I find that the manner in which the documents were presented to her, and the speed with which they were signed, resulted in her not being aware of the nature of the documents let alone their terms and effect. That includes the loan agreement, mortgage and the security provider’s acknowledgement and consent. Then, I accept that she was not aware of the references to the documents during the plea. Not only were the references short but I find that the occasion was a traumatic experience for her in which she was not aware of particular words, at least to that extent.

I have regard to all that was said by counsel for the plaintiff. Nevertheless, the fact is that Jacqueline was not aware that the documents presented to her, and which she signed, included the mortgage of her property. A mortgage was not mentioned at the meeting with Gloria and Terence or thereafter prior to the signing. Further, she was led to signing the documents by Terence’s statements as to the circumstances in which Richard would have to be repaid. Of course there had been reference to a loan agreement but Jacqueline had never been told what it contained or received any advice as to its terms. It is apparent from earlier references that the loan agreement is not a simple document and was something upon which Jacqueline would have required advice to properly appreciate the risks she was undertaking under it and the mortgage. It is in my view quite artificial and overly simplistic to seek to separate the mortgage from a consideration of whether Jacqueline understood the purport and effect of the transaction. Manifestly, on the facts as I find them to be, she did not and could not have. The discussion at the meeting at Gloria’s house was relied on for that purpose but properly understood it was no more than an initial discussion, devoid of the legal obligation and detail contained in the signed documents, and at which a mortgage was not mentioned, and as to which further advice was not provided prior to the documents being signed. The defendant had no understanding of the nature and terms of the documents or the several obligations and risks she was undertaking by the transaction.

The plaintiff’s claim is based on the mortgage. I find that the plaintiff signed that document without understanding that she was signing a mortgage and without understanding the purport and effect of that document or the other documents signed at the same time. I further find that she was a volunteer, the suggested benefit to her not being of a financial character. In view of the concession as to factor (c) in Garcia the remaining issue under that authority is whether the plaintiff found out that a stranger had explained the transaction to Jacqueline. To establish this the plaintiff relies on Gloria’s conversation with Richard following her meeting with Jacqueline. However, in my view, it follows from the above findings that what Gloria conveyed did not and could not constitute the plaintiff finding out that Gloria had explained the transaction to Jacqueline. For one thing there was not a mention of a mortgage let alone an explanation of the suite of documents that came to constitute the transaction or their terms. Gloria was not aware of them save for referring to a loan agreement and possibly a caveat. Further, Gloria’s account of her conversation was general and insufficient to enable Richard, objectively considered, to form the view that the transaction had been explained as it came to be represented in the documents and, in particular including the mortgage sued upon.

For these reasons the defendant has established her case based upon the principles in Garcia. It follows that in lieu of the declaration sought by the plaintiff there should be declarations that the mortgage between the defendant as mortgagor and the plaintiff as mortgagee and dated 14 March 2003 is not binding upon the defendant, and that the plaintiff is not entitled to an estate or interest in the defendant’s property as mortgagee under the said mortgage. There should also be an order that the caveat be removed.

In these circumstances it is not necessary to consider the alternative defence based on Amadio.

I will hear counsel on the form of the orders and as to costs.

[2006] VSC 49

23 February 2006