Schultz, Raymond Leslie v Renato Bruno Perillo and Wendy Winnifred Perillo; Renato Bruno Perillo and Wendy Winnifred Perillo v Kaybank Pty Ltd (ACN 008 431 650), Greg Jolly, Raymond Leslie Schultz

[1998] QSC 293

IN THE SUPREME COURT

OF QUEENSLAND  Writ No. 1568 of 1994

Brisbane

BETWEEN:

RAYMOND LESLIE SCHULTZ

Plaintiff

AND:

RENATO BRUNO PERILLO and
WENDY WINNIFRED PERILLO

Defendants

Writ No. 1571 of 1994

BETWEEN:

RENATO BRUNO PERILLO and
WENDY WINNIFRED PERILLO

Plaintiffs

AND:

KAYBANK PTY LTD (ACN 008 431 650)

First Defendant

AND:

GREG JOLLY

Second Defendant

AND:

RAYMOND LESLIE SCHULTZ

Third Defendant

REASONS FOR JUDGMENT - HELMAN J.

Judgment delivered 22 December 1998

1. The trials of these two actions, nos. 1568 and 1571 of 1994 were heard together.  Mr Renato Perillo and his wife Mrs Wendy (or Wendi) Perillo, the defendants in no. 1568 of 1994 and the plaintiffs in no. 1571 of 1994, have a counter-claim in no. 1568 of 1994.  Mr Raymond Schultz, the plaintiff in no. 1568 of 1994 and the third defendant in no. 1571 of 1994, has a counter-claim in no. 1571 of 1994.  I shall refer to Mr Renato Perillo and Mrs Wendy Perillo as ‘Mr Perillo’, ‘Mrs Perillo’, and ‘the Perillos’.  Their son, Mr Gino Perillo, is mentioned later in these reasons.  When I refer to him I shall do so as ‘Mr Gino Perillo’.

2. At the beginning of the trial I was told that the claim against the first defendant in no. 1571 of 1994, Kaybank Pty Ltd, had been settled.  The second defendant in no. 1571 of 1994, Mr Jolly, was served with the writ but has not entered an appearance to it.  The issues before me are then those which have arisen between Mr Schultz and the Perillos.  Those issues arise from two deeds, one executed in 1990 and the other in the following year.  By consent of Mr Schultz and the Perillos, the evidence received was treated as evidence in both actions.

3. On 28 March 1990 Mr Jolly as lender and the Perillos as the borrowers executed a deed of acknowledgement of debt, exhibit 1:

   WHEREAS:

I.The Lender made the advances to the Borrowers as set out in Schedule 1 (hereinafter referred to as ‘the advances’) and at the dates referred to in Schedule 1 and the Borrowers repaid the amounts at the dates as set out in Schedule 1.

II.Interest has accrued at the rate set out in the Schedule as agreed between the Lender and the Borrowers and the interest that has accrued is as set out in Schedule 1 and the Borrowers have made payments of the interest as provided in Schedule 1.

III.The balance of the advances which remain unpaid and which the Borrowers owe to the Lender is the sum of ONE HUNDRED AND THIRTY FOUR THOUSAND NINE HUNDRED AND EIGHTY TWO DOLLARS ($134,982.00) (hereinafter called ‘the Principal Sum’).

IV.The parties are desirous of entering into these presents for the purpose of acknowledging the indebtedness of the Borrowers in respect of the Principal Sum, and subject to the terms and conditions following.

NOW IN CONSIDERATION OF THESE PRESENTS AND THE TERMS AND CONDITIONS HEREINAFTER SET OUT IT IS AGREED as follows:

1.ACKNOWLEDGEMENT OF DEBT

The Borrowers hereby acknowledge that they are indebted to the Lender for the Principal Sum.

2.INTEREST

Interest shall be payable on the amount advanced, or on the balance outstanding thereof from time to time, calculated at the overdraft interest rate of the ANZ Bank for amounts exceeding $100,000.00, in respect of the daily balance outstanding in relation to the amount advanced, from the date of this agreement to the date upon which the balance of the sum advanced is repaid by the Borrower to the Lender, in full.  Interest calculated in accordance with the foregoing shall be compounded calendar monthly, in arrears.  Interest, including interest compounded as aforesaid, shall be payable with the final repayment of the balance of the sum advanced as hereinbefore provided.  Interest compounded as aforesaid shall be added to and therefore form part of the Principal Sum.

3.REPAYMENT OF THE PRINCIPAL SUM

The Principal Sum, or the balance outstanding thereof from time to time, together with interest accrued and capitalised as hereinbefore set out shall be payable by the Borrowers to the Lender within thirty (30) days of a demand by the Lender that the same is repayable.  However, in the event of the sale of the business conducted at Shop 137 Dolphin Arcade Surfers Paradise then the Lender is to be paid forthwith, without demand, from the balance of the proceeds of the said business in an amount calculated on a pro rata basis with the debt owed to Graham Kevin Cash and upon the settlement of the personal injuries action that the Borrowers are presently pursuing in the Supreme Court of Queensland then the Lender is to be repaid in full for the Principal Sum and interest accrued.

