Russo v Buck & Ors - [2006] SASC 380

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
RUSSO v BUCK & ORS
[2006] SASC 380
Judgment of The Honourable Chief Justice Doyle
19 December 2006
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - MISREPRESENTATION OR NON-DISCLOSURE
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT - EXTENT OF LIABILITY
EQUITY - GENERAL PRINCIPLES - REMEDIES AND PROCEDURE - RATIFICATION, AFFIRMATION AND WAIVER
The plaintiff claims orders to the effect that he is not bound by two loan contracts as between himself and Mr and Mrs Buck nor by a second mortgage purportedly given by him as security for loans – the first loan contract makes the plaintiff liable for 80,000 dollars – the plaintiff claims he was in substance a guarantor and not a borrower – the plaintiff claims he was mislead or confused as to the content of the contract he signed - the plaintiff claims the second loan contract, being an extension for 70,000 dollars, is a forgery and of no effect as between himself and the first and second defendants – the first to fourth defendants denied they had mislead or confused the plaintiff in respect of the first loan contract – the first to fourth defendants denied the second loan contract was a forgery and argued that if the document was forged the forgery was ratified by the subsequent actions or omissions of the plaintiff – the fifth defendant Mr Buttigieg gave evidence that he witnessed the forgery of the second loan contract – the plaintiff gave evidence corroborated by another witness that he was in New South Wales at the time of the alleged forgery – the plaintiff’s claim as to misleading and deceptive conduct or conduct contrary to the Fair Trading Act 1987 (SA) fails – the plaintiff’s claim against the third and fourth defendants fails – the first loan contract is valid and enforceable against the plaintiff as borrower – the second loan document is a forgery – the fifth defendant Mr Buttigieg did not forge or arrange for the forgery of the loan contract as an agent of the plaintiff – the plaintiff did not by his actions or omissions ratify the conduct of Mr Buttigieg – on that basis the purported contract for a loan of 70,000 dollars is of no legal effect as between the plaintiff and the first and second defendants and the plaintiff’s claims succeed in part on that basis.
Fair Trading Act 1987 (SA) s 54, s 56, s 57, s 85; Misrepresentation Act 1972 (SA) s 7, referred to.
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Harrisons & Crossfield Ltd v London & North-western Railways Company [1917] 2 KB 755; Shell Company of Australia v National Shipping and Bagging Services Ltd [1988] 2 Lloyd's Rep 1; Blair v Curran (1939) 62 CLR 464; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; New Brunswick Rail Co Ltd v British and French Trust Corporation Ltd [1939] AC 1; Kok Hoong v Leong Cheong Kweng Mines [1964] AC 993; Homestart Finance v Johnson (2003) 231 LSJS 447; Rowe v B & R Nominees Pty Ltd [1964] VR 477; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Company Pty Ltd [1975] VR 607; Pagnan v Feed Products Ltd [1987] 2 Lloyd's Rep 601; Hume v Munro (1942) 42 SR(NSW) 218; Morlend Finance Corp (Vic) Pty Ltd v Levine [1990] VR 205; Angel v National Australia Bank Ltd (2001) ATPR 41-832; AGC (Advances) Ltd v West (1984) 5 NSWLR 590, discussed.

RUSSO v BUCK & ORS
[2006] SASC 380
Civil

DOYLE CJ: In this action Mr Russo claims orders the effect of which would be to determine that he is not bound by two loan contracts between him and Mr and Mrs Buck (“the Bucks”) nor by a second mortgage given by him as security for the loans. He has joined as defendants Private Funds Management Pty Ltd (“PFM”), a company that acted on behalf of the Bucks in relation to the loans, and Ms Conn, a director of PFM and the person who manages PFM’s business. He claims damages from each of these defendants.
The fifth defendant is Mr Buttigieg, a friend of Mr Russo’s. Mr Buttigieg persuaded Mr Russo to enter into the first loan contract to help Mr Buttigieg raise money for a used car business in which he was involved.
Mr Buttigieg is an undischarged bankrupt. He has not filed a defence. He appeared in person at the trial, supporting Mr Russo by and large.
When I refer hereafter to “the defendants”, I mean the defendants other than Mr Buttigieg.
The issues
I begin by identifying the main issues that arise on the pleadings and on the evidence given.
In March 2001 Mr Russo signed documents the effect of which is that he borrowed $80,000 from the Bucks, providing a second mortgage over his property at Aldinga (“the Aldinga property”) as security. Mr Buttigieg was with him when he signed the documents.
Mr Russo claims that he agreed beforehand with Mr Buttigieg that Mr Russo would provide a mortgage over the Aldinga property as security for a loan to Mr Buttigieg. The security was to be limited to $80,000 for six months. Interest only was to be payable. Mr Russo claims that he was in substance a guarantor. Mr Russo claims that before he signed the documents he made it clear to Ms Conn that he was a guarantor only.
Mr Russo claims that he is not bound by the loan documents because of his misunderstanding of the contract that he signed, or because he was misled by the lender’s representative, Ms Conn. The defendants deny that Mr Russo made any statement before signing the documents to the effect that he was a guarantor, and deny that any misrepresentation was made by or on behalf of the Bucks. They claim that he is bound by the loan contract and by the mortgage.
The mortgage was registered and the loan moneys paid on 16 March 2001. On that day cheques were either drawn by PFM, or bank cheques were obtained by PFM. But the cheque from the Bucks providing the funds to PFM was not received by PFM and banked by it until Monday 19 March 2001, three days later. Mr Russo claims that the advance could not have been made by the Bucks, as they had provided no funds to PFM on 16 March 2001, when the loan was made.
The loan was for six months, expiring on 16 September 2001. From the money advanced $42,753.48 was paid to Mr Buttigieg, by direction signed by Mr Russo. About $3,000 was used to pay various fees and charges associated with obtaining the loan. $3,000 was paid to Mr Russo. About $30,000 was used to pay creditors of Mr Russo so as to remove certain charges and caveats on the title, and to ensure that council rates were paid. After the loan documents were signed Mr Buttigieg told Ms Conn (representing PFM) that he would attend to the interest payments Subsequently the payments that were made (not always on time) were made by or arranged by Mr Buttigieg. Ms Conn knew that this was happening.
Special condition 8 of the loan agreement provides:
8Should the borrower wish to roll over the loan facility, subject to satisfactory conduct and mortgagee’s consent, we will require a principal reduction of 25%, being $18,750.00. There will also be a loan extension fee of $1,500 which will cover all of the relevant extension costs, but a new valuation if one is required.
During September 2001 Ms Conn agreed with Mr Buttigieg to extend the loan for another six months. No principal reduction was demanded or made. The loan fee was not charged. Ms Conn had no dealings with Mr Russo in relation to the extension.
Mr Russo claims that Mr Buttigieg had no authority from him, actual or apparent, to agree to the extension. He denies being a party to the extension.
In March 2002 Mr Buttigieg told Ms Conn that he was interested in extending the term of the loan once more. Initially nothing was agreed. In mid to late April 2002 Mr Buttigieg told Ms Conn that he would like to obtain a further advance of $70,000. Ms Conn arranged a valuation of the Aldinga property, and obtained the agreement of the Bucks to make a further advance. The advance was to be in the amount of $70,000 for one month only. A new loan agreement was prepared on 6 June 2002.
It is not disputed that Mr Buttigieg collected the loan documents from PFM on 6 June, and returned them later that day. They were apparently signed by Mr Russo, and witnessed by Mr Buttigieg.
Mr Russo denies that he had anything to do with this arrangement. There is no suggestion from the defendants that Ms Conn dealt with him. Mr Russo denies signing the documents. Mr Buttigieg said in evidence that he was a party to the forging of Mr Russo’s signature on the documents.
Mr Russo denies that he is a party to or bound by the second loan agreement.
The full $70,000 was paid to Mr Buttigieg by cheque on 7 June. The cheque from the Bucks was deposited by PFM on that day, and drawn against by PFM the same day.
The second loan agreement reflects some confusion on the issue of whether there were now two loans, one for one month and one expiring on 16 September 2002, or a single loan. The terms of the loan agreement of 6 June 2002 are relevantly identical to the terms of the first loan agreement.
The $70,000 was not repaid after one month. There is no evidence of any negotiations to extend the period of the further loan.
Mr Buttigieg continued to make interest payments, although more erratically. During 2003 a number of defaults occurred. On 8 October 2003 in this Court an order was made for possession of the Aldinga property in proceedings brought by the Bucks against Mr Russo, based on default in making payments under the second loan contract. Mr Russo did not enter an appearance in these proceedings. Possession of the Aldinga property was taken in February 2004, but possession was restored to Mr Russo after Mr Buttigieg made further payments.
