St George Bank Ltd v Trimarchi

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NEW SOUTH WALES COURT OF APPEAL

CITATION:      ST GEORGE BANK LTD v TRIMARCHI & ANOR [2004]  NSWCA 120

FILE NUMBER(S):
40385/03

HEARING DATE(S):               23, 24 February 2004

JUDGMENT DATE: 20/04/2004

PARTIES:
ST GEORGE BANK LTD v Domenico TRIMARCHI & Anor

JUDGMENT OF:       Mason P Sheller JA Cripps AJA   

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S):          12097/99

LOWER COURT JUDICIAL OFFICER:     Dunford J

COUNSEL:
Appellant: B A Coles QC/ M A Ashhurst
Respondents: N C Hutley SC/ M B J Lee

SOLICITORS:
Appellant: Kemp Strang
Respondents: Marsdens Law Group

CATCHWORDS:
UNJUST TRANSACTION/CONTRACT - Contracts Review Act 1980 - Avoidance of mortgage - parents guarantors of son's debts - unequal bargaining power - independent advice - standard of review for question of unjustness of a contact - whether constrained in same manner as discretionary orders  (ND)

LEGISLATION CITED:

DECISION:
Appeal dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40385/03

MASON P
SHELLER JA
CRIPPS AJA

Tuesday 20 April 2004

ST GEORGE BANK LTD v Domenica TRIMARCHI & Anor

JUDGMENT

  1. MASON P:  The appellant sought to enforce a Loan Agreement and Mortgage entered into by the respondents in late 1995 and early 1996.  The mortgaged lands were two rented investment properties previously acquired by the respondents and the respondents’ matrimonial home.  There was also a property at 72-74 Bathurst Street Liverpool in which the respondent Mr Domenico Trimarchi had a one-third interest.

  2. The Loan Agreement and Mortgage were part of a wider set of interlocking agreements that included mortgages over other properties owned by the respondents’ son and daughter-in-law. 

  3. The respondents’ son Anthony Trimarchi was a solicitor at the time.  He practised in partnership with Mr Adrian Matiussi until 31 December 1995.  The son was subsequently struck-off, convicted and imprisoned.

  4. The Loan Agreement and Mortgage treated the respondents, their son and daughter-in-law as joint borrowers.  In fact, the parents were the guarantors of their son’s debt, as between themselves and their son, for reasons later explained.

  5. The son defaulted.  The mortgaged properties in which he had an interest were sold by the appellant with the proceeds being applied towards the outstanding debt.  As at 8 July 2002 $1,148,075 remained outstanding and it was this sum that the appellant sought to recover from the respondents.

  6. The agreements and mortgages entered into in favour of the appellant (hereafter compendiously referred to as the “St George Bank transaction”), were in consideration of the appellant advancing $2,675,000.  $75,000 of that sum was made available to the son by way of overdraft accommodation for use in his law practice.  The balance of $2,600,000 was paid to National Mutual Trustees Ltd (National Mutual) to discharge borrowings from that institution that were in default.  Those borrowings had also been secured upon mortgages given by the senior and junior branches of the Trimarchi family over the same properties as were the subject of the St George Bank transaction.  The National Mutual transaction had been entered into in…

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Details
Case
[2004] NSWCA 120
Decision Date

CaseChat Overview and Summary

This case concerned an appeal by St George Bank Ltd against a finding that certain loan agreements and mortgages entered into by the respondents, Mr and Mrs Trimarchi, were unjust. The respondents, parents of Anthony Trimarchi, had acted as guarantors and third-party mortgagors for loans advanced by the bank to their son. The primary judge had found that the transactions were unjust at the time they were made, particularly due to the respondents' lack of understanding, the bank's failure to deal directly with them, the absence of meaningful independent advice, and the risky nature of the transactions which offered no direct benefit to the respondents.

The legal issues before the court were whether the primary judge erred in finding the loan agreement and mortgages unjust under the Contracts Review Act 1980 (NSW). Specifically, the court had to consider the standard of review for questions of unjustness and whether the primary judge's evaluative findings, based on the circumstances of the transaction, were sustainable. This involved examining whether the respondents received adequate independent legal and financial advice, understood the extent of their liabilities, and whether the transactions were fair given the unequal bargaining power and the benefit derived by the parties.