4.SECURITY FOR THE PRINCIPAL SUM

The Borrower hereby charges all of the Borrowers proceeds of the sale on the said business conducted at Shop 137 Dolphin Arcade Surfers Paradise and the monetary damages payable in respect of the Borrowers personal injuries action, by way of security for the payment of the Principal Sum, or the balance outstanding thereof from time to time, and the interest accrued and the Borrowers hereby agree that they will execute such other documentation as maybe [sic] necessary to formalise such a charge a lien.

5.PRINCIPAL SUM TO INCLUDE GUARANTEE

The Borrowers hereby agree that if the Lender is required to pay any moneys under the Lender’s Guarantee to Color-Rite Pty Ltd then the sums so paid shall form part of the Principal Sum and interest shall accrue on those sums paid as provided in Clause 2 hereof.

THE FIRST SCHEDULE

DATE OF AMOUNT	AMOUNT OF ADVANCE	AMOUNT REPAID
27.10.87	$3,049.83	NIL
30.05.88	$23,000.00
07.09.88	$20,000.00
09.88	$10,000.00
27.06.89	$25,101.91
30.06.89	$10,000.00
27.07.89	$3,000.00
08.08.89	$10,000.00
21.08.89	$9,772.25
06.09.89	$8,574.35
26.09.89	$4,129.36
27.09.89	$9,772.25
07.10.89	$155.00
$136,554.95	$31,123.00

INTEREST ACCRUED FROM THE DATE OF THE FIRST ADVANCE TO FEBRUARY 1990 $29,550.38

BALANCE OWED TO THE LENDER $134,982.33

1. On 15 May 1991 Mr Jolly as assignor, Mr Schultz as assignee, and the Perillos as debtors executed a deed, exhibit 2, designated assignment of debt:

   WHEREAS:

(a)By a certain Deed of Acknowledgement of Debt dated 28th March, 1990 between the Assignor and the Debtors, the Debtors have acknowledged being indebted to the Assignor for a certain sum of money.

(b)The Assignor is indebted to the Assignee pursuant to a Judgment of the Supreme Court of Queensland pursuant to Writ No. 981 of 1990 in the sum of ONE HUNDRED AND FIFTY NINE THOUSAND SIX HUNDRED AND NINE DOLLARS AND FORTY FOUR CENTS ($159,609.44) together with taxed costs in the sum of TWELVE THOUSAND SIX HUNDRED AND SIXTY DOLLARS AND TWELVE CENTS ($12,660.12) making a total of ONE HUNDRED AND SEVENTY TWO THOUSAND TWO HUNDRED AND SIXTY NINE DOLLARS AND FIFTY SIX CENTS ($172,269.56).  The Assignor acknowledges that interest will be payable to the Assignee at the rate of 16% per annum from the date of Judgment, being the 9th day of October, 1990 to the date of receipt of the moneys from the Debtor by the Assignee.

(c)In part satisfaction of that Judgment the Assignor has offered to assign his interest in the said Deed of Acknowledgement of Debt to the Assignee and the Debtors have acknowledged such assignment.

NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED AND DECLARED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS AND THE PARTIES HERETO DO HEREBY ACKNOWLEDGE AND CONFIRM THE RECITAL HERETO:

1.(a)        In consideration of the Assignee not proceeding to execute that part of the Judgment Debt outstanding by the Assignor to the extent of the moneys to be received from the Debtors herein, the Assignor hereby assigns to the Assignee all his right, title, estate and interest in and to the said Deed of Acknowledgement of Debt and moneys to be paid therefrom to the Assignee.

(b)        The Assignor covenants with the Assignee:-

(i)To deliver to the Assignee no later than two (2) days from the date hereof all original documents evidencing and referring to the Deed of Acknowledgement of Debt;

(ii)In the event that the Assignor receives moneys from the Debtors in part satisfaction or satisfaction of the Deed of Acknowledgement of Debt to pay those moneys immediately without deduction and without interference or treating those moneys in any way as his own to the Assignee.  Further the Assignor covenants with the Assignee that if those moneys are received the Assignor acknowledges he will receive those moneys in the capacity of a Trustee for the Assignee and shall not mix those moneys in any manner or at any time with his own.

2.         The Assignee hereby accepts such assignment in his favour of the right, title, estate and interest of the Assignor and and [sic] to the Deed of Acknowledgement of Debt.

3.         The Debtors hereby acknowledge the assignment of their debt from the Assignor to the Assignee and hereby covenant as follows:-

(i)To immediately execute an irrevocable authority to their Solicitors directing their Solicitors to attend to payment of all moneys received as referred to in the Deed of Acknowledgement of Debt at the direction of the Assignee;

(ii)To pursue the claim referred to in the Deed of Assignment of Debt with all haste and willingness and to incur no unnecessary delay so as to frustrate the payment of moneys to the Assignee.

(iii)And to do all acts and execute all necessary documents to cause the Assignee to receive payment pursuant to the Deed of Acknowledgement of Debt and this Deed of Assignment of that Debt.

4.         The costs of preparation, execution and stamping of these presents shall be borne and paid for by the Assignor.

1. In action no. 1568 of 1994 Mr Schultz seeks an order for specific performance, injunctions, and declarations the effect of which would be to enable him to enforce a charge on the proceeds of the Perillos’ claims for damages for personal injuries referred to in the deeds.