The Bucks claim that the order for possession operates by way of estoppel to prevent Mr Russo from denying that he is bound by the loan contracts and mortgage or from claiming that they should be set aside as against him.
In summary, these are the issues. First, whether the first contract of loan is enforceable between the Bucks and Mr Russo. Second, the legal consequence of the fact that PFM received the funds from the Bucks after it made the first advance to Mr Russo. Third, whether Mr Russo authorised or agreed to the “roll overs” in September 2001 and March 2002, and if he did not, the legal consequence of that. Fourth, whether Mr Russo agreed to the second advance of $70,000, and the legal consequence of the fact that the advance was made the same day as the Buck’s cheque to PFM was received. Fifth, whether Mr Russo agreed to the further “roll overs” of the loan or loans, and whether, after the further advance, there was a single loan or two separate loans. Sixth, the effect of the order for possession on Mr Russo’s entitlement to raise the issues that he raises.
Chronology
Many of the relevant events dealt with below are not disputed. The following chronology contains some findings that I make on matters that were contested before me. I will explain later the basis for the findings on contested matters.
In February or early March 2001 Mr Buttigieg approached Mr Russo, a friend of his, asking Mr Russo to help him borrow $50,000 for the purposes of “All Seasons Motors”. The business was owned by Ms Sampson, Mr Buttigieg’s partner. Mr Buttigieg was the manager.
Mr Russo ultimately agreed to do so. The amount to be borrowed became $80,000 ultimately, the extra $30,000 being attributable to fees and charges associated with the making of the loan, and to payments required to clear caveats and charges from the title to the Aldinga property which Mr Russo agreed to provide as security. A number of the details are disputed, but I make these findings, and will deal later with the disputes over the details when necessary.
I find that Mr Buttigieg contacted Mr Nathan Stewart of NAP Financial Services, asking him to find a source of funds, before he approached Mr Russo. Mr Stewart was unable to find a lender for Mr Buttigieg, because he could not provide adequate security. Mr Buttigieg then brought Ms Russo into the transaction, as someone with property that could be used as security. Mr Stewart referred the matter to Mr Callegher, because Mr Stewart did not provide finance on the basis of second mortgage security.
In early March Mr Stewart sent a facsimile to Mr Callegher enquiring whether he could identify a lender who would lend Mr Russo $60,000 on security of the Aldinga property. The facsimile referred only to Mr Russo, and could be read as treating him as the borrower.
On 7 March 2001 Mr Callegher sent a facsimile to Mr Back of Hower Corporation (“Hower”), enclosing a copy of Mr Stewart’s facsimile. Mr Back was a finance broker, who worked for Hower. Mr Back assisted borrowers to find lenders who would lend what the relevant borrower wanted. I find that the terms of the facsimiles caused Mr Back to consider that he was acting for Mr Russo as the proposed borrower. He regarded Mr Russo as his client. He proceeded on that basis.
Mr Back then spoke to Ms Conn, who was employed by PFM. PFM acted as a finance manager, acting for private individuals who wished to earn income by lending on short term loans. PFM did not act for borrowers. PFM had an office in premises rented by Hower. I find that PFM and Hower were independent of each other, and that in the dealings that followed Ms Conn acted for the Bucks as lender and Mr Back acted for Mr Russo as borrower.
I find that Mr Back considered himself to be acting on behalf of the borrower, whom he believed to be Mr Russo, in his dealings with Ms Conn.
The amount of the loan was increased to $80,000, to cover fees and encumbrances on the title to the Aldinga property. I find that this was agreed between Ms Conn and Mr Back, but that Mr Callegher spoke to Mr Back and told him that this was acceptable to the borrower. I also find that Mr Back spoke to Mr Buttigieg by telephone in relation to the increase. That is reflected by the letter of 14 March 2001 (Exhibit D1.4) from Mr Back to Mr Stewart.
I find that Ms Conn did not discuss the amount to be borrowed with Mr Russo or Mr Buttigieg. She considered herself to be acting for the Bucks as lenders.
On the afternoon of 15 March 2001 the necessary documents for the advance and for the second mortgage were ready. Ms Conn had arranged for the preparation of the documents. She gave the documents to Mr Back to check.
That afternoon Mr Buttigieg and Mr Russo came to the offices of Hower for the purpose of signing the documents. They were signed by Mr Russo.
I find, contrary to the evidence of Mr Russo and Mr Buttigieg, that the documents were signed in the presence of Mr Back, and were witnessed by him. I find, contrary to their evidence, that Ms Conn was not present when the documents were signed.
One of the documents signed was a “disbursement order”. That records that $3,000 of the advance was paid to Mr Russo, and that $42,753.48 (the balance after all other deductions) was to be paid to Mr Buttigieg.
Settlement of the advance (the payment of the moneys and the lodging of the mortgage for registration) took place on Friday 16 March 2001. Payment of the funds was not made to PFM by the Bucks until Monday 19 March, and the cheque would have taken another two or three days to be cleared.
Mr Buttigieg collected the cheques for Mr Russo and Mr Buttigieg on 16 March. He told Ms Conn that All Seasons Motors would pay the interest. He told her to contact him if there were any problems.
On the evidence before me I am not able to make a finding about who took the borrower’s copy of the documents signed on 15 March. However, I find that the borrower’s copy was taken by either Mr Buttigieg or Mr Russo.
I find that the letter Exhibit D1.25 was sent to Mr Russo by PFM on 25 March 2001. It refers to “your loan”, and states the amount of the monthly payments and the amount that will be payable if there is a default.
There is evidence of a number of letters being sent by PFM to Mr Russo over the next two years or so. I find that these letters were sent and were delivered to the Aldinga property. I find that they were received by Mr Russo, but that he paid little attention to them, and discarded them. I do not accept his evidence that none of these letters reached him or came to his attention.
Thereafter Ms Conn dealt mainly with Mr Buttigieg in relation to the advance, particularly when interest payments were not received by the due date.
I find that Exhibit D1.26, a letter of 14 August 2001, was sent by PFM to Mr Russo at the Aldinga property. It informed him that the payment due on 1 August had not been paid by the due date. I find that Exhibit D1.27, a letter of 21 August 2001 from PFM, was also sent to the Aldinga property. It informed Mr Russo that the term of the loan was due to expire on 16 September 2001.
At about this time there were discussions between Ms Conn and Mr Buttigieg. Mr Buttigieg arranged with Ms Conn to obtain a copy of the council rate notice for the Aldinga property, and this was sent to Ms Conn by facsimile from the office of All Seasons Motors. An extension of the loan was arranged between Ms Conn and Mr Buttigieg. It was not arranged until about mid October. Ms Conn did not speak to Mr Russo about the extension, or correspond with him about it (other than in the letter Exhibit D1.28 of 19 September 2001, where she referred to “correspondence in relation to extending the term of this mortgage”).
I find that on 27 February 2002 Ms Conn wrote again to Mr Russo, informing him that the loan would expire on 16 March 2002. I find that Mr Russo received the letter (D1.29).
Again there was telephone contact between Mr Buttigieg and Ms Conn about extending the term of the loan. The expiry date of 16 March 2002 came and went, with nothing definite agreed. Not long after this Mr Buttigieg spoke to Ms Conn about the possibility of a further advance of $70,000 for one month. Ms Conn said that a further valuation would be required. She spoke to the Bucks about the further advance.
I find that Mr Taormina went to the Aldinga property on 13 May 2002 for the purpose of valuing it. I reject the evidence of Mr Russo that he was not there on that occasion. I accept the evidence of Mr Taormina that Mr Russo was there. I find that Mr Russo knew that the valuation was in connection with the loan but not for the purpose of a further advance. I find that Mr Buttigieg was not present at the time.
Not long after this Ms Conn secured the agreement of the Bucks, and agreed with Mr Buttigieg to a further advance of $70,000 for one month.
On 6 June 2002 Ms Conn went to Melbourne. An offer of a further advance of $70,000 was prepared that day by Ms Conn’s assistant, acting under general directions from Ms Conn. The loan was to be for a period of one month. The application form, which upon signature became an agreement, reflects some confusion about the arrangement. It treats the situation as being one in which the original loan amount had been increased, and became repayable on 16 September 2002. That overlooks the fact that the additional $70,000 had, by oral agreement, been advanced for a period of one month only.
Mr Buttigieg collected the documents on 6 June 2002, and returned them apparently signed by Mr Russo and witnessed by Mr Buttigieg later that day. A copy of the documents was not sent to Mr Russo.
The $70,000 was paid to Mr Buttigieg by cheque on 7 June 2002.
Mr Buttigieg continued to make interest payments during the second half of 2002. The payments were often late.