The court upheld the primary judge's findings, reasoning that the respondents had not received meaningful independent legal or financial advice. The legal advice provided was found to be formal and technically correct but ultimately meaningless to the respondents, who were not clearly informed of the significant increase in their liabilities and the potential loss of their properties. The financial advice was also deemed inadequate, as it focused on legal effects rather than the financial prudence of the transaction. The court found that the bank had not dealt directly with the respondents, who had no real understanding of the transactions and received no direct benefit, rendering the agreements unjust.

The appeal was dismissed with costs.

Orders

Orders of the court

Appeal dismissed with costs.

Background

Background to the litigation

The evaluative findings as to unjustness were as follows (J101-102):101. Having taken all these matters into account, but having regard particularly to the considerations that the defendants had no real understanding of what they were letting themselves into, were not really consulted beyond receiving some self interested assurances from their son, that the Bank never dealt with them directly, that they never received any meaningful independent legal or financial advice, that the transactions constituted by the contracts were risky and quite probably doomed to failure at the time they were entered into (a matter which it seems the Bank, through Mr Briggs had reasons to suspect), and that they stood to receive no benefit from the agreement other than the discharge of their liability to National Mutual, which I will deal with next, I am satisfied that the Agreement for Loan dated 20 December 1995 and the mortgage dated 19 January 1996 registered no. 857803 were unjust at the times they were made so far as they affected the interests of the defendants.102. Largely similar considerations apply to the National Mutual mortgage. Once again the defendants had no knowledge, or at the most very little knowledge, of what was going on, and although they may have been given a cursory explanation of the legal and practical effects of a mortgage in general terms, the details terms of this mortgage, the amounts for which they were letting themselves become liable, the sudden increase in their liabilities to finance the acquisition by Anthony Trimarchi of the Succo interests in 72-74 Bathurst Street, the extent to which their assets could be taken in circumstances where there was no provision for repayment of the loan other than the raising another loan or a fire-sale of assets were not explained to them, where once again National Mutual dealt only with Anthony Trimarchi and never involved the defendants in the negotiations or discussions, and where the only benefit the defendants received was the discharge of their apparent liabilities under the invalid Westpac mortgage were all circumstances which rendered the National Mutual mortgage unjust at the time it was made, in so far as it affected the interests of the defendants.The appellant’s challenges to the primary facts As indicated, most of the primary findings are unchallenged in the notice of appeal. This alone is sufficient reason for the Court to eschew any detailed examination of the underlying oral and documentary evidence. I content myself by observing the very substantial difficulties facing the appellant in challenging the findings relating to the capacities of the respondents, who gave evidence at the trial, and the findings based upon inferences properly drawn from evidence that was uncontradicted by Mr Briggs, who did not. I turn to the factual challenges that were pressed in the notice of appeal. (i) Findings relating to Westpac mortgage $650,000 of the funds advanced by National Mutual were paid to Westpac to discharge mortgages over four properties, three of which belonged to the respondents. Those mortgages had been granted between 1986 and 1988.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Dunford J’s findings in relation to the National Mutual advance were (J51-61):51 The application for the National Mutual advance was made by Anthony Trimarchi, without any reference to his parents, through Ian Wilson (mortgage broker) to Global, described as a "mortgage originator". The loan recommendation dated 10 May 1994 (P 18-29) stated that the purpose of the loan for $2,600,000 was threefold: (a)To buy out the Sacco interests in 72-74 Bathurst Street:$920,000(b)To discharge the Westpac mortgage over 72-74 Bathurst Street: $1,000,000 (c)To discharge the mortgage to Westpac on account of Anthony and Heather Trimarchi said to be secured by mortgages over 80 Glenfield Road, Cross Roads, 138 Hoxton Park Road, Liverpool, 75 Fifteenth Avenue, West Hoxton, 159 Hoxton Park Road, Liverpool: $680,000. Total:$2,600,000.52 As far as I can see, there were no mortgages at that time over 138 Hoxton Park Road or 75 Fifteenth Avenue and I have already held that the mortgage by the defendants over 159 Hoxton Park Road was invalid. It is also worth observing that the buy-out of the Sacco interests resulted in that family's share 2/3 being transferred to Anthony and Heather Trimarchi (P 71-72), so that there was no direct benefit to either of the defendants. 