2. The Perillos in their counter-claim in action no. 1568 of 1994 seek the following relief:

(a)a declaration that the assignment and/or acknowledgement are void; or

(b)a declaration that the assignment and/or acknowledgement are voidable at the instance of the Defendants and have been avoided; or

(c)an order that the assignment and acknowledgement be set aside;

(d)in the alternative to claims (a), (b) and (c):

(i)a declaration that upon its proper construction, the assignment is not an enforceable mortgage, charge or lien on the proceeds of the Defendants claims for damages for personal injuries in Supreme Court actions 1919 and 1920 of 1991; and

(ii)a declaration that any debt owing by the Defendants to the Plaintiff has merged in the Defendants’ bankruptcies;

In action no. 1571 of 1994 the Perillos and Mr Schultz claimed in essence the same relief as sought in action no. 1568 of 1994.

1. I shall now describe the events which led to these actions, as I find those events to be.

1. Mr and Mrs Perillo were both born in 1941: Mr Perillo in Italy on 24 August, and Mrs Perillo in New Zealand on 14 February.  Mr Perillo’s family emigrated to New Zealand in 1951.  He went to school until he was fourteen years old.  After leaving school Mr Perillo became an apprentice motor mechanic and later joined his father and brothers in a shoe manufacturing company.  Mr Perillo was in business from the age of seventeen years.  Italian was his native tongue and the language used at home and later at work, but when he gave evidence he appeared to be reasonably proficient in English.  Mrs Perillo left school when she was at secondary level and became a dental nurse and later a milliner.  In 1986 Mr and Mrs Perillo came to Queensland to live, establishing a shoe factory and a retail shoe shop conducted by Perillo family companies on the Gold Coast: the factory was at Bundall and the shop in the Dolphin Arcade, Surfers’ Paradise.  A company called Domani Footwear Manufacturers Pty Ltd was the manufacturer and a company called Domani Shoes Pty Ltd was the retailer.  Mr Perillo was the managing director of both companies, and other members of the Perillo family including Mrs Perillo and Mr Gino Perillo were directors of both companies.  Mr and Mrs Perillo worked at both factory and shop, Mrs Perillo undertaking clerical and other duties.

2. Mr and Mrs Perillo met Mr Jolly in 1986, soon after they came to Australia.  He was ‘in real estate’, and in that year they purchased a house on the Gold Coast through him.  Mr Perillo and Mr Jolly became friends.  They often played golf together.  Mr Jolly at no time lent any money to either Mr or Mrs Perillo.  Mr Jolly did however lend money to Domani Footwear Manufacturers enabling it to make deposits into its bank account or to discharge debts.  A photocopy of a card which became exhibit 27 shows that the sums advanced by Mr Jolly to the company were those set out in the schedule to exhibit 1.  But an examination of the books of the companies by Mr Phillip Jefferson, the liquidator of the companies, and summarized in exhibit 28 shows that Mr Jolly was owed only $86,151.02 on 1 February 1990.  (I have adjusted the figure shown in exhibit 28 for an error of $100.00.)  That figure is probably the correct balance of the moneys owing to Mr Jolly on 28 March 1990, rather than that shown in the schedule to exhibit 1.

1. In late 1988 both Mr and Mrs Perillo suffered severe head and other injuries in a motor vehicle collision which resulted in their being in hospital until April 1989.  I shall give further details of the injuries and their effects later; it suffices to record now that neither Mr nor Mrs Perillo was able to work in the family businesses after their discharge from hospital.  Mr Perillo tried to do so by attending the business premises but was unable to make any constructive contribution.  After the collision Mr Gino Perillo and a Mr Clem Newell, a pattern cutter, tried to manage the businesses.  Domani Footwear Manufacturers was probably insolvent shortly after Mr and Mrs Perillo were injured, and both companies were in financial difficulties so that certainly by 28 March 1990 both were insolvent.  Mr Jolly appeared at management committee meetings from August 1989.  Before that he had taken no interest in the companies apart from making some of the advances recorded in the schedule to exhibit 1.  According to Mr Gino Perillo, Mr Jolly ‘probably used to pop in a couple of times a week’ after Mr and Mrs Perillo were injured. 

2. On 28 March 1990, Mr Jolly handed Mr Gino Perillo exhibit 1 at the factory.  Mr Jolly told Mr Gino Perillo that it was ‘in relation to a debt to Domani Footwear and Domani Shoes in relation to money’, and he asked that Mr Perillo get it signed.  Mr Gino Perillo took it to his parents’ house and told them it was in relation to money that Mr Jolly had put into ‘the company’.  He did not suggest talking to a solicitor about it.  They ‘scanned’ it, then signed it, and their son witnessed their signatures.  Mr Gino Perillo then took exhibit 1 back to Mr Jolly.  Neither Mr Perillo nor Mrs Perillo can remember signing exhibit 1.  Mrs Perillo’s diary entry for that day contains this entry: ‘Tony and Greg called in, we had papers to sign for section’, but that is a reference to a visit by a Mr Tony De Geest and Mr Jolly concerning the sale of a block of land, which is referred to as a ‘section’.  Mr Gino Perillo gave evidence that he understood what exhibit 1 was, and agreed that had he had any doubt about his parents’ ability to understand it he would not have allowed them to sign it. 