I find that PFM wrote to Mr Russo on 9 October 2002, informing him that the payment due on 1 October 2002 had not been received. The letter (D1.32) was headed “Second Mortgage - $150,000”. I find that Mr Russo received this letter but ignored it.
In November and December 2002 payments from Mr Buttigieg became more erratic. A number of cheques were either stopped or not met. Ms Conn began to apply pressure to Mr Buttigieg to make the payments that were required. She continued to deal mainly with him.
No payments were made to PFM between 3 December 2002 and 4 March 2003. Some cheques that Mr Buttigieg provided during that time were not met. Telephone records indicate that Ms Conn made several telephone calls to Mr Russo and to Mr Buttigieg during this period. I find that Ms Conn spoke to Mr Russo at least once in this period, referring to “your loan” and to “your mortgage”.
I find that on 19 February 2003 a notice of default (D2, p 458) under the mortgage was sent by solicitors, Hunt and Hunt, acting for the Bucks. I find that the notice of default was sent to the Aldinga property and was seen by Mr Russo.
Mr Buttigieg made a payment of $10,000 to PFM on 4 March 2003, and Ms Conn did not proceed on the notice of default.
During the second half of 2003 payments by Mr Buttigieg continued to be erratic. A number of cheques were not met.
I find that on 27 June 2003 Hunt and Hunt sent a further notice of default (D1.38) to Mr Russo at the Aldinga property, and that this notice came to Mr Russo’s attention.
Possession proceedings were instituted on 8 July 2003, naming Mr Russo as defendant.
I find that Mr Eglinton, a process server, served these proceedings on Mr Russo on 16 July 2003, and that on the same day he fixed to the door of the Aldinga property a written notification of the proceedings addressed to “The Occupier”. I find that Mr Eglinton explained to Mr Russo the effect of the documents that he served. I do not accept Mr Russo’s denial that he was served with the documents.
I find that Hunt and Hunt sent letters of 18 August 2003 (D1.39) and 10 September 2003 (D1.40) to Mr Russo, informing him of applications being made in the possession proceedings.
I find that PFM wrote to Mr Russo on 26 September 2003 (D1.43) threatening to take possession of the property unless a payment of about $22,000 was made. This letter was headed “Second Mortgage - $150,000”.
On 8 October 2003 an order for possession of the Aldinga property was made in favour of the Bucks against Mr Russo in the possession proceedings.
I find that Mr Russo was served with a possession order on 23 October 2003 by Mr Eglinton, who again explained to Mr Russo the effect of the order. He stressed its importance. I do not accept Mr Russo’s denial that he was served.
Mr Buttigieg continued to make payments, although erratically. During late 2003 and early 2004 Ms Conn was speaking fairly often to Mr Buttigieg, and sending him faxes, including threats to take possession. On 17 February 2004 Ms Conn sent Mr Buttigieg a fax stating that possession was to be taken on 25 February 2004. On the same day she sent a letter to the same effect to Mr Russo (D1.50). This letter was headed “Second Mortgage - $150,000”.
Possession was taken on 25 February 2004, but was restored to Mr Russo a few days later after Mr Buttigieg paid $17,000. Mr Russo was aware that possession had been taken.
Further defaults occurred, and a further default notice was sent to Mr Russo by Hunt and Hunt on 16 March 2004 (D1.52). As with other correspondence, I find that the notice came to Mr Russo’s attention. A copy of the letter and default notice were included in the list of documents discovered by his former solicitor. Further possession proceedings were issued on 11 June 2004. Mr Russo appeared and was represented in these proceedings.
Mr Russo issued the proceedings now before me on 6 September 2004.
The witnesses
I now make findings about the credibility and reliability of the main witnesses. In doing so I will deal with some of the factual disputes, because my findings as to credibility and reliability are based in part on the evidence about disputed matters.
Mr Russo gave evidence in a manner that suggested he has a strong sense of grievance about his situation.
This is not surprising. I find that he entered into the transaction of March 2001 to help Mr Buttigieg and not for his own benefit. All the evidence points this way. I find that All Seasons Motors was owned by Ms Sampson, Mr Buttigieg’s de facto partner. Mr Buttigieg managed the business. Mr Russo had no interest in the business. Just over half the money advanced went to Mr Buttigieg to be used in the business. The money used to clear Mr Russo’s title benefited Mr Russo, but the title was cleared only to enable it to be used as security to support the borrowing. The evidence is clear that Mr Buttigieg assumed responsibility for the making of interest payments, and made the payments that were made. Ms Conn dealt with him far more often than she dealt with Mr Russo.
So Mr Russo entered into the transaction to help Mr Buttigieg, but has been let down by him. His anger is understandable.
I find also that the various extensions to the period of the loan were agreed between Mr Buttigieg and Ms Conn without reference to Mr Russo. That might be a source of further annoyance to Mr Russo.
But I find that Mr Russo was content to leave it to Mr Buttigieg to deal with Ms Conn. I also find that after the six month term of the initial loan had expired Mr Russo received letters from PFM, and a few phone calls, that must have indicated to him, if he paid any attention to them, that the advance had not been repaid. I find that he made no objection or protest to PFM. I find that Mr Russo was content to let the term of the loan continue, on the assumption that Mr Buttigieg would fix things up ultimately.
I find that the further advance of $70,000 was agreed between Mr Buttigieg and Ms Conn without reference to Mr Russo. That is a further source of grievance.
I will return later to the signatures on the documents evidencing the further loan agreement.
I find that the letters (received as exhibits) from PFM and its solicitors to Mr Russo were sent to the Aldinga property, and that all or virtually all of them came to Mr Russo’s attention.
The headings on the letters (D1.32, D1.43 and D1.50), should have alerted Mr Russo to the fact that a further advance might have been made. I find that Mr Russo paid little attention to these letters, and that this is consistent with his practice of paying little attention to documents or to matters of detail.
It is easy to understand why Mr Russo is angry about the way in which Mr Buttigieg got him into the circumstances in which he now finds himself.
But this is largely due to Mr Russo’s failure to pay any proper attention to the documents he signed, and to what he was doing, and to correspondence sent to him.
However, I also find that Mr Russo’s evidence on contentious matters is often not reliable.
I reject his denial of being served with the possession proceedings and with the order for possession. I find Mr Eglinton to be a reliable witness. I find that he served Mr Russo on the dates identified by him. I find that Mr Russo was present when Mr Taormina valued the Aldinga property on 13 May 2002. This should have alerted Mr Russo to the fact that something significant was happening. At the least it indicated that the loan was still on foot, well after the initial six month period had expired.
I find that Mr Russo chose to ignore the fact of the valuation, and the letters he received from PFM, paying no real attention to these matters.
Mr Russo’s attitude to these events is consistent with his repeated assertion in evidence that he never reads documents that are presented to him for signing. The effect of his evidence seems to be that he relied on people to tell him what he was doing, and never paid any attention to the documents themselves. There may be some truth in that. But it also illustrates the fact that Mr Russo was prepared to enter into a transaction without paying proper attention to what he was doing, and without paying any real attention to what he was signing. I find that the letters that came to his attention were not given proper attention by him, and that if he had given these letters proper attention they would have brought home to him beyond any doubt that the loan had not been repaid after six months, and would have alerted him to the possibility that the amount of the loan had been increased.
I find that Mr Russo now chooses to deny events such as the serving of documents, the carrying out of a valuation and the receipt of letters, when those events might be used to establish his acquiescence in what had occurred. That reflects adversely on his reliability.
For these reasons I approach Mr Russo’s evidence with caution on matters that are disputed. Either his memory is quite unreliable because he did not pay proper attention to what he was doing at certain times, or he now chooses to deny things that might make him liable in respect of the advances in question.
Mr Buttigieg is an unreliable witness. On his own evidence he arranged the further advance of $70,000 without reference to Mr Russo, and on his own evidence he was involved in forging Mr Russo’s signature to the documents relating to the further advance. He gave this evidence after earlier prevaricating about the circumstances in which these documents were signed, and after giving evidence that was clearly intended to mislead me on the point.
Generally Mr Buttigieg gave his evidence in a confusing and unsatisfactory manner. On crucial matters I am satisfied that he was more concerned to say things that would assist Mr Russo’s case than he was to tell the truth.
I accept Mr Buttigieg’s evidence that he attended to the interest payments, and dealt regularly with Ms Conn. But that was not disputed before me.
I find that he now wishes to make amends to Mr Russo by assisting Mr Russo’s case. The fact that Mr Buttigieg is an undischarged bankrupt means that there are no real financial consequences for him if he does so. However, he knows that he risks prosecution for giving false evidence before me, and in connection with the signing of the documents evidencing the second loan agreement. That is a matter to be weighed in the scales.
