Tobaji v National Australia Bank Limited - [2009] NSWSC 41

No judgment structure available for this case.

CITATION: Tobaji and Anor v National Australia Bank Limited [2009] NSWSC 41

HEARING DATE(S): 10 November 2008, 11 November 2008, 12 November 2008, 13 November 2008, 14 November 2008, 19 November 2008

JUDGMENT DATE :
12 February 2009

JUDGMENT OF: Johnson J at 1

DECISION: Judgment for the Defendant on the Statement of Claim. Judgment for the Defendant/Cross-Claimant on the Cross Claim.

CATCHWORDS: CONTRACTS - unjust contracts - mortgage and loan contract - relevant circumstances - substantial loan obtained through mortgage broker - whether borrowers aware of true quantum and purpose of loan - whether unjust that lender failed to detect false information supplied to it - relief declined

LEGISLATION CITED: Contracts Review Act 1980
Consumer Credit (New South Wales) Code 1995
Financial Transaction Reports Act 1988 (Cth)
Evidence Act 1995
Real Property Act 1900

CATEGORY: Principal judgment

CASES CITED: Briginshaw v Briginshaw (1938) 60 CLR 336
Palmer v Dolman [2005] NSWCA 361
R v Doney (2001) 126 A Crim R 271
Jeans v Cleary [2006] NSWSC 647
Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41
Elkofairi v Permanent Trustee Company Limited [2002] NSWCA 413
Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447
West v AGC (Advances) Limited (1986) 5 NSWLR 610
Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153
Micarone v Perpetual Trustees (Australia) Ltd (1999) 75 SASR 1
Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Aust) Limited (1986) 160 CLR 226
Steele-Smith v Liberty Financial Pty Limited [2005] NSWSC 398
Hilton v Gray [2007] QSC 410
St George Bank Ltd v Trimarchi [2004] NSWCA 120
Rosenberg v Percival [2001] 205 CLR 434
Graham v Hall (2006) 67 NSWLR 135
Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343
The Bell Group Ltd (In Liq) v Westpac Banking Corporation [No. 9] [2008] WASC 239

PARTIES: Antoine Tobaji and Mary Tobaji (Plaintiffs)
National Australia Bank Limited (Defendant)

FILE NUMBER(S): SC 20153/06

COUNSEL: Mr P Batley (Plaintiffs)
Mr JM White (Defendant)

SOLICITORS: James Lahood & Associates (until 12 November 2008)/Frontier Law Group (from 12 November 2008 (Plaintiffs)
Dibbs Abbott Stillman (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
POSSESSION LIST

Johnson J

12 February 2009

20153/06 Antoine Tobaji and Mary Tobaji v National Australia Bank Limited
JUDGMENT

1 JOHNSON J: The Plaintiffs, Antoine Tobaji and Mary Tobaji, have lived at 46 The Broadway, Punchbowl (“the Punchbowl property”) since 1980. In 2004, they borrowed money from the Defendant, National Australia Bank Limited, with a mortgage over the Punchbowl property as security for the loan. The Plaintiffs contend that their intention was to borrow $12,000.00 to allow concreting work to be carried out on the Punchbowl property. They say that a mortgage broker, Wally Estephan, duped them into borrowing some $440,000.00 from the Defendant. The Defendant contends that the Plaintiffs intended to borrow the full amount obtained with the intention of re-investing most of it to make a profit. Unfortunately, for the Plaintiffs, their borrower defaulted thereby leaving the Plaintiffs unable to service their loan from the Defendant. The central issues in the case are factual ones concerning the Plaintiffs’ true understanding as to how much was being borrowed and for what purpose.

The Pleadings

2 In June 2004, the Defendant extended to the Plaintiffs a “Plain and Simple Home Loan” in the sum of about $128,000.00 (“the first loan agreement”) as refinancing of an existing 2001 home loan from the Defendant. At the same time, the Defendant provided to the Plaintiffs a “Peak Performance Equity Facility” in the sum of about $312,000.00 (“the second loan agreement”). Both loans were secured by way of a mortgage over the Punchbowl property.

3 By their Statement of Claim filed 4 May 2006, the Plaintiffs seek, in the alternative:

(a) an order that the loan agreements and mortgage be set aside as being unjust under the Contracts Review Act 1980 (“CR Act”), unjust within s.70 of the Consumer Credit (New South Wales) Code 1995 (“the Code”) or upon the basis that it is “unfair and unconscientious” under the general law for the Defendant to rely upon them;

(b) an order declaring the loan agreements and mortgage to be void;

4 By its Amended Defence filed 31 July 2008, the Defendant denies that the Plaintiffs are entitled to relief. The Defendant says, amongst other things, that the Code does not apply to the second loan arrangement as, prior to entering into that facility, the Plaintiffs provided the Defendant with a written business or investment purposes declaration for the purpose of s.11 of the Code.