1. When exhibit 1 was prepared by solicitors Rapp Hickey and Morgan, that firm was also acting for Mr and Mrs Perillo in connexion with their claim for damages, but instructions for the preparation of exhibit 1 did not come from Mr and Mrs Perillo.  They came from a Mr Graham Cash, an accountant retained by Mr and Mrs Perillo and the Perillo companies.  The Perillos were indebted to Mr Cash, and Domani Footwear Manufacturers was indebted to Touche Ross in which Mr Cash was a partner.  Exhibit 1 and other documents concerning the other debts I have mentioned were prepared.  The documents (deeds of acknowledgement between Mr Cash and the Perillos, between Mr Jolly and the Perillos (exhibit 1), between Touche Ross and Domani Footwear Manufacturers, a deed of guarantee, and two irrevocable authorities) were sent to Mr Cash on 19 March 1990.  Mr Anthony Hickey, the solicitor who received the instructions from Mr Cash, regarded Mr Cash as the client in relation to the documents including exhibit 1, although Mr Paul Brinsmead, the articled clerk - now a solicitor - who was instructed by Mr Hickey to prepare the documents, recorded Mr and Mrs Perillo as the clients.  No account for fees was rendered.  At all events Mr and Mrs Perillo received no legal advice from Mr Hickey or Mr Brinsmead or anyone else about exhibit 1.

2. Earlier in March 1990, on the 8th, Mr and Mrs Perillo signed a deed of guarantee (see exhibit 22) between Kaybank, the landlord of the factory premises, and them as guarantors following difficulties between Domani Footwear Manufacturers and Kaybank which had resulted in Kaybank’s re-entry into possession of the factory.

3. Mr Jolly was well placed to know the Perillos’ plight - physical, mental, and financial - after the collision.  He visited them in hospital, and later introduced Mrs Perillo to Dr William Yuille, general practitioner of Broadbeach, whom she and Mr Perillo began consulting in October 1989.  The Perillos’ financial difficulties had resulted in the sale of their house, and the payment of the proceeds to the Westpac Bank.  Mr Jolly arranged the sale of the house and the tenancy of a rented house following the sale.  The entry for 21 February 1990 in Mrs Perillo’s diary records the finding of the new house.  Mrs Perillo’s diary also shows that Mr Jolly would have seen the Perillos in various places on five occasions shortly before exhibit 1 was executed:  on 21 February, and 1, 25, 26 and earlier on 28 March.  On 7 August 1990 a winding-up order was made in relation to Domani Footwear Manufacturers and on 29 October 1990 a winding-up order was made in relation to Domani Shoes.

1. Before exhibit 2 was executed the Perillos received some legal advice concerning it from Mr Nicholas Illet, a law clerk employed by their then solicitors Rapp Hickey Morgan & Power.  Mr Illet proceeded on the assumption that exhibit 1 recorded ‘a fixed arrangement’ and he had no instructions to interfere with it.  Irrevocable authorities directed to solicitors acting for the Perillos were executed on 15 May 1991 (Rapp Hickey Morgan & Power) and 15 January 1992 (Bowdens):  see clause 3(i) of exhibit 2.  On 1 February 1993 Mr and Mrs Perillo were declared bankrupt.  (They were discharged on 2 February 1996.)  It was common ground that in or about December 1993 the Perillos withdrew their instructions from Bowdens and retained Sly & Weigall Cannan and Peterson, and that by a letter from Mr Schultz’s solicitors dated 22 December 1993 the Perillos were called upon to execute a fresh authority and direction to their new solicitors, and that the Perillos had failed to do so.

2. On 6 October 1994 the Perillos’ then solicitors sent a notice to Mr Jolly asserting that exhibit 1 was void ab initio, or alternatively that it was voidable at their instance and they thereby purported to avoid it.  A notice in similar terms concerning exhibit 2 was sent on the same day to Mr Schultz’s solicitors.

1. I return now to the injuries suffered by the Perillos.  On 15 November 1988 on the Gold Coast Mr and Mrs Perillo were badly injured in a collision between a motor car in which they were travelling and a bus.  Mr Perillo, the driver, suffered a severe closed head injury with a subarachnoid haemorrhage, a collapsed right lower lung, and a fractured left clavicle.  Mrs Perillo, the passenger, received severe closed head injuries with fractured facial bones, a left haemopneumothorax, a right pneumothorax, a myocardial contusion, a fractured pelvis, a chip fracture of the right radius, and a compound fracture of the left elbow.  Both were taken to the Gold Coast Hospital.  Both later received treatment at the Princess Alexandra Hospital in Brisbane.  Both were discharged on 14 April 1989 from the Princess Alexandra Head Injuries Unit.  Mr Perillo was capable of independent daily activity, but needed constant supervision because of gross memory and cognitive defects.