I find Ms Conn to be an honest and generally reliable witness. At times her evidence might not have been correct on matters of detail, but by and large I accept that it is reliable. She was disarmingly frank on a number of matters. She readily admitted mistakes that she had made when they were pointed out to her. Generally, I accept her evidence as both truthful and accurate.
I have already said that I accept the evidence of Mr Eglinton, the process server, and the evidence of Mr Taormina, the valuer. They each gave their evidence in a straightforward and satisfactory manner. They were truthful and, I find, are not mistaken. I am satisfied that each of them dealt with Mr Russo on the occasion described by them. I cannot accept that Mr Russo has no memory at all of these events. I find that his denial of the evidence of these witnesses is a deliberate attempt to distance himself from knowledge of relevant events.
I find that Mr Back is a generally truthful and reliable witness. He gave his evidence in a straightforward manner. I do not accept Mr Sallis’s criticisms of his evidence. His failure to keep a file or diary is a little surprising. However, I draw no sinister inference from this, nor does it cause me to doubt his general reliability.
I find that he considered that he was acting for Mr Russo as a potential borrower when he was first approached by Mr Callegher. I find that he dealt with Ms Conn on the basis that he was acting for the borrower, and on the basis that Ms Conn was acting for the potential lender. I find that he and Ms Conn were independent of each other. The fact that Ms Conn had an office in the premises of Hower Corporation is of no particular relevance on that topic. While dealing with Mr Back’s reliability it is convenient to deal with the issue on which his evidence was of most importance, the signing of the documents on 15 March 2001.
I accept the evidence of Mr Back that on 15 March 2001 he met Mr Russo and Mr Buttigieg, explained the documents one by one to Mr Russo, and then (when appropriate) witnessed Mr Russo’s signature. I reject the evidence of Mr Russo and Mr Buttigieg that they did not meet with Mr Back that day, and that Mr Russo signed the documents in Ms Conn’s presence. I accept Ms Conn’s evidence that she had nothing to do with the signing of the documents by Mr Russo. Mr Back’s evidence on this topic was quite convincing. I accept his evidence that he would not have witnessed the documents had he not seen them signed, and that in particular he would not have attested to the making of a statutory declaration by Mr Russo if Mr Russo had not appeared before him. The evidence of Ms Conn and Mr Back, in combination, is persuasive.
This is an important topic, and it is one on which the evidence of Mr Russo and Mr Buttigieg is unreliable.
I find that Mr Stewart was an honest and generally reliable witness. Not surprisingly, he had little memory of his dealings with Mr Buttigieg, Mr Russo, Mr Callegher and Mr Back.
I accept the evidence given by Mr Sultana about his dealings with Ms Conn.
The first loan contract
I accept Mr Russo’s evidence that Mr Buttigieg asked Mr Russo to help him obtain funds for the business of All Seasons Motors. There was no advantage to Mr Russo in the proposal, although ultimately it meant that encumbrances on the title to the Aldinga property were removed.
I find that Mr Russo agreed to help Mr Buttigieg. However, I find that Mr Russo did not concern himself with the form of the underlying arrangement. He was willing to be the borrower of the funds. I do not accept his evidence that he was willing to be involved only as a guarantor of a borrowing by Mr Buttigieg, or only as the provider of security to support a borrowing by Mr Buttigieg. His lack of interest in matters of detail supports this conclusion.
Although it is of no great significance, I find that it was Ms Conn who insisted that the advance be for a period of six months, with the prospect of an extension for a further period of six months. She did so in the course of discussions with Mr Back. I find that Mr Russo did not insist upon this limit in his dealings with Mr Buttigieg. I do not accept his evidence on that point.
I deal here with Mr Sallis’s submission that Mr Russo would not have agreed to enter into the transaction as a borrower, and did not do so.
The submission is as follows. Mr Russo had no need for a loan in February 2001, and was not looking for a loan. When he dealt with Mr Stewart he declined to refinance his existing loan supported by a first mortgage, demonstrating his unwillingness to be a borrower. There is no evidence that after that any reason arose for him to change his mind. There is no evidence that anyone tried to persuade him to change his mind. About half of the money advanced went to Mr Buttigieg, and most of the other half was used to clear the way for the second mortgage granted by Mr Russo. The transaction did not benefit him. After the advance was made, Ms Conn dealt mainly with Mr Buttigieg, reflecting the fact that he was the “real” borrower. Ms Conn said and wrote things, in dealings with other persons, indicating that she treated Mr Buttigieg as the borrower. This particular submission relied on the evidence of Mr Cave, Ms Sampson and Mr Ridley, and on things written in a number of letters signed by Ms Conn. Mr Sallis also relied on evidence of Mr Russo and Mr Buttigieg that, when Mr Russo signed the loan documents, Mr Russo told Ms Conn that his role was that of guarantor.
Mr Stewart said that Mr Russo declined to refinance his existing loan supported by a first mortgage because of a “personal connection” with the lender. As well, I can understand why Mr Russo might not have wanted to rearrange his existing borrowing to support what was expected to be a loan for 12 months. I do not agree that Mr Russo’s dealings with Mr Stewart demonstrated an unwillingness to be the borrower.
I find that when Mr Back was able to offer the advance wanted, if second mortgage security was provided, Mr Russo was willing to become the borrower. This achieved what Mr Buttigieg wanted, and what Mr Russo was willing to help him achieve. Mr Russo was not concerned about his status. I accept that he probably saw himself as a guarantor, but I find he was willing to assume the role of borrower.
The fact that much of the money went to Mr Buttigieg is not significant. That was, I find, the rationale for the transaction and throws no light on the role that Mr Russo was to play in it.
A good deal of time was spent at trial proving things said and written by Ms Conn, after March 2001, that indicate that she treated Mr Buttigieg as the borrower. I accept that on occasions she spoke to Mr Buttigieg about “your loan”. I accept that in speaking to others she referred on occasions to Mr Buttigieg as a borrower or as the borrower. And there are some letters that refer to Mr Buttigieg as “the client”. I find that these things reflect the way in which, after the contract was signed, Mr Buttigieg involved himself in the repayments, and began to act as if he was the borrower. But Ms Conn’s remarks, and the manner in which she dealt with Mr Buttigieg, cannot alter the legal effect of the documents signed in March 2001. Nor do they demonstrate that Mr Russo would not have entered into the transaction on the basis that he was the borrower. They do no more than reflect the way in which events unfolded after the signing of the documents.
I find that on 15 March 2001 Mr Russo signed documents that described him as borrower. I have accepted Mr Back’s evidence that Mr Russo signed the documents in his presence, and after Mr Back explained each of them to him. Mr Russo could not have been under any uncertainty as to the nature of the transaction. Mr Back’s evidence on this point was convincing. I reject the evidence of Mr Russo and Mr Buttigieg that Mr Russo said anything to indicate that he was not intending to be a borrower of the money in question. Once again, I am satisfied that Mr Russo was not interested in the details, and did not pay much attention to what he was signing. It may be that the only matters in which Mr Russo showed interest were the amount of the loan and the term of the loan, but that is consistent with him agreeing to be a borrower.
Mr Russo must have realised that he was being treated as the borrower, and entered into the transaction on that basis. The fact that on 15 March Mr Russo signed numerous documents, and Mr Buttigieg signed none, must have alerted him to that, quite apart from Mr Back’s explanation.
I accept that Mr Russo regarded the borrowing and the repayments as Mr Buttigieg’s concern. But the fact is that he acted as if he was the borrower, and signed documents to that effect.
I accept Ms Conn’s evidence that she was not present when the documents were signed. The claim that she misled Mr Russo, or in any way misrepresented the situation, is unfounded. Her evidence on this topic is convincing.
It follows that the claim that Mr Russo is not bound because he never intended to enter into a contract of loan fails on the facts. He was willing to enter into a loan contract. In any event, whatever might have been his subjective intention, Mr Russo is bound as the result of him having signed a loan contract. He neither said nor did anything to negate the inference that is drawn as a matter of law from his conduct in signing the contract: see Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 in particular at [40]-[47] Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. Nor did he sign as a result of any misrepresentation or misleading conduct.

I have already found that shortly after the documents were signed, Mr Russo received the letter (D1.25) dated 25 March 2001 which refers to “your loan” and which treated him as the borrower by Ms Conn.
Mr Russo became liable on the original loan contract, exhibit D1.10. He also became bound by the second mortgage that he granted in favour of the Bucks to secure the loan.