5 By Cross Claim filed 19 September 2006, the Defendant claims judgment for possession of the Punchbowl property, together with leave to issue a writ of possession to enforce that judgment together with judgment for the sum of $457,431.78 against the Plaintiffs, together with interest on the sum of $332,981.40 from 18 September 2006 until the date of payment at a specified rate of interest together with interest on the sum of $124,450.38 from 18 September 2006 until a date of payment at a rate specified in the pleadings.

6 By the Defence to Cross Claim filed 21 November 2006, the Plaintiffs deny that the Defendant is entitled to the relief pleaded in the Cross Claim and, in answer to the whole of the Cross Claim, they repeat the allegations contained in their Statement of Claim.

Issues in Proceedings

7 The principal questions to be determined in this case are factual ones. After findings of fact are made, it will be necessary to consider legal issues by reference to the facts as found.

8 In broad terms, the principal issues to be determined in these proceedings include the following:

(a) whether the Plaintiffs believed that the June 2004 agreements and mortgage were intended only to secure a $12,000.00 loan from the Defendant to enable them to undertake concreting work at the Punchbowl property;

(b) related to issue (a) above, whether the Plaintiffs were deceived by Wally Estephan, their mortgage broker, into believing that the agreements and mortgage were for $12,000.00 only;

(c) whether the Plaintiffs did not honestly believe that they had entered into agreements and a mortgage to secure advances in the order of $440,000.00;

(d) whether the Plaintiffs had no knowledge that Wally Estephan had provided documents to the Defendant in May 2004, in support of the loan application, which represented that both were in employment;

(e) whether, at the time of execution by them on 25 June 2004 of a loan agreement and caveat, the Plaintiffs did not understand the nature and contents of that agreement (and caveat) whereby the sum of $300,000.00 was lent by them to Gilzan Pty Limited (“Gilzan”);

(f) whether any act or omission on the part of officers of the Defendant in the assessment of the Plaintiffs’ loan application, when taken with other circumstances in the case, assists the Plaintiffs in their claim for relief;

(g) in light of the factual findings made by the Court, whether the Plaintiffs can demonstrate an entitlement to relief against the Defendant under the CR Act, s.70 of the Code or the general law.

Evidence in the Proceedings

9 Mr Batley, counsel for the Plaintiffs, read the following affidavits:

(a) affidavit of Antoine Tobaji sworn 7 November 2007;

(b) further affidavit of Antoine Tobaji sworn 24 July 2008;

(c) affidavit of Mary Tobaji sworn 7 November 2007;

(d) affidavit of Sassine Bou Francis sworn 6 November 2008;

(d) affidavit of George Tobaji sworn 7 November 2007;

(e) affidavit of Georgina Bou Francis sworn 7 November 2007;

10 Each of the deponents referred to in the preceding paragraph were required for cross-examination, with the exception of Georgina Bou Francis. Mr Raed Rahal, the Plaintiffs’ then solicitor, gave evidence concerning his interpreting of the affidavits of each of the Plaintiffs and Mr Sassine Bou Francis from English to Arabic before signature by each deponent (T25-27, 112-114).

11 Mr White, counsel for the Defendant, read the following affidavits:

(a) affidavit of George Caratzas sworn 13 December 2007;

(b) affidavit of Jazz Nevill sworn 13 December 2007;

(c) affidavit of Patricia Johnston sworn 13 December 2007;

(d) affidavit of Gina Assimakis sworn 13 December 2007;

12 Each of the deponents referred to in the preceding paragraph were required for cross-examination, with the exception of Janine Kent.

13 By consent, the Defendant tendered a bundle comprising 536 pages contained in two volumes (Exhibit 1). The Plaintiffs tendered, without objection, an additional bundle (pages 537-704) contained in a third volume (Exhibit A). A number of additional documents were tendered by the Plaintiffs and the Defendant during the course of the hearing.

Factual Matters

14 What follows is a recital of factual matters, some of which are not controversial. Areas of controversy are identified and findings made with respect to those issues.

The Plaintiffs

15 Antoine Tobaji was born in Lebanon in 1951. Mary Tobaji, his wife, was born in Lebanon in 1949. The Plaintiffs migrated to Australia in 1973 with two of their children. They had four other children after their arrival in Australia.

16 Mr Tobaji had formal education in Lebanon and can fluently read, write and speak Arabic. It is his evidence that he cannot read or write English and has difficulty speaking and understanding English.

17 Mr Tobaji undertook factory work for a period before purchasing a take-away business in Chullora which he operated with his wife and eldest son for about two years (in the 1990s) until he suffered back injuries and an injury to his elbow. The business was sold and he commenced to receive sickness benefits until December 1998, when he was granted a disability support pension (Exhibit A, page 584).