1. In October 1989 Mr Perillo’s main complaint to Dr Yuille at the first consultation was tiredness in the afternoons and evenings.  He did not enjoy social functions.  He was going into the family business ‘for a few hours’ but was not really productive.  He felt his memory was improving.  In a report dated 22 March 1990 Dr Yuille recorded that after the first consultation Mr Perillo had made slow but steady progress:  Mr Perillo felt he was able to go longer through the day before getting tired, he was more sociable and felt well, and his memory was improving.  Dr Yuille reported that Mr Perillo did however complain of a dislocated left acromio-clavicular joint which was painful on abduction and ached when he was walking his dog and playing golf.  In the report Dr Yuille summarized his assessment of Mr Perillo’s condition as follows:

   In short Mr Renato Perillo sustained a major head injury in November 1988 from which it was thought he would never return to work.  However he has made slow and steady progress in the five months that I have been attending him and it is hoped that he may be able to return to work.  However it is uncertain in what capacity he could return as although he says he feels well he still lacks drive and concentration.

The outlook must remain guarded.

1. In a report also dated 22 March 1990 Dr Yuille recorded Mrs Perillo’s progress.  He reported that he had been reviewing her condition at monthly intervals since October 1989.  Her main symptoms had been poor sleeping and depression, a painful left elbow with a restricted range of movement, left periorbital headaches, and left chest and pelvic pains.  Dr Yuille reported that her sleep and mood had improved and her headaches had largely settled.  Back pain and lower chest pain persisted.  The left elbow remained restricted in range of movement by about fifty per cent. but was less painful.  She complained that the vision in her left eye had deteriorated since the collision.  Mrs Perillo generally lacked confidence and was unable to resume work.  Dr Yuille summarized her case:

   In review Mrs Perillo received severe multiple injuries in a motor vehicle accident in November 1988.  Although she has improved in the five months since attending this clinic her left elbow remains painful and restricted in movement and function.

Her drive and confidence are very low and she remains unfit to return to work.  Her return to her previous level of involvement seems unlikely.

1. In a report dated 1 October 1991 Dr Yuille referred to Mr Perillo’s ‘decreased mental function’.  In that report he gave this assessment:

   Mr Perillo still suffers from decreased mental function.  His memory is poor and he is unable to concentrate.  He has little insight into his problems.  He tires in the afternoons and has to have a one to two hours sleep.  He wakes feeling irritable, which is out of character with his premorbid personality.  His personal life has been severely compromised.

It is improbable that Mr Perillo will be able to work again in any capacity.  It is now nearly three years since his accident and it is unlikely Mr Perillo’s condition will improve markedly.

Asked what he could say about Mr Perillo’s comprehension of ‘things generally’ in March 1990, Dr Yuille said he thought it would have been very poor, although Mr Perillo always put on a big smile and said there was nothing wrong with him.  Dr Yuille also said Mr Perillo’s comprehension of what had happened to him was ‘very low’ so Dr Yuille did not think he would have understood a document like exhibit 1.  Dr Yuille said he also doubted Mrs Perillo would have, in March 1990, understood exhibit 1.

1. On 8 and 15 August 1990 Ms Robyn Nolan, clinical psychologist, carried out neuropsychological assessments of Mr and Mrs Perillo.  The assessments were for the purpose of determining whether there were residual cognitive and memory deficits caused by the head injuries suffered in the collision.  Interviews were conducted and appropriate tests administered.  Husband and wife each gave impressions of the other’s day-to-day functioning.

1. After administering the tests Ms Nolan found Mr Perillo was functioning within the ‘Low Average’ range of intelligence on the WAIS-R verbal scale with below-average scores on selected sub-tests ‘tapping perceptional-organizational and visuo-motor skills’.  Ms Nolan concluded that that result represented a marked decline in functioning from a previously higher level, likely in her assessment to have been at least in the ‘Average’ range.  Mr Perillo’s score on a reading test was in the average range as was his practical judgment and understanding of the reasons for ‘common societal practices’.  Ms Nolan reported that notable deficits included:

   1.slowed thinking, impaired capacity for abstract and flexible thinking, poor mental control of information and poor planning such that his capacity for complex problem-solving was poor.

   2.difficulty carrying out other than the simplest mathematical calculations (dyscalculia);

   3.nominal aphasia - difficulty identifying objects by their proper names;

   4.difficulty solving constructional problems such as assembling cut-up objects and copying designs with blocks (constructional dyspraxia) suggesting a marked deficit in perceptual-organizational and visuo-spatial functioning.

Ms Nolan reported there was ample evidence of residual deficits in memory functioning compared with the performance of ‘age-peers’.  Under the heading ‘SUMMARY AND OPINION’ Ms Nolan gave this assessment of Mr Perillo:

Mr Perillo reportedly sustained severe head injuries in a motor vehicle accident on 15th November, 1988.  He has post-traumatic amnesia for the incident and for many months following it and required close supervision and rehabilitation during the lengthy hospitalization and after discharge as a result of the severe cognitive and memory deficits which were the direct result of the injuries sustained in the accident.

Nearly two years later his cognitive and memory functioning have improved considerably but formal neuropsychological assessment reveals mild to moderate residual deficits which are unlikely to show much improvement in the future.