The claim in para 41 of the third amended Statement of Claim that Mr Russo is not bound by the contract of loan fails. The claims in paras 42-44 based on misleading and deceptive conduct, misrepresentation and unconscionable conduct also fail. The latter claims fail as against the Bucks, as against PFM and as against Ms Conn. Each of those claims, and the consequential claim for relief, must be dismissed.
That is, of course, subject to the other issues dealt with below.
The source of the funds
The Bucks are entitled to claim repayment under the loan contract, even if the moneys advanced came from another source (Ms Conn, PFM or another client of PFM) until the Bucks’ funds became available to PFM, several days after the advance was made.
Mr Russo’s contract of loan was with the Bucks. The mortgage was granted in favour of the Bucks. How the Bucks provided the funds is of no concern to Mr Russo. They might have borrowed the full amount to be advanced, without informing Mr Russo of this. That would not affect his liability on the loan contract.
The funds to support the advance of $80,000 were drawn from the trust account of PFM. That was done several days before the Bucks’ funds became available to PFM.
The fact that for a period of several days the loan was funded from an unidentified source does not alter things. Once the Bucks’ funds became available, those funds became the source of the advance to Mr Russo. But in the interim period, as between Mr Russo and the Bucks, the Bucks are to be treated as the source of the funds advanced, even if the Bucks were liable to repay to someone else the initial advance of the moneys loaned and to pay interest on that amount for the first few days.
I accept Ms Conn’s evidence, and that of Mr Sultana, that she had a standing arrangement with Mr Sultana under which she was permitted to use funds subject to his direction to cover another client’s need for funds for a short period. Whether that is what she actually did, or intended to do, is a matter on which the evidence is not clear enough to make a finding. But, in my opinion, that does not matter.
It may be that Ms Conn used the funds of another client without proper authority from that client. It may be that she has not accounted to another client for interest in respect of funds provided to Mr Russo for the first few days. Ms Conn’s evidence indicates that she dealt with client funds rather casually in some respects. But that does not alter the contractual position as between Mr Russo and the Bucks. In one way or another, acting on behalf of the Bucks, Ms Conn provided the funds to or at the direction of Mr Russo to enable the Bucks to meet their obligation to Mr Russo. The fact (if it is the case) that she acted in breach of trust, and used client funds without proper authority, does not mean that as between Mr Russo and the Bucks the funds are not to be treated as advanced by the Bucks.
I reject the claim in para 47 that the Bucks never advanced $80,000 to Mr Russo.
The extension of the term of the loan in September 2001 and in March 2002
I accept Mr Buttigieg’s evidence that he attended to the interest payments, and that he dealt regularly with Ms Conn. I accept Mr Russo’s evidence that he left it to Mr Buttigieg to do this, and took no interest in what was happening. No doubt he trusted Mr Buttigieg.
I find that Mr Russo received letters in September 2001 referring to the expiry of the term of the loan, and to a possible extension of the term of the loan. Mr Russo did nothing, and left things to Mr Buttigieg. The first extension was arranged between Mr Buttigieg and Ms Conn.
As Mr Russo was the borrower, he was liable to repay the money borrowed as from 16 September 2001, unless an extension of the loan was agreed to. As he was the borrower, he cannot complain about the lender allowing the loan to remain on foot.
I am not satisfied that Mr Russo specifically authorised Mr Buttigieg to arrange an extension of the loan. However, I find that subsequent events, including the receipt in February 2002 of the letter exhibit D1.29, and the meeting with Mr Taormina on 13 May 2002 for the purpose of a valuation of the Aldinga property, indicated to Mr Russo that the loan was still on foot, and must have been extended. Mr Russo was not concerned.
The extension in March 2002 seems to have been the result of a tacit agreement between Ms Conn and Mr Buttigieg to allow the loan to remain on foot.
I conclude from his conduct that he acquiesced in Mr Buttigieg extending the period of the loan in September 2001 and in March 2002 (before the second advance was agreed to), continuing to take the view that the repayments were not his concern. That is, his conduct in failing to disclaim or deny the extensions of the term of the loan, the fact of those extensions having been brought to his notice, means that he has acquiesced in them.
In any event, I do not understand how Mr Russo can complain about the “rollovers”. I have found that he was the borrower. As borrower he was liable to repay the money advanced. If the “rollovers” were not authorised by him, or if he has not acquiesced in them, he remains liable to repay the amount advanced with interest.
I find that Mr Russo acquiesced in a series of further “roll-overs” of the first advance. He remains liable, in any event, for any amount remaining due in respect of the first advance.
The second advance
I accept Mr Russo’s evidence that he did not know at the time that Mr Buttigieg was arranging for a further advance of $70,000. There is no evidence to suggest that Ms Conn made contact with Mr Russo at the time when this was negotiated. There is no evidence of Mr Buttigieg informing Mr Russo about the negotiations.
I find that nothing said or done by Mr Russo amounted to an authorisation in advance to Mr Buttigieg to negotiate a further advance. The fact that Ms Conn knew that about half of the first advance had been paid to Mr Buttigieg, and the fact that Mr Buttigieg assumed liability for the repayments was not, of itself, a sufficient basis for her to conclude that Mr Buttigieg had authority from Mr Russo to negotiate a further advance to be secured by the mortgage given by Mr Russo, the further advance to be paid to Mr Buttigieg.
To the contrary, as a result of Ms Conn’s dealings with Mr Buttigieg between March 2001 and about June 2002, it must have been apparent to Ms Conn that Mr Buttigieg’s request for a further $70,000 was made in his own interest, or substantially in his own interest. Mr Russo’s inactivity over that period, and his apparent acquiescence in Mr Buttigieg’s conduct, does not support a conclusion that he impliedly authorised Mr Buttigieg to arrange a further advance on his behalf.
I doubt whether Mr Russo would have agreed to this further advance if asked. It was a substantial sum, and was entirely for the benefit of Mr Buttigieg, or at least for the benefit of the business in which he was involved. It is likely that Mr Russo would have been concerned about Mr Buttigieg’s ability to repay the further advance. I do not find that Mr Russo would not have agreed to the further advance. But I am satisfied that he would have required some persuasion. I doubt whether he would have agreed to sign the documents on the spot, as it were. On the evidence, Mr Buttigieg was in possession of the documents for no more than a few hours.
I find that Mr Russo’s signature on the two documents evidencing the further advance (D1.30 and D1.31) was forged, and that Mr Buttigieg was aware of the forgery and was involved in it.
This is a puzzling and difficult aspect of the case. Ms Bird, a handwriting expert, gave evidence that the signatures on these two documents were those of Mr Russo. Her expertise is not in question. She gave her evidence in a satisfactory manner. No flaw in her technique or approach was identified. She said that it was extremely difficult to deceive a handwriting expert. This is significant evidence. It requires careful consideration.
Her evidence is significant, but in the end is no more than the expression of an opinion by a qualified expert. I have to consider the other evidence bearing on the issue.
Mr Russo denies that the signatures are his, and has done so for some time. He gave evidence that he was in Sydney at the time, with Mr Cook. This evidence was supported by Mr Cook. There is some circumstantial evidence to support what Mr Cook said. Mr Cook appeared to me to be a disinterested witness (apart from being a friend of Mr Russo’s) and a credible witness. Although the evidence about the trip to Sydney emerged only during the hearing (and this calls for caution) I do not consider that this circumstance indicates that it was concocted.
Mr Buttigieg gave evidence that the signatures were forged in his presence. His evidence has to be viewed with great caution. If it stood alone, I would not accept it. But it would be surprising if he would falsely implicate himself in something as serious as forgery. He must realise that he faces a real risk of imprisonment as a result of his evidence. I recognise however that it is possible that he has given false evidence to help Mr Russo, because he recognises his own moral responsibility for the borrowing.
As I said, the genuineness of the signatures on the relevant documents is a difficult and puzzling aspect of the case. But in the end I accept Mr Russo’s evidence that the signatures are forged. I do so because it is supported by Mr Cook, because of my doubt whether Mr Russo would have agreed at all, or at least so quickly to a further advance, and because of Mr Buttigieg’s evidence.
I do not consider that Mr Russo’s later conduct is inconsistent with this conclusion. I will deal with that topic shortly.
It follows that he was not a party to the contract for the making of the second advance. Unless his subsequent conduct prevents him from denying liability, he is not liable to repay the further advance.
The second advance was, by agreement between Mr Buttigieg and Ms Conn, for a period of one month, interest on the advance being agreed at $2,000 for the month. The second loan agreement (D1.30) fails to reflect this. While it refers to the agreed interest payment, it treats the $70,000 as consolidated with the first advance, giving rise to a single loan of $150,000 repayable on 16 September 2002, the date of the expiry of the current term of the original advance. No attempt has been made to exercise the power in the loan agreement to correct the error (see special condition 1). The Bucks have not counterclaimed rectification of the loan agreement.