18 It was the evidence of Mrs Tobaji that, since her arrival in Australia, she has been occupied in domestic duties and had not undertaken any other employment (T118).

The Punchbowl Property

19 The Plaintiffs purchased the Punchbowl property in 1980 for $33,500.00, with the assistance of a mortgage from the Commonwealth Bank of Australia.

20 Since 1980, George Shad acted as the Plaintiffs’ family solicitor.

21 In 1987, the Plaintiffs gave a mortgage over the Punchbowl property to the Defendant to secure a loan of $40,000.00. In 1990, the Plaintiffs borrowed $80,000.00 from the Defendant to purchase the take-away business at Chullora, with the loan being secured by mortgage over the Punchbowl property.

The 2001 Mortgage to the Defendant

22 In August 2001, Mr Tobaji decided that the Punchbowl property needed renovations. He went with his daughter, Georgina, to the Lakemba Branch of the Defendant enquiring about borrowing $70,000.00 for renovations. He was informed that he did not have enough income to support the loan. Thereafter, Mr and Mrs Tobaji and their son-in-law, Sassine Bou Francis, applied for a secured home loan from the Defendant (Exhibit A, pages 570, 576). Mr and Mrs Tobaji signed an application for the loan on 27 August 2001 in which Mr Tobaji was described as being on a “disability pension” and Mrs Tobaji was said to be a “housewife”.

23 On 21 September 2001, the Defendant wrote to Mr and Mrs Tobaji and Mr Bou Francis advising that a variable rate home loan for $137,000.00 had been drawn down with repayments to be made at the rate of $959.00 per month (Exhibit 1, pages 26-31). This loan consolidated earlier loans so that the total principal secured by mortgage over the Punchbowl property as at September 2001 was $137,000.00. It appears that payments were made to the Defendant thereafter in accordance with this loan arrangement without any contribution from Mr Bou Francis.

24 As at 23 March 2004, the balance owed by the Plaintiffs to the Defendant on the home loan account was $128,596.46 (Exhibit 1, page 70).

Wally Estephan and the 2004 Mortgage

25 Events of particular significance to the present proceedings occurred in and after May 2004. There is no dispute that the Plaintiffs came to borrow an additional sum from the Defendant which was secured by mortgage over the Punchbowl property. What is in dispute, however, is the Plaintiffs’ knowledge of the sum borrowed, the purpose of the loan and the knowledge of the Plaintiffs of their total indebtedness to the Defendant following the 2004 loan transaction.

26 Joseph Estephan lived near the Plaintiffs in Punchbowl. The evidence indicates that members of the Estephan and Tobaji families had known each other for many years. Walid (known as “Wally”) Estephan was the son of Joseph Estephan. Wally Estephan was a mortgage broker.

27 On 27 April 2004, a Choice Home Loans Licence Agreement was entered into between Pennley Pty Limited and Estephan Enterprises Pty Limited trading as First Stop Mortgages (as licensee) with Wally and Susie Estephan (as guarantors) (Exhibit 1, page 32). The signatures of Wally Estephan on the agreement were witnessed by Louis Allem of 29 Grose Street, Parramatta (Exhibit 1, pages 68-69). As will be seen, Mr Allem’s company, Gilzan, came to borrow $300,000.00 from the Plaintiffs in June 2004.

28 It was Mr Tobaji’s evidence that, in about early May 2004, he wanted to concrete the driveway and rear area of the Punchbowl property to use as an entertainment area for his family. He stated that his main motivation for fixing the driveway and back area was his daughter’s forthcoming pre-wedding party (A Tobaji affidavit, 7 November 2007, paragraph 11). Mr Tobaji states that he knew that he would have problems getting a loan from a bank as he had problems getting the loan in 2001.

29 Mr Tobaji states that, in about the week of 10 May 2004, he was at the house of Joseph Estephan and had a conversation with Wally Estephan in Arabic to the following effect (A Tobaji affidavit, 7 November 2007, paragraph 11):

Antoine: “Wally, can you get me a loan for about $12,000.00 so that I can concrete the driveway and out the back before the wedding?”

Wally: “Who is your current loan with?”

Antoine: “National.”

Wally: “No problem. I’ll get you a little bit more and I can invest it for you and you will make some good money.”

Antoine: “I don’t want to get into any investments. I can’t afford any hassles with paying loans back.”

Wally: “Don’t worry. You wont even feel it. You will get enough money to get rid of your loan even quicker.”

Antoine: “I’m not interested but if you can get me the money on my house I am happy with that. Sassine had to borrow with us last time to get the loan. He can do that again. No problem.”