53 The National Mutual loan was approved on 10 May 1994 (P 30-37) and accepted on 16 May 1994 (P 43). Special condition (ii) at P 35 required that Guarantors and/or Third Party Mortgagors provide written evidence to the lender's solicitors of having obtained independent legal and financial advice. 54 The mortgage over the subject properties is dated 30 June 1994 (P 109-127) and the certificates of legal advice by Adrian Matiussi and financial advice by Aldo Demasi were completed on 24 June 1994 (B 35). Mr Matiussi had no specific recollection of giving this explanation but described his usual practice in his affidavit of 7 August 2002 para 5 and was cross-examined on this at T 298 et seq. It appears that the explanation given by Mr Matiussi as to the legal effect of the mortgage was formally and technically correct, namely that the properties were being put up as security and if the money was not repaid the properties could be taken to pay out the mortgage. 55 However, he treated the defendants together with their son and his then wife as a single entity, as they were described on the certificate. He interviewed them all together and quite obviously his explanation was a mere formality in so far as he was explaining the effect of the mortgage to Anthony. As the partner of Anthony Trimarchi, he could hardly be regarded as an independent person in this context. Although the defendants denied having a meeting with Mr Matiussi on this occasion, I am satisfied that they did, but I am also satisfied that with the four of them sitting in the room together and Mr Matiussi treating them as a singly entity, it would have been at most a peremptory and formal explanation to Anthony. 56 He agreed with the suggestion that he merely sought an assurance from someone on behalf of all the mortgagors that they understood the effect of the document, and I infer that such assurance would have been given by Anthony Trimarchi. Mr Matiussi regarded them all as joint borrowers and not as being third party guarantors of a loan to Anthony Trimarchi. 57 To give such advice in the circumstances in which it was given would have been totally meaningless to the defendants, who were in the habit of acquiescing in whatever their son told them about legal matters. 58 I am satisfied that he did not tell them in clear and specific terms that they could be liable for up to $2.6 million plus interest and that they could lose their home where they lived and the two properties which they had for rental purposes, that the mortgage was for only a one year term and at the end of that term it would be necessary to either sell properties or refinance the loan. The advice he gave according to his own evidence fell far short of that which the expert evidence of Mr Blunden (T 341) indicated should have been given. 59 The efforts at independent expert advice by Mr Demasi were even more lamentable. He was required to give financial advice, but really did no such thing. It is clear both from the form of the certificate, his affidavit of 18 July 2002 and his evidence (T 324-5, 329-30) that he gave legal advice concerning the effect of the instrument, and not financial advice. He did not attempt to explain or consider the total financial effect of the mortgage, he did not advise the defendants as to the prudence of entering into the transaction or raise or discuss with them where the money was going to come from to repay the loan, the extent of their liability before entering into the mortgage compared with after, or any similar issues, including the various other liabilities of Anthony. 60 It would seem their liability under the Westpac mortgages was $650,000 but under the National Mutual mortgage, their liability was $2,600,000, the increase being mainly due to the money required to buy out the Sacco interests in 72-74 Bathurst Street, and to pay out the various Westpac mortgages. But the additional $920,000 raised to pay out the Saccos was entirely to Anthony's benefit as he received the interests in the land previously held by the Saccos (P 71). 61 No one claims to have told the defendants of this sudden increase in their liabilities, reasons for it, or pointed out that the only person whose share in 72-74 Bathurst Street increased was their son. The certificates of independent advice may be provided for the benefit of the lender but the independent advice is for the borrowers/guarantors, and they did not receive meaningful independent advice from Mr Matiussi or Mr Demasi but only "banal generalities": cf Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 at 264.