If I found that Mr Russo was bound by the second contract, it would be necessary to resolve these difficulties. It may be that the second contract can be read as a contract for an advance of $70,000 for one month, able to be extended monthly. The interest rate is the same as under the first contract. However, it is not necessary to resolve this problem.
Mr Sallis argued that the funds for this advance were not provided by the Bucks. I reject that argument. I accept Ms Conn’s evidence that her bank allowed her to draw against bank cheques as soon as they were deposited, and that this is what happened on this occasion. In any event, for the reasons I gave in relation to the first advance, I would reject the argument that the Bucks are not the lenders of the $70,000. However, in view of my conclusion about the forgery, this issue is of no significance.
Mr Simpson argues that by his conduct after June 2002 Mr Russo has ratified Mr Buttigieg’s act in arranging the second advance in Mr Russo’s name.
I accept as accurate the general statement of principle appearing in Halsbury’s Laws of Australia, Vol 1(2), Agency, para [15-130]:
[15-130] General principle of ratification Under certain conditions an act which, at the time it was entered into or done by an agent, lacked the authority of a principal may, by the subsequent conduct of the principal, become ratified and made as effectively the principal’s own as if the principal had previously authorised it. Where the act is done by a person not assuming to act on his or her own behalf but for another, though without prior authority or knowledge, and is subsequently ratified by that other person, the relation of principal and agent is constituted retrospectively, and the principal is bound by the act whether it is to the principal’s advantage or detriment, to the same extent and with all the same consequences as if it had been done by his or her previous authority. (footnotes omitted)
I doubt whether the making of the further advance in June 2002 falls within the scope of this principle.
I accept that Mr Buttigieg made arrangements for the further advance with Ms Conn as if he had Mr Russo’s authority to act for him in doing so. I have found that he had no actual or apparent authority to do so. But in the end the transaction proceeded not as an agreement between the Bucks and Mr Buttigieg purporting to act on behalf of Mr Russo, but as a transaction between Mr Russo and the Bucks, Mr Russo apparently having signed the loan contract. The principle of ratification that I have set out above applies to acts done by a person purporting to act as agent for another. There is no doubt that it would apply if Mr Buttigieg had entered into the contract of loan purporting to act as agent for Mr Russo. But he did not do so. Nor did Ms Conn ever regard the second advance as one made by agreement with Mr Buttigieg acting on behalf of Mr Russo: see Rowe v B & R Nominees Pty Ltd [1964] VR 477 at 481-484.
As well, I have some difficulty understanding how a forgery can be the subject of ratification. It would surely be necessary to show that Mr Russo knew that his signature had been forged, before it could be said that he had ratified a forged contract. There is no evidence to support a conclusion that at the relevant time Mr Russo was aware that Mr Buttigieg had forged his signature.
However, in case my caution in this respect is misplaced, I deal with the merits of the submission advanced by Mr Simpson. What amounts to ratification is conveniently summarised in Halsbury in the following passage at [15-150]:
[15-150] Manner of ratification Ratification may be express, whether in writing or oral, or may be implied by conduct, and even where a contract is unenforceable unless evidenced by writing, the ratification need not be in writing. …
Ratification must be evidenced by clear and unequivocal acts (or acquiescence) such that they are not open to any other interpretation. … This may be so where, for example, the principal commences proceedings to enforce the contract effect by the agent.
The act of adoption or acquiescence must be accompanied by full knowledge of all the essential facts. (footnotes omitted)
The following portion of para [15-155] is also relevant:
[15-155]Ratification by acquiescence Although a ratification must be clear and must bear distinct reference to the facts of the particular case, it need not necessarily be proved by positive acts of adoption; in certain cases it is sufficient evidence of ratification that the intended principal, having been informed of all the material facts and knowing that he or she is being regarded as having accepted the position of principal, takes no steps to disown that character within a reasonable time, or adopts no means of asserting his or her rights at the earliest possible period. (footnotes omitted)
To succeed in his submissions Mr Simpson must establish that by his subsequent conduct Mr Russo has indicated quite clearly that he is aware that a further borrowing has been made by Mr Buttigieg purporting to act on behalf of Mr Russo, and that the funds have been advanced to Mr Buttigieg.
Mr Simpson points to three letters sent to Mr Russo after June 2002 referring to “Second Mortgage - $150,000”; to Notices of Default referring to an amount owing in excess of $160,000; to several letters informing Mr Russo about the possession proceedings in this Court; to the service of the summons for possession and a supporting affidavit; to the serving of the possession order on Mr Russo; to the taking of possession of the premises in February 2004.
Mr Russo’s failure to respond to or react to the letters about the court proceedings, to the order for possession and to the taking of possession is of no particular significance. His failure to respond is explicable on the basis that he was in default under the original loan contract. There is nothing in his failure to respond to indicate an acknowledgement of a further borrowing in his name.
The failure to respond to the letters referring to a liability for $150,000 and to the Notices referring to amounts of about $160,000 is more significant. But I do not infer from Mr Russo’s silence and inactivity an awareness or knowledge that a further advance has been made on the basis of Mr Buttigieg’s representation of Mr Russo’s authority, the payment having been made to Mr Buttigieg. In short, I do not regard Mr Russo’s failure to respond as, in the circumstances, indicating unequivocally that he accepts responsibility for the further borrowing made by Mr Buttigieg. To my mind considerable care must be exercised in treating a mere failure to respond as amounting to ratification by acquiescence of an event (the forgery) such as occurred here.
As to the service on Mr Russo of the summons for possession and accompanying affidavits sworn by Ms Conn, the assertion made in the affidavit was that Mr Russo was liable for the second advance because he had signed the second contract. The affidavit did not amount to an assertion that he was liable because Mr Buttigieg had entered into the transaction purporting to act on Mr Russo’s behalf. Silence or inactivity by Mr Russo does not amount to acquiescence in a different assertion – that Mr Buttigieg acted as his agent.
Exhibit D16 is an affidavit sworn by Mr Russo in the possession proceedings. In the affidavit he refers to finding a document behind the front screen door of the Aldinga property. He says that the document had something to do with the mortgage to the Bucks. I find that it was a notice placed there by Mr Eglinton. Mr Russo states in the affidavit that he gave the document to Mr Buttigieg and “requested that he sort it out”. I do not consider that this amounts to ratification, alone or in combination with other conduct. The conduct is equivocal. Mr Russo must have known that he was in default in respect of the first advance. In any event, proving that he was aware that a claim has been made for a much larger amount is not proof that he knew or must have known that Mr Buttigieg had arranged a further advance purporting to act on behalf of Mr Russo, let alone by falsely putting his name to the loan contract.
Evidence was given by Mr Davidson, an accountant, of dealings between him and Mr Russo in November 2004 when Mr Russo approached him for assistance in arranging to borrow $40,000 for a particular purpose. Documents completed by Mr Davidson at the time suggest that Mr Russo told Mr Davidson that the Aldinga property was subject to a second mortgage for an amount of the order of $150,000. The documents also indicate that Mr Russo made reference to a loan to Mr Buttigieg for $54,000, or possibly to Mr Buttigieg owing this amount to Mr Russo.
I accept that Mr Davidson was an honest witness. He made the relevant notes on the relevant documents. But as he himself acknowledged, what he wrote was his interpretation of what Mr Russo had said, and his recollection of just what Mr Russo said on the occasion in question was not clear. To my mind it is of no particular significance whether Mr Russo referred to a loan to Mr Buttigieg of $54,000, or to a debt of that amount owed by Mr Buttigieg to Mr Russo. Mr Russo has never denied that he was at least a guarantor of an advance to Mr Buttigieg of that order (although not in fact quite that much), and by November 2004 Mr Russo must have known that the advance had not been repaid. Whatever Mr Russo said on this topic throws no light on his liability in respect of the second advance.

As to the second advance, by November 2004 Mr Russo must have realised that the amount being claimed by the Bucks from him was of the order of $150,000 or more. What Mr Russo said to Mr Davidson on this topic amounts to an acknowledgement of the claim being made against him. It was not sufficiently clear to amount to a ratification of a purported borrowing on authority from Mr Russo, or by forging his signature.