Wally: “Just get me your licence and Medicare and I will organise the loan. Also get me your latest bank statement and your rates notice. I can probably get you a great rate where you wont need to repay any more than you are now. May be a few dollars extra.”

“That would be good.”

30 A number of observations should be made immediately concerning this aspect of the case:

(a) although Mr Tobaji states that only $12,000.00 was required by way of a loan, he did not consider going down to his local branch of the Defendant (with which he was familiar) in the company of one or more of his children (to assist with interpreting, if required) to ascertain his prospect of obtaining a modest additional loan, and the requirements of the Defendant and cost to the Plaintiffs if this was done;

(b) although the stated purpose for this work was said to be concreting required in the context of the forthcoming wedding of the Plaintiffs’ daughter, it seems that the wedding did not occur until a considerable time later, thereby raising a significant question concerning the genuineness of this proffered explanation for the purpose of the loan;

(c) although the loan was said to be required for concreting purposes, it was the evidence of Sassine Bou Francis (Exhibit B; T140) that he undertook concreting work as part of his business, but that it had not been suggested that he could arrange or undertake this concreting work at no cost or reduced cost to the Plaintiffs;

(d) Mr Tobaji gave somewhat vague and unconvincing evidence concerning the time when this concreting work was done, the manner in which an unnamed person was retained to do the work and the process of payment for the work - the unsatisfactory features of this evidence serve to undermine the finding sought by the Plaintiffs that the whole purpose for the loan application was to obtain a modest sum for relatively minor domestic renovation work;

(e) if this was the true purpose for the loan, it is difficult to understand why the Plaintiffs would seek the services of a mortgage broker to deal with their own bank to secure a modest loan;

31 According to Mr Tobaji, later in the week following his initial discussion with Wally Estephan, Wally Estephan came to the Punchbowl property with some papers. Mr Tobaji and Wally Estephan sat in the lounge room and the following conversation took place in Arabic (A Tobaji affidavit, 7 November 2007, paragraph 12):

“This is the application for the loan which I need you and Mary to sign.”

Antoine: “Let me call George [Shad] to go through it before we sign.”

“It’s nothing. All it is for is

to ask the bank to lend you some more money.”

32 Mr Tobaji says that he called out to his wife (who was in the kitchen) and she came to the lounge room and sat with them, with the following conversation occurring in Arabic (A Tobaji affidavit, 7 November 2007, paragraph 12):

“Wally is going to organise $12,000.00 for us to fix up the driveway for the pre-wedding party.”

Wally: “I just need you to sign these papers.”

According to Mr Tobaji, Wally Estephan showed he and his wife where to sign and both of them signed the papers. The conversation continued:

Wally: “Do you have copies of the papers I asked for?”

Antoine: “Yes.”

33 Mrs Tobaji states that, in about May 2004, Wally Estephan came to the Punchbowl property. She was in the kitchen and her husband called out for her to go to him in the backyard. Mrs Tobaji states that a conversation to the following effect took place in Arabic (M Tobaji affidavit, 7 November 2007, paragraph 3):

“Wally has some papers here for us to sign so we can get the money for the driveway.”

Mary: “What are they?”

“It is just the loan documents from the bank to say they are giving you another $12,000.00 on the house and that is all.”

Mary: “Don’t we need George Shad to go through these?”

Antoine: “It’s OK. We can trust Wally. He won’t do the wrong thing.”

Mary to Wally: “You are like my son. I trust you.”

34 I am satisfied that each of the Plaintiffs signed a loan application form at about this time. I am not satisfied, however, that each of them believed at that time that the application was being made for a $12,000.00 loan only. My reasons for this conclusion will be given later in the judgment. For the moment, it is sufficient to observe that an accumulation of events, involving the Plaintiffs, support the conclusion that the plan was to do as Wally Estephan had suggested, and to take out a loan from the Defendant for a substantial amount far exceeding the sum of $12,000.00.

35 I accept that Wally Estephan spoke to the Plaintiffs at the time when the loan application form was signed. I accept that each Plaintiff raised the prospect of obtaining advice at that time from George Shad, the family solicitor. Each had in mind the need to take legal advice from their own independent solicitor with respect to the matter. They determined not to do so.

The 21 May 2004 Application to HomeSide

36 Wally Estephan prepared a mortgage application to be submitted to HomeSide Lending (“HomeSide”). HomeSide is a division of the Defendant. At all relevant times, it dealt directly with mortgage brokers. All loan applications were received from brokers and not applicants or customers directly.