There is evidence of overall intellectual decline as a result head injuries sustained in the accident with a poor capacity for verbal and non-verbal problem-solving, rigidity and concreteness of thought, perceptual difficulties, inability to perform mathematical calculations, and moderate deficits in memory functioning affecting his capacity for new learning.  This cluster of high level cognitive deficits results in a very poor capacity for adaptive functioning which requires the ability to develop realistic plans, to anticipate the consequences of action, monitor it for effectiveness and use errors to make adjustments.  Practical judgement is thus impaired.

This major intellectual disability, while not a visible one, would have prevented Mr Perillo from performing his previous role as Managing Director of a manufacturing company when he attempted to resume work, and will prevent him from functioning successfully in such a role again.  The perceptual deficits in particular, in combination with memory difficulties also prevent him from carrying out manual tasks at which he was formerly skilled.

1. Ms Nolan reported that while Mrs Perillo was functioning within the ‘Average’ range of intelligence on the WAIS-R verbal scale with similar scores on selected sub-tests ‘tapping perceptual-organizational and visuo-motor skills’, the qualitative signs - reading ability, and high level occupational functioning premorbidly - suggested that that result represented a moderate decline in intellectual functioning as a result of head injuries sustained in the collision.  Ms Nolan reported that notable deficits included:

   1.slowed thinking, impaired capacity for abstract and flexible thinking, poor mental control of information and poor mental planning such that her capacity for complex problem-solving was poor.

   2.difficulty carrying out other than the simplest mathematical calculations (dyscalculia);

   3.difficulty defining the meanings of words and reasons for common societal practices, although she appeared to know the answers, suggesting a persistent high level language processing problem.

Ms Nolan found Mrs Perillo’s overall memory functioning was at the lower end of the ‘Average’ range but as the quality and complexity of information to be registered, retained, and recalled increased her performance declined markedly across all modalities - verbal and non-verbal, auditory and visual.  Mrs Perillo then tended to guess and offered grossly inaccurate impressions of the original material.  Ms Nolan concluded that that was a major functional disability.  Ms Nolan’s ‘SUMMARY AND OPINION’ of Mrs Perillo included the following:

Mrs Perillo sustained severe life-threatening injuries including head and chest injuries in a motor vehicle accident on 15th November, 1988.  She has post-traumatic amnesia for the accident and many months following it.  Both the head injuries and hypoxia from poor lung function impacted on her cognitive and memory functioning which were severely impaired during the lengthy hospitalization and still a major disability after discharge with her requiring assistance at home.

Nearly two years later, she has made a good recovery in comparison with the severity of deficits recorded on discharge.  However, her overall intellectual functioning has been impaired by high level cognitive deficits including rigid, concrete thinking, expressive language difficulties, and severe dyscalculia.  In addition she continues to suffer from marked impairment of functional memory.  For her, new learning, while possible has become a slow and laborious.

These intellectual disabilities have impaired her capacity for adaptive functioning which requires the ability to develop realistic plans, to anticipate the consequences of action, monitor it for effectiveness and use errors to make adjustments.  It is not likely that she will recover much further from this level.

1. On 18 January 1992 Mr Perillo had a left-sided stroke, but that misfortune is of no relevance to the issues in this case.  On 22 February 1992 Mr and Mrs Perillo were examined by Dr James Toakley, neurosurgeon, who reported that Mr Perillo had had a serious head and brain injury.  A computerized axial tomography scan showed left frontal atrophy, which was consistent with the results of the psychometric testing by Ms Nolan.  Dr Toakley assessed Mrs Perillo as having had a serious head and brain injury as a result of the collision.  The severity of the brain injury was confirmed by the period of amnesia, an abnormal scan, and the psychometric testing by Ms Nolan.  In a report dated 2 September 1998 Dr Toakley gave his opinion on whether the Perillos could understand exhibits 1 and 2:  ‘It is certainly possible that they could not understand the deeds or the effect of the deeds even with explanation.’  Dr Toakley reviewed the Perillos on 14 October 1998, reporting that Mr Perillo had had a dreadful brain injury which involved both frontal lobes - left more than right, and that personality changes, poor memory and concentration, were the result of the brain damage.  Dr Toakley continued:

   At the time of his signing of documents in March 1990 and May 1991, I feel he was probably at the end of his recovery period.  It is usually thought that after three years, any improvement is minimal if any.

I find it difficult to believe that at no stage has he been told of the severity of his injuries, particularly the results of varying tests done.

In my letter 23 September 1998, the faults in cognition memory and ability to appreciate the result of actions is certainly very much restricted compared with his pre-accident status.

As in my letter, I find it hard to believe that they could handle their financial affairs in 1991.

1. In a report dated 14 October 1998 Dr Toakley gave this opinion of Mrs Perillo’s condition:

   I feel as previously that this patient has had a dreadful brain injury as a result of the accident with damage to the frontal lobes as per the report and some damage also to a temporal lobe.

I find it difficult to believe that she could comprehend what was happening when she signed documents.

I have grave doubts that she could handle large sums of monies.

All in all, the scan in her case is worse than that of her husband and in both cases psychometric testing fits in with the x-ray findings.