An additional issue is whether dealings between Mr Russo and Mr Davidson can amount to ratification as between Mr Russo and the Bucks. I accept that in principle there is “no necessity for the ratification to be communicated to the other party: it seems agreed that it operates, if proved, as a unilateral manifestation of will”: Bowstead and Reynolds Agency (2001, 17^th Ed) [2-074]. Few Australian cases grapple directly with this problem. The authorities emphasise that a close examination of all the circumstances should be conducted to determine whether ratification has been effected: see Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Company Pty Ltd [1975] VR 607, 617. In Harrisons & Crossfield Ltd v London & North-western Railways Company [1917] 2 KB 775 Rowlatt LJ says “… ratification does not rest upon estoppel. It need not be communicated to the party alleging it. Ratification is a unilateral act of the will, namely, the approval after the event of the assumption of an authority which did not exist at the time.” In Shell Company of Australia Ltd v National Shipping Bagging Services Ltd [1988] 2 Lloyd’s Rep 1, 11 Lord Donaldson MR approves of this reasoning; see also Pagnan v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, 613. It is unnecessary to decide this point.
For those reasons I reject the claim that Mr Russo is liable for the second advance on the basis of acquiescence or ratification.
Estoppel
Mr Simpson submits that the order for possession of the Aldinga property made in action number 857 of 2003 operates to give rise to an issue estoppel that prevents Mr Russo from alleging that he is not bound by the loan contract of 6 June 2002, and from alleging that the mortgage over the Aldinga property is not valid and binding on him.
The relevant legal principle is summarised by Dixon J, in Blair v Curran (1939) 62 CLR 464 at 531-532 as follows:
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. …
The statement of principle is referred to with approval by Gibbs CJ, Mason and Aickin JJ in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597.
The order for possession is a final judgment. The fact that it might be set aside on application by Mr Russo does not mean that it is not a final judgment.
There is authority for the proposition that in the case of a default judgment the Court must take particular care in deciding the scope of an issue estoppel that is claimed to arise from the judgment: New Brunswick Rail Co Ltd v British and French Trust Corp Ltd [1939] AC 1 at 21 Lord Maughan LC:
In my opinion we are at least justified in holding that an estoppel based on a default judgment must be very carefully limited. The true principle in such a case would seem to be that the defendant is estopped from setting up in a subsequent action a defence which was necessarily, and with complete precision, decided by the previous judgment; in other words, by the res judicata in the accurate sense.
See also Lord Wright at 37; Hume v Munro (1942) 42 SR(NSW) 218 at 229-230. I refer also to the discussion of this topic in Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3^rd ed, Butterworths, 1998) paras 44-51.
In Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 the Privy Council affirmed and applied the principle stated by Lord Maughan. Their Lordships said at 1012:
In their Lordships’ opinion the New Brunswick Railway Co case can be taken as containing an authoritative reinterpretation of the principle of Howlett v Tarte in simpler and less specialised terms. This reinterpretation amounts to saying that default judgments, though capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided and, to use the words of Lord Maughan LC, they can estop only for what must “necessarily and with complete precision” have been thereby determined. (footnote omitted)
In that case a default judgment had been obtained by the appellant, and when the appellant later brought a further claim on the agreement relied upon in the earlier action, the respondent raised pleas that challenged the validity of the earlier agreement. The appellant had alleged an agreement for the hire of machinery, and claimed for arrears of rent. In the second action the appellant made a further claim for rent for a further period, relying on the original agreement subject to a later variation. The respondent pleaded that the agreement was “not in reality a hiring agreement for rent at all, but a form of borrowing money on security, and that as such it did not comply with legislation relating to money lending”: at 1013. As to this plea in the later action, their Lordships said at 1014:
In that sense it might be said that the respondent is seeking to set up something which either expresses or imports a contradiction of the record in the earlier action, to use the words employed by the court in Huffer v Allen (1866) LR 2 Exch 15. It comes near to a traverse. But, in their Lordships’ opinion, this proposition would not express the true nature of the respondent’s proposed defence. They say nothing as to its ultimate validity as a defence, when the action comes to be tried, or as to the legal analysis of what it is that the respondent is seeking to say; but it seems that it does not deny the fact that it entered into the written agreement founded upon, which speaks of “rent” and “hire”, but rather that it maintains that, when that agreement is read in conjunction with another contemporaneous agreement the obligation to pay the moneys claimed will be seen to be part of a transaction the real nature of which was the borrowing of money on the security of goods. That is an issue which was not raised at all by the plaint in the first action. As a defence, it is more like a plea by way of confession and avoidance than a traverse. On the whole their Lordships think it impossible to say that there was anything in the first judgment which “necessarily and with complete precision” decided this issue against the respondent, and they hold consequently that the estoppel claimed cannot be maintained against it.
As this passage indicates, their Lordships took a narrow approach to the question of what was necessarily decided in the first action, and to the estoppel that arose from that.
The order for possession might be said not to be a default judgment in the strict sense of the term. The failure of Mr Russo to enter an appearance did not relieve the Court from the obligation to decide whether the Bucks were entitled to an order: see Homestart Finance v Johnson [2003] SASC 432; (2003) 231 LSJS 447. But that is all that the Court had to decide.
The Statement of Claim in the possession proceedings claimed an order for possession of the Aldinga property, an order for costs, and “such further or other order as” the Court might deem fit.
The affidavit sworn by Ms Conn in support of the summons exhibited the Memorandum of Mortgage over the Aldinga property executed by Mr Russo, and the second loan agreement of 6 June 2002. The affidavit states that the mortgage secured the repayment of all amounts advanced by the Bucks “from time to time together with interest thereon and charges pursuant to a loan”, referring to the agreement of 6 June 2002. The affidavit asserts that “the loan has expired”, and that Mr Russo is in arrears in the payment of interest and the repayment of principal, and that the amount of the arrears is $160,488.81.
The order for possession necessarily involves a judicial determination that the Bucks were, at the date of the order, entitled to possession of the Aldinga property pursuant to the mortgage. That determination must have been based on a conclusion that the mortgage was duly registered and was valid and effective as between Mr Russo and the Bucks; a conclusion that at the date of the order there was money secured by the mortgage; and a conclusion that there had been an event of default as defined by the mortgage (a failure to pay money due) giving rise (upon the giving of the necessary notices) to a right of possession: see Morlend Finance Corp (Vic) Pty Ltd v Levine [1990] VR 205 and Angel v National Australia Bank Ltd [2001] FCA 1053; (2001) ATPR 41-832.
There is some difficulty in identifying the correct mortgage terms because of changes in the “Standard Terms and Conditions” that apply to the mortgage, but neither counsel suggested that anything turns on this.
I agree that while the order for possession stands Mr Russo cannot deny that the mortgage binds him. I have found, in any event, that it does bind him.
Nor can Mr Russo deny that at the date of the order funds had been advanced that were secured by the mortgage, and that an event of default for the purposes of the mortgage (a failure to pay money due for payment) had occurred, entitling the Bucks to possession of the Aldinga property, exercising their rights under the mortgage.
However, the making of the order for possession pursuant to the mortgage did not necessarily require a finding or determination as to the agreement or agreements pursuant to which money became owing by Mr Russo to the Bucks.
The mortgage secures payment of all money due and owing by Mr Russo to the Bucks, whatever the source of the obligation. In an event of default in respect of any such money, the Bucks can exercise their right under the mortgage to take possession.
It sufficed for the Court, when making an order for possession, to determine that money was due and owing and unpaid. The Court did not have to make a determination as to the agreement that gave rise to that circumstance. It was entitled to act on the claim that money was due and unpaid, even if the source of the obligation to make the payment was not identified. It was entitled to do so because it had to determine nothing more than that, for the purposes of the mortgage, money was due and unpaid.
If that is correct, then the order for possession does not necessarily involve a conclusion that money was advanced under the first loan contract or under the second loan contract, or under each of them. Nor does it necessarily involve a judicial determination that each of those agreements was binding on Mr Russo, and unaffected by any circumstance that might entitle him to have the agreement set aside.
This may seem to be a narrow approach. I acknowledge that it is narrower than the approach taken by Tadgell J in Morlend Finance. In somewhat similar circumstances he treated the making of an order for possession as involving a determination that the mortgage in question and the loan agreement under which money was advanced were subsisting and were binding on the borrower: see at 211. But in that case the borrower apparently resisted the order for possession, but was unsuccessful: at 208. So the judgment was one that followed a contested hearing.
Bearing in mind the judicial observations cited above as to the care required in deciding the scope of an issue estoppel said to arise from a default judgment, I consider that it is appropriate to take a narrow and careful approach in the present case.
It is also relevant to point out that the supporting affidavit of Ms Conn refers only to the second loan agreement of 6 June 2002. This creates an uncertainty, because of the confusion reflected in the second loan agreement, to which I have already referred at [173]-[175]. The second loan agreement fails to reflect the fact that there is an existing loan agreement, and then a further loan agreement for a separate advance.