37 On 21 May 2004, Wally Estephan sent a facsimile to the Broker Support Team of HomeSide, attaching the mortgage application by the Plaintiffs. The facsimile was sent on the letterhead of First Stop Mortgages, Suite 1, Level 1, 29 Grose Street, Parramatta. The transmittal sheet stated (Exhibit 1, page 103):

“Dear Team,

Following is a new application for Mr/Mrs Tobaji. Applicant has a current loan with NAB, and he wants to refinance it. Also get a peak performance for $322,000.00.

Yours faithfully,

Wally Estephan

First Stop Mortgages”

38 Accompanying the facsimile of 21 May 2004 was a mortgage application to HomeSide completed on behalf of the Plaintiffs (Exhibit 1, page 104ff). I infer that the application was filled in by Wally Estephan. Each of the Plaintiffs admits signing the application.

39 The application sought a Plain and Simple Home Loan in the sum of $128,000.00 and a Peak Performance Equity Mortgage in the sum of $322,000.00. The sum of $128,000.00 was sought to refinance an existing loan and the sum of $322,000.00 as “equity/other investment”. The total sum sought was $450,000.00.

40 The application stated that Mr Tobaji had been employed since 10 June 1999 as a foreman at RSS Formwork Pty Limited at 4/42 Highclere Avenue, Punchbowl. This was the business conducted by Sassine Bou Francis. According to the application, Mrs Tobaji had been employed since 15 July 2003 as a kitchen hand at La Luna Lounge at 178 Eldridge Road, Bankstown. The statement of assets and liabilities stated that the Punchbowl property had a present value of $600,000.00 and that $85,000.00 was money lent to the Plaintiffs’ children. A 2003 Ford vehicle worth $44,000.00 was also disclosed as an asset. The liabilities column revealed the existing debt of $128,000.00 to the Defendant by way of mortgage over the Punchbowl property.

41 The application stated that Mr Tobaji had a gross annual income of $106,000.00 and a nett monthly income of $5,693.99. Mrs Tobaji was said to have a gross annual income of $10,400.00 with a nett monthly income of $758.33 (Exhibit 1, page 108).

42 Mr Tobaji’s mobile phone number was provided as a point of contact to enable access for the purpose of valuation (Exhibit 1, page 110).

43 The name, address and telephone number of George Tobaji, the Plaintiffs’ son, was provided by way of details of “nearest relative not living with you” (Exhibit 1, page 111).

44 A “100 point check” was completed with respect to Mr Tobaji for the purposes of the Financial Transaction Reports Act 1988 (Cth), with the requirement being satisfied by Mr Tobaji being a customer of the Defendant of at least 12 months’ standing together with provision of a copy of his driver’s licence, Medicare card and a council rates’ notice. Mr Tobaji signed this document on 19 May 2004 (Exhibit 1, page 113). A “100 point check” form was also completed with Mrs Tobaji and was signed by her on 19 May 2004 (Exhibit 1, page 115).

45 Each Plaintiff signed a discharge authority on 19 May 2004 for the purpose of discharging the existing mortgage to the Defendant (Exhibit 1, page 116). Each of the Plaintiffs signed, on 19 May 2004, a Customer’s Acknowledgement and Consent for Wally Estephan, as their mortgage broker, to make the loan application on their behalf (Exhibit 1, page 117). Each Plaintiff signed a declaration on 19 May 2004 concerning the completeness and accuracy of the information supplied in support of the loan application (Exhibit 1, page 122).

46 A HomeSide Serviceability Assessment Calculator was included with the application, which produced various calculations using the information concerning the value of the Punchbowl property, the Plaintiffs’ income and liabilities. I infer that this document was prepared by Wally Estephan utilising a calculator apparently available on the HomeSide website (Exhibit 1, page 129).

47 Uncontroversial documents which accompanied the application were the following:

(a) copy of a 2004 Canterbury City Council Rates Notice for the Punchbowl property (Exhibit 1, page 130);

(b) copy of Mr Tobaji’s driver’s licence (Exhibit 1, page 131);

(c) copy of the Medicare card for, amongst others, Antoine and Mary Tobaji (Exhibit 1, page 131);

(d) copy of a Commonwealth Bank passbook in the name of Mary Tobaji (Exhibit 1, page 136);

48 It may readily be inferred that the documents listed in the preceding paragraph were supplied by the Plaintiffs to Wally Estephan for the purpose of the loan application.

49 The Plaintiffs gave evidence that they had no knowledge of certain documents provided to the Defendant in support of the application and that the contents of these documents were false. These documents related to the employment and income of each Plaintiff.

50 A document purporting to be on the letterhead of RSS Formwork Pty Limited dated 17 May 2004, and purportedly signed by Sassine Bou Francis, certified the employment of Antoine Tobaji in the following terms:

“To Whom It May Concern

This letter is verification that Antoine Tobaji has been employed by RSS Formwork Pty Limited for the past five years. Antoine is the company’s head foreman and is on a gross weekly wage of $2,038.46. If you have any further questions please contact me.”