1. It was conceded by Mr Perry on behalf of Mr Schultz that any debt upon which his client might have sought to rely had ‘merged’ in the Perillos’ bankruptcies.  Mr Perry referred to Deputy Commission of Taxation v. Government Insurance Office of N.S.W. & Anor (1993) 117 A.L.R. 61. The case for Mr Schultz was put as relying on the claim that there had been a charge on the proceeds of the Perillos’ actions for damages for personal injuries created by exhibit 1 validly assigned to Mr Schultz by exhibit 2. It was common ground that those actions were nos. 1919 and 1920 of 1991, now settled.

2. On behalf of Mr and Mrs Perillo several arguments were advanced in resisting Mr Schultz’s claim.  It is convenient to deal first with the one that depends upon an assessment of the evidence as to the effect the Perillos’ injuries.  In essence the Perillos asserted that they were under special disabilities when the deeds were executed such that reliance on them by Mr Schultz is unfair and unconscientious.  Accordingly, invoking the principle explained in Commercial Bank of Australia Ltd v. Amadio (1983) 151 C.L.R. 447 and more recently in the decision in Bridgewater v. Leahy & Ors (1998) 72 A.L.J.R. 1525, the Perillos seek the order (c) I have referred to. Mr Perry submitted that that issue had not been raised in the Perillos’ pleadings. I am not persuaded that there is anything in that contention as the Perillos’ injuries and their alleged consequent lack of understanding, and the absence of legal advice, consideration, and personal indebtedness were all pleaded. It was pleaded that Mr Jolly knew, or ought to have known of, those facts. It was also pleaded that in those circumstances, so far as exhibit 1 purported to be an assignment or a charge of future property, it was unenforceable against the Perillos.

1. The Perillos probably did not understand exhibit 1 when they executed it.  The deed itself suggests that: it recites that advances were made by Mr Jolly to the Perillos, when they had not.  Furthermore, the balance of account is probably wrong.  But more important is the evidence of their injuries.  It is true that Dr Toakley, in his report of 2 September 1998, did not go beyond expressing the view that the Perillos’ inability to understand the deeds or the effect of the deeds, even with explanation, was ‘certainly possible’, and that in his oral evidence he went no further.  Furthermore Dr Toakley conceded in cross-examination that in order to disprove the hypothesis that evidence of roughly contemporary transactions and of an understanding of them would provide ‘cogent indications’ of the Perillos’ understanding of exhibit 1 ‘someone would have had to have quizzed them at that time about what the documents actually meant’ or at least done that subsequently.  There was no evidence that that had been done.  Ms Nolan agreed in cross-examination that she did not discuss with the Perillos anything about ‘their ability to appreciate and understand the contents of documents and sign them’, and that such matters would have been relevant to her assessment.  But notwithstanding those reservations in the evidence of those experts, I conclude, as I have said, that the Perillos probably did not understand exhibit 1.  In arriving at that conclusion I give full weight to the reservations, but I also take into account my assessment of the Perillos and their son in the witness box, the evidence of Dr Yuille, the absence of legal advice, and the strong likelihood that Mr Gino Perillo failed to explain the contents of exhibit 1 adequately before they executed it.

2. Mr Jolly was, I conclude, well aware of the nature and effect of the injuries suffered by the Perillos.  Mr Jolly also knew the Perillo companies were in financial difficulties.  That would have been obvious to him at least from his attendance at management committee meetings from August 1989.  It would have been obvious to Mr Jolly that, without exhibit 1, he could not look to the proceeds of the Perillos’ claims to damages for the recovery of the money owed to him by Domani Footwear Manufacturers, and so it would have been obvious that in executing the deed the Perillos would have suffered a detriment for no consideration.

1. The execution of exhibit 1 must therefore be seen, in my view, as a transaction in which the Perillos were under a special disability in dealing with Mr Jolly, with the consequence that there was an absence of any reasonable degree of equality between them.  That disability must have been sufficiently evident to Mr Jolly to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the Perillos’ assent to the transaction in the circumstances in which he procured and accepted it.  The onus is then cast upon one relying on the transaction to show that it was fair, just and reasonable: Commercial Bank of Australia Ltd v. Amadio, at p. 474 per Deane J., with whom Wilson J. agreed. The transaction has not been shown to be fair, just, and reasonable. In making the advances he did, Mr Jolly, as a man of business, would no doubt have been well aware that he was taking a risk in lending to a company. He evidently was prepared to take the risk, without personal guarantees. When things became desperate he sought to salvage something from the wreckage by taking advantage of the disabilities of his friends.

2. Mr Schultz, as I shall explain the assignee of an equitable interest, took his assignment subject to all the equities and infirmities to which the alleged charge in favour of Mr Jolly was subject: Redman  v.  The Permanent Trustee Co  of  New  South  Wales  Ltd (1916) 22 C.L.R. 84, at pp. 91-92 per Griffith C.J. and Barton J. It follows that the Perillos are entitled to succeed in resisting Mr Schultz’s claim on any ground that they would be entitled to rely on in resisting a similar claim by Mr Jolly arising from exhibit 1.

3. Mr Schultz must fail and the Perillos succeed for two other reasons:  lack of consideration for the charge, and champerty.