Bearing in mind the uncertainty that arises from the terms of Ms Conn’s affidavit, I can see no reason why the Court should resolve the uncertainty in favour of the claimed estoppel. It would seem odd, for example, to hold that an estoppel arises that prevents Mr Russo challenging the binding nature of the second loan agreement, but leaving him free in theory to challenge the binding nature of the first loan agreement. It seems equally odd that something as important as an issue estoppel could be affected by the accident of the detail into which the affidavit in support of the summons for possession happens to descend.
In the end I return to the point at which I began. The claim for possession is based on a claim that the mortgage entitles the Bucks to possession because money due to them has not been paid on the due date. The claim did not require the Court to make a finding as to the agreement giving rise to the obligation to make the payment, at least in the absence of a controversy before the Court as to the existence of the obligation. Absent any contest, the Court would act on the bare assertion that money was due and unpaid, and was secured by the mortgage. Absent any controversy as to the issue, the reference to the source of the obligation to make the payment is simply an evidentiary matter, relied upon no doubt, but not requiring a judicial finding.
The approach I have taken may appear a narrow one, but it is appropriate to take a cautious and precise approach to the determination of the issues necessarily decided by a default judgment in a case like this.
For those reasons I do not accept the submission that the judgment for possession gives rise to an issue estoppel the effect of which is to preclude Mr Russo from denying that the loan agreements are binding on him.
Mr Simpson further submitted that a so-called Anshun estoppel arose that had the effect of preventing Mr Russo from attacking the binding nature of the loan agreements in the manner in which he now does. The relevant principle was summarised by Gibbs CJ, Mason and Aickin J in Anshun at 602-603 as follows:
In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relief upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings eg expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. …
It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment.
In my opinion the matters now raised by Mr Russo are not so relevant to the subject matter of the possession action that can be said to be unreasonable of him not to have raised those matters in the possession proceedings.
First of all, the claim that Mr Russo now makes, if it succeeds, will not give rise to a judgment that conflicts with the judgment in the possession proceedings. A conclusion that at an earlier time the Bucks were entitled to possession of the Aldinga property because of a default under the mortgage is not necessarily inconsistent with the conclusion that the loan agreements are not or one of them is not binding on Mr Russo, and that there now remains no money secured by the mortgage (should that be established).
As the only issue that the Court had to decide, as I have already concluded, was that money secured by the mortgage was due and payable and unpaid, it was not unreasonable for Mr Russo to allow that issue to go by default, and later to claim that the agreements upon which the Bucks relied are not binding on him because of the circumstances surrounding their making. That was, in the circumstances, a separate and distinct issue. It might have been raised in the possession proceedings, and had it been raised there would have been determined, one way or the other, so as to bind Mr Russo. But having regard to the limited nature of the issue raised by the claim for possession, I do not regard it as unreasonable not to plead the wider defence.
Had Mr Russo appeared and defended the claim for possession, but failed to raise the claims now made, it is likely that a plea of an Anshun estoppel would succeed. If he had contested the claim for possession, it would have been incumbent on him to raise all closely related claims at defences: cf Angel v National Australia Bank at 41-831 – 41-832. My conclusion is influenced by the fact that Mr Russo did not contest the possession proceedings.
It is pertinent to bear in mind that, to obtain an order for possession, the Bucks had to prove no more than that some amount of money was due and unpaid. I earlier referred to the fact that in connection with the first loan contract payments were made to the benefit of Mr Russo of the order of $30,000, so that his title could be cleared for the purpose of the second mortgage. Even if neither contract were binding on him, it is arguable that a condition of any order freeing him from those contracts would require restoration to the Bucks of the payments made to or for the benefit of Mr Russo. I refer to this merely to make the point that the Bucks might have been entitled to possession under the mortgage, even if neither of the loan contracts were binding on Mr Russo. This highlights the limited nature of the issue that was raised in the possession proceedings.
For those reasons I find that Mr Russo is not now prevented from raising the claim that he is not bound by the second loan agreement.
Other issues
Mr Russo has not claimed that this is a case in which, as between himself and the Bucks, he and Mr Buttigieg are two debtors and that, because of an agreement between him and Mr Buttigieg that he undertakes a secondary liability as guarantor only, he must be treated by the Bucks as a guarantor only.
There are circumstances in which equity can grant relief against the legal consequences of the form of a transaction.
If it were established that Mr Russo and Mr Buttigieg were co-debtors of the Bucks, and that by their conduct at or before the making of the advance Mr Buttigieg and Mr Russo had established the relationship of principal and surety as between themselves, and that the Bucks had agreed to this arrangement by implication, then as from the outset Mr Russo’s liability would have been that of a guarantor only: see AGC (Advances) Ltd v West (1984) 5 NSWLR 590 at 602-604 Hodgson J; O’Donovan & Phillips, Modern Contract of Guarantee (Thomson Law Book Co, 4^th ed, 2004) para [1.500].

As to the first advance, Mr Russo denies that he is liable at all, because he claims to have entered into the contract under a fundamental misapprehension as to its nature, or as a result of misrepresentation or misleading and deceptive conduct. That claim fails on the facts.
To the extent that he might claim that, at the time of the transaction, it was or should have been apparent to the Bucks that he entered into the transaction as a guarantor only, that claim also fails on the facts.
There is a further difficulty with which I have not had to grapple. The principle I have stated applies when there are two co-debtors, as between whom there is an arrangement that one of them is to be liable as surety or guarantor only. In the present case it has not been claimed or established that Mr Buttigieg was a party to the first advance.
In relation to the second advance, Mr Russo has denied being a party to the transaction at all. On the basis of my findings that claim succeeds on the facts.
Nor has Mr Russo claimed that although he entered into the contract in respect of the first advance as borrower, subsequent dealings between him, Mr Buttigieg and the Bucks have given rise to a situation in which the Bucks had notice that as between him and Mr Buttigieg he was a surety only, requiring the Bucks thereafter to treat him for certain purposes as if he were a surety only. The relevant principle in this respect is summarised in O’Donovan & Phillips (above) at para [1.500] as follows:
Where a creditor is later given notice or becomes aware of this contract of suretyship between the creditor’s co-debtors, the arrangement attracts some of the incidents of suretyship so far as the creditor is concerned; but it does not make its contract with the co-debtors one of guarantee. Nor does it make the co-debtor who has agreed to act as guarantor a surety for all purposes as between herself or himself and the creditor. But once the creditor receives notice of the suretyship it is expected to respect the rights of the co-debtor who has assumed the position of surety, despite the fact that the creditor has never specifically agreed to the co-debtor assuming such a position. (footnotes omitted)
As the case was not presented on this basis, it is not necessary to deal with this issue. Were it necessary to deal with it the same preliminary point would arise, that there is no suggestion that Mr Buttigieg is a co-debtor in respect of the first advance. And, moreover, the question would remain of whether a favourable conclusion on this issue would lead to any different result.
Conclusion
I now set out the conclusions that follow from what I have decided.
The orders that I propose to make do not reflect or deal with all of the claims for relief made in the Statement of Claim. Some of the orders claimed are unnecessary or inappropriate. In this, as in other respects, the Statement of Claim is confused and confusing.
The claim for an order setting aside the contract of loan purportedly made between Mr Russo and the Bucks on 15 March 2001 should be refused. Mr Russo is bound by the contract.
The claim for an order setting aside the second mortgage granted by Mr Russo in favour of the Bucks must be refused. The second mortgage is binding and effective.
An order should be made declaring that the purported contract for a loan of $70,000, between the Bucks and Mr Russo, of 6 June 2002 is of no effect as against Mr Russo.
It will be necessary to determine the amount owed (if any) by Mr Russo to the Bucks under the loan contract of 15 March 2001. Any amount due will be secured by the second mortgage over the Aldinga property, as will any other moneys falling within the scope of that mortgage. There may be other liabilities, such as costs, secured by the mortgage. It may be appropriate to refer that matter to a Master. Alternatively, the amount due by Mr Russo to the Bucks could be determined in the possession proceedings.
The claims for orders in this action relating to the possession proceedings in action number 857 of 2003 and 654 of 2004 should be refused. I have no power to make those orders in these proceedings. In any event, the second mortgage is valid and effective.
The claims against the Bucks, Ms Conn and PFM that they have engaged in conduct contrary to s 54, s 56, s 57 or s 85 of the Fair Trading Act 1987 (SA) should be dismissed, as should the claims for breach of s 7 of the Misrepresentation Act1972 (SA) and for misrepresentation generally. The consequential claims for damages and other orders should be dismissed.
I will need to hear the parties on the question of costs.
The plaintiff’s claim against Ms Conn and PFM has failed entirely. The plaintiff’s claim against the Bucks has succeeded in part. These are matters that will have to be taken into account in arriving at an appropriate order as to costs.