51 The letter contained the correct address, telephone and facsimile numbers for that business and the correct ABN. It was the fact that Mr Bou Francis (the son-in-law of the Plaintiffs) conducted such a business at that time. It was his evidence that the document was a forgery and that the letterhead was not the form of letterhead being used by him at that time, although the details contained in it were correct. I will return to this issue later in the judgment. Also accompanying the application were two pay advice documents purporting to record the employment of Antoine Tobaji in May 2004 with “RSS Formworks Pty Ltd” (Exhibit 1, pages 133-134).

52 In support of the application was a letter purporting to be from Jodie Maroun-Moeratea dated 19 May 2004 certifying the employment of Mary Tobaji, for the previous 12 months, at La Luna Lounge at Bankstown (Exhibit 1, page 135). Mrs Tobaji gave evidence that she had never worked at this establishment. No evidence was adduced at the hearing which shed light on the existence of such a business, nor the accuracy or otherwise of the address and other information provided on the letterhead.

Consideration by HomeSide of 21 May 2004 Application

53 In May 2004, George Caratzas worked as an Applications Co-Ordinator with HomeSide. Upon receipt of the loan application dated 21 May 2004 from Wally Estephan, Mr Caratzas carried out a servicing calculation to ensure that the Plaintiffs were able to meet the loans they were requesting. For this purpose, he used the income details contained in the supporting employment and financial documents provided with the loan application (that is, the pay slips concerning Mr Tobaji and the letter of employment concerning Mrs Tobaji) rather than the figures contained in the loan application document which was provided by the broker. Mr Caratzas said that this was to ensure that the figures used were accurate. He was satisfied that the income details were the same. With respect to Mrs Tobaji’s employment at the La Luna Lounge (where allegedly she earned a gross income of $200.00 per week), Mr Caratzas observed that a copy of her Commonwealth Bank passbook showed regular deposits being made into that account in excess of $300.00 per deposit.

54 Mr Caratzas stated that it is not standard practice to conduct business or company searches to verify employer details, unless the applicant is self-employed. He said that it is not necessary to conduct such searches or further investigations, particularly if the applicants have provided other financial source documents that verified the information contained in the employment letters, as is the case with the Plaintiffs’ application.

55 Mr Caratzas arranged for a valuation of the Punchbowl property to be carried out as soon as the loan application was received, this being a standard practice with all applications. On 25 May 2004, Scott Adams, valuer, conducted a residential kerbside inspection of the Punchbowl property, giving an estimate of market value of $550,000.00 (Exhibit 1, page 151). Mr Adams undertook an external inspection only and recorded that “the property appears to be of neat presentation and to have been extensively renovated in recent years”.

56 Mr Caratzas states that he reviewed the loan application to make sure that all signatures for Mr and Mrs Tobaji were consistent and that all supporting documents, such as bank statements, were properly aligned and did not appear to have been tampered with. They appeared to be legitimate. He did not see anything in the loan application, or supporting documents, that aroused his suspicions that the application or information contained in it was not genuine (affidavit, 13 December 2007, paragraph 18). As the documents all appeared to be legitimate, Mr Caratzas did not see any reason not to take the application, and information contained in it, at face value. He saw no reason to further investigate the application or question the documents that had been provided to him. On the information provided with the loan application, Mr Caratzas considered the Plaintiffs to be strong applicants, particularly on the basis of Mr Tobaji’s employment and income status.

The 26 May 2004 Supplementary Material Provided to HomeSide

57 Prior to 26 May 2004, Mr Caratzas had completed a Decision Tools Approval Checklist (Exhibit 1, page 146). This document contained a notation that a tax assessment or group certificate was required in connection with the application. I infer that a request for such a document was conveyed to Wally Estephan.

58 Wally Estephan was informed of the valuation which came in $50,000.00 below the estimate provided in the Plaintiff’s application. On 26 May 2004, Wally Estephan sent a further facsimile to HomeSide, the transmittal sheet of which contained the following (Exhibit 1, page 140):

“We have received advice of the low valuation. Applicant is happy to proceed with a unchanged

refinance of his $128,000.00 and the line of credit at $312,000.00 as an 80% lend.

Following is a copy of the Antoine Tobaji’s group certificate. If you require anything further please advise.”

59 Accompanying the facsimile was a PAYG payment summary for the year ending 30 June 2003, containing details of Antoine Tobaji’s employment with RSS Formwork Pty Limited with a stated gross annual income between 1 July 2002 and 30 June 2003 of $105,842.00. Contained within the “signature of authorised person” field appeared (in print) “S Bou Francis” and the date “1 July 2003”. The PAYG payment summary contained accurate address and contact particulars for both RSS Formwork Pty Limited and Mr Tobaji.