1. It was common ground that Clause 4 of exhibit 1 purported to create an equitable assignment by way of charge on the proceeds of the Perillos’ claims for damages for personal injuries: see J. D. Starke, Assignment of Choses in Action in Australia, 1972, pp. 14-15, and 20.  The proceeds were of course future property, which may be assigned:  see Glegg v. Bromley [1912] 3 K.B. 474. But assignment is possible only in equity: Meagher, Gummow & Lehane, Equity - Doctrines and Remedies, 3rd ed., 1992, para. 696, p. 206.  A charge of equitable property requires valuable consideration: see Re Earl of Lucan, Hardinge v. Cobden (1890) 45 Ch. D. 470; Meagher, Gummow & Lehane, loc. cit., and para. 602, p. 163; and P. Parkinson, The Principles of Equity, 1996, para. 1320, p. 496, fn. 82.  A deed is not sufficient: Re Ellenborough [1903] 1 Ch. 697 at p. 700; and Norman v. Federal Commissioner of Taxation (1963) 109 C.L.R. 9, at p. 24 per Windeyer J., and p. 16 per Dixon C.J., p. 18 per McTiernan J., and pp. 20-21 per Menzies J.

2. There was no consideration for the charge referred to in exhibit 1.  The existence of a debt is not good consideration in itself, but consideration may be implied in the deed, or inferred for the circumstances in which the deed was executed: see Fullerton v. Provincial Bank of Ireland [1903] A.C. 309 at pp. 313-314 per Lord Macnaghten; and Glegg v. Bromley at pp. 479-483 per Vaughan Williams L.J., pp. 486-487 per Fletcher Moulton L.J., and pp. 491-492 per Parker J.

1. Mr Perry suggested that it could be inferred from the circumstances that the deed was executed in consideration of Mr Jolly’s advancing further sums to the Domani Footwear Manufacturers, or of forbearance by Mr Jolly from taking any step to recover sums advanced ‘which would necessarily have resulted in the company being placed into liquidation’ or of Mr Jolly’s continuing his involvement with the company.  I am not persuaded that any of those suggested explanations has been established.  It was not in the least likely that Mr Jolly would have contemplated either the first or the third courses of action.  The Perillo companies were too far gone by the time exhibit 1 was executed.  I see no basis for concluding that he would have contemplated refraining for seeking to recover from the company for any other reason than that he thought such a course would be fruitless and expensive.  The authorities show, as I have indicated, that on the question of consideration, reliance may be placed on inferences drawn from circumstances, but I do not think it wholly without significance that explicit evidence concerning that matter was absent when it might reasonably have been expected to be available, if the true facts were as contended for on Mr Schultz’s behalf.

1. The assignment of the fruits of the Perillos’ claims, as Mr Schultz seeks to enforce it, must be regarded as champertous.  That is because of the duty cast upon the Perillos in clause 3(ii) of the 1991 deed.  The clause deprived them of their liberty to proceed or not with their claims as they saw fit.  It conferred on Mr Schultz the right, correlative to their duty, to interfere in the conduct of their actions.  Mr Jolly had no ‘genuine and substantive’ or ‘genuine commercial’ interest in enforcing the Perillos’ claims anterior to and independent of the assignment in exhibit 1 of the kind referred to in Trendtex Trading Corp. v. Credit Suisse [1982] A.C. 679 at p. 694 per Lord Wilberforce, and at p. 703 per Lord Roskill; and see Meagher, Gummow & Lehane, op. cit., para. 694, p. 204.  It follows that the assignment in exhibit 1, as it came to Mr Schultz in exhibit 2 with the right to interfere in the conduct of the Perillos’ actions - to insist on their being carried on, must be regarded as void for champerty: Glegg v. Bromley at p. 484 per Vaughan Williams L.J., pp. 488-489 per Fletcher Moulton L.J., and p. 490 per Parker J.; and Meagher, Gummow & Lehane, op. cit., para. 696, p. 206.  Giles v. Thompson [1994] 1 A.C. 142 was a case concerning agreements between motorists whose cars had been damaged and car-hire companies from which the motorists hired substitute vehicles while repairs were carried out on their cars. The agreements permitted intervention by the car-hire companies in litigation to recover compensation from those who had allegedly damaged the cars, but the agreements were held not to be champertous. The case is distinguishable on its facts from these actions because there was in the agreements no charge or assignment of the proceeds of the motorists’ claims. In addition there was not ‘anything officious or wanton’ about the interventions in the litigation: p. 164 per Lord Mustill, with whom the other members of the House agreed. The car-hire companies had then interests of the kind that justified intervention.

1. It was pleaded on behalf of Mr Schultz that the Perillos are estopped from denying that exhibit 2, properly construed, created a fresh indebtedness and charge in favour of Mr Schultz.  As I have related, Mr Perry, on behalf of Mr Schultz, abandoned any claim based on debt, but something must be said about the contention that exhibit 2 created a fresh charge in favour of Mr Schultz.  Giving the words of Clause 3 - the provision in exhibit 2 Mr Schultz must rely on on this question - their natural meanings, I conclude that they do not create a charge but merely attempt to ensure that Mr Schultz will have the benefit of the assignment of the charge in favour of Mr Jolly.  Furthermore, if exhibit 2 did create a fresh charge, it must fail for want of consideration.

2. There will therefore be judgments for the Perillos.  I shall invite further submissions on their forms and on costs.