60 Mr Caratzas stated that the Plaintiffs had decreased the amounts they were requesting under the Peak Performance Loan, because the valuation on the security property was lower than expected, and HomeSide would not lend them the combined loan total of $450,000.00 they had initially requested. They requested that HomeSide proceed with a combined loan total of $440,000.00. Mr Caratzas observed that a copy of Mr Tobaji’s group certificate was required under the conditional loan approval. He could not recall exactly why Mrs Tobaji’s group certificate was not required, however, on review of the documents, he believed that it would have been because Mr Tobaji’s stated income alone was sufficient to service the loan in any event. He explained that if one applicant has a sufficiently strong income position, and provided all applicants have supplied sound letters of employment and other records to confirm their employment and income position, group certificate or tax assessment notices are not always required for all applicants (Caratzas affidavit, 13 December 2007, paragraphs 27-28).

The Plaintiffs’ Application is Approved

61 Jazz Nevill worked as a Documents Co-Ordinator at HomeSide in 2004. This role essentially required him to receive loan application forms and supporting documents and to prepare the relevant loan documentation to send to customers. Mr Nevill explained his role in the 2004 loan to the Plaintiffs. He explained the procedure if an applicant for a loan from HomeSide was an existing customer of the Defendant. If an existing customer sought to refinance an existing loan with the Defendant and was applying for a new loan with HomeSide, their application is treated in the same way that it would be if they were refinancing the loan with any other financial institution. The loan application form would state that they have an existing loan with the Defendant, that HomeSide was not provided with a copy of the previous bank loan application or file, nor was it the usual practice of HomeSide to request a customer’s previous bank file. He explained that this was because HomeSide operated as an independent division of the Defendant. All customers and files were maintained separately and the Defendant and HomeSide offered different products. If the customers had provided all required documentation and information to support their new application with HomeSide, there was no reason to request a previous bank file of the Defendant (Nevill affidavit, 13 December 2007, paragraph 11).

62 Mr Nevill stated that, once he had prepared the loan documentation, he was required to attempt to contact the customers by telephone in order to confirm that the formal information on the loan application was correct. This was referred to as the “interview” stage. In 2004, Mr Nevill stated that document co-ordinators were required to attempt to contact the customers directly to confirm these details. However, if they were not able to make contact after approximately three attempts, and the customer had a broker, it was standard procedure for all document co-ordinators at HomeSide to call the customer’s broker to confirm the details.

63 By reference to contemporaneous records, Mr Nevill noted that he had contacted Wally Estephan on 31 May 2004. He recalled that he had spoken only once to Wally Estephan. He stated that his practice would have been to contact him directly only if he had been unable to contact Mr or Mrs Tobaji directly to confirm the loan details. Mr Nevill did not specifically recall his conversation with Wally Estephan, however, he believed he would have informed Wally Estephan that he was unable to make contact with either of the Plaintiffs and needed to confirm the loan details with him before sending the loan documentation to them. I accept Mr Nevill’s evidence to this effect.

The Letters of Offer Dated 1 June 2004

64 By reference to HomeSide records, Mr Nevill stated that the letter of offer and loan documentation was sent directly by mail to the Plaintiffs on 1 June 2004. Separate letters addressed to each Plaintiff dated 1 June 2004 were sent to the Punchbowl property concerning the Plain and Simple Home Loan for $128,000.00 (Exhibit 1, pages 154-169). A letter dated 1 June 2004 was addressed jointly to the Plaintiffs at the Punchbowl property, care of Antoine Tobaji, with respect to the Peak Performance Equity Mortgage facility for $312,000.00 (Exhibit 1, pages 170-187).

65 These letters were sent by post to the Plaintiffs at the Punchbowl property and arrived there, in the ordinary course of the post, within days of 1 June 2004. A number of these documents were signed by the Plaintiffs and witnessed by Wally Estephan on 4 June 2004 (Exhibit 1, pages 166, 168, 169, 181A, 182, 185, 186 and 187). A further document in this bundle was signed by the Plaintiffs but dated 15 June 2004 (Exhibit 1, page 183).

66 There is some controversy concerning the means by which these documents reached the Plaintiffs. Mr Batley submits that it would be open to the Court to infer that Wally Estephan requested that these documents be collected by him for personal delivery to the Plaintiffs, rather than being put in the post addressed to the Punchbowl property. Mr White submits that the evidence of Mr Nevill, and the contemporaneous documentation of the Defendant, supports the conclusion that the letters were posted to the Plaintiffs at the Punchbowl property.

More Documents Signed on 4 June 2004

67 I am satisfied that these letters were posted to the Plaintiffs and not delivered to them by Wally Estephan. That said, I accept that the Plaintiffs made contact with Wally Estephan upon their receipt and that he attended the Plaintiffs’ home on 4 June 2004 to assist in the completion of the documents. It is more probable than not, however, that the documents had been opened by the Plaintiffs and shown to one or other of their English-speaking children before Wally Estephan attended the property. This process would have assisted the Plaintiffs to have a clearer understanding of the contents of the documents, by means other than statements by Wally Estephan.

68 The documents posted to the Punchbowl property came to be signed by the Plaintiffs and witnessed by Wally Estephan on 4 June 2004. Mr Tobaji described this event in the following way (A Tobaji affidavit, 7 November 2007, paragraph 13):

Antoine to Wally: “ Come out the back so I can smoke. My wife is making us some coffee.”

The two men went to the backyard and sat on chairs around a table.

Wally: “Here are the documents that I need you and Mary to sign.”

Antoine: “That’s fine. When do you want them back.”

Wally: “You can sign them now and I will get the money through this week for you.”

Antoine: “I would like to take them to my solicitor George Shad.”

Wally: “ Don’t worry. It’s nothing. You are like my father. George [Tobaji] and I are brothers. Don’t you trust your son?”

Antoine: “Of course I do. But I prefer it like this.”

Wally: “ Don’t you think that I would look after you like my father. You are insulting me by telling me this after the hard work I have done to get you this loan.”

Antoine: “What hard work?”

Wally: “I managed to get the bank to take Sassine off the loan.”

Antoine: “How did you do that. They would not lend us the money last time because we aren’t working and I’m on the Disability Benefits. I don’t want anything to be done dishonest.”

Wally: “It’s fine. The bank can see you always pay your loan and they are happy with this. Just sign the documents and don’t worry. Just worry about your daughter’s wedding.”

Antoine: “Ok.”

Mr Tobaji called his wife who came to the table. According to Mr Tobaji, a conversation to the following effect took place in Arabic (A Tobaji affidavit, 7 November 2007, paragraph 14):

Antoine: “Wally has some papers here for us to sign so that we can get the money for the driveway.”

Mary: “What are they?”

Wally: “It is just the loan documents from the bank to say they are giving you another $12,000.00 on the house and that is all.”

Mary: “Don’t we need George Shad to go through these?”

Antoine: “It’s Ok. We can trust Wally. He won’t do the wrong thing.”

Mary: “You are like my son. I trust you.”

According to Mr Tobaji, Wally Estephan produced a number of documents and showed them where to sign in different parts of the documents and they did so. Mrs Tobaji then left to go inside to the kitchen. According to Mr Tobaji, the conversation continued (A Tobaji affidavit, 7 November 2007, paragraph 16):

Antoine: “How much do I have to pay extra than my loan now?”

Wally: “Not much about $35.00 per month.”

“That’s great.”

69 The documents signed by the Plaintiffs on 4 June 2004 included the following:

(a) authority and undertaking (Exhibit 1, page 194);

(b) declaration of receipt of independent legal advice - this document was witnessed by Gary Bond JP of 29 Grose Street, Parramatta and not Wally Estephan (Exhibit 1, page 196);

(c) authority to pay out and discharge existing mortgage over the Punchbowl property (Exhibit 1, page 197);

(d) business and investment declaration for the purpose of s.11 of the Code declaring that the credit to be provided by the Defendant is to be applied wholly or predominantly for business or investment purposes or both - witnessed by Wally Estephan who wrote the date as “06/04/04” , which I infer is a reference to 4 June 2004 written in the American style (Exhibit 1, page 182);

(e) representations by mortgagors concerning the Punchbowl property (Exhibit 1, page 198);

(f) direction to pay, including instruction to deposit balance of funds into the Peak Performance Account (Exhibit 1, page 200);

(g) borrower’s certificate (Exhibit 1, page 201);

70 As will be seen, I do not accept the version of the Plaintiffs of these conversations with Wally Estephan on 4 June 2004 insofar as the Plaintiffs maintain that each of them, at that time, believed that the loan sought from the Defendant was confined to $12,000.00 only.

Final Approval by HomeSide

71 On 11 June 2004, Mr Nevill received the original executed loan application and other signed documents. However, the Direct Debit Request document had not been completed and signed by the Plaintiffs and the document was sent back with a note explaining that it needed to be completed, signed and returned to HomeSide (Exhibit 1, page 252). On 15 June 2004, Mr Nevill placed the original loan application on file (Exhibit 1, page 252).

72 After receipt of all documents which Mr Nevill considered had been executed correctly, he proceeded on 17 June 2004 to open the loan accounts and forward the file to the funding department of HomeSide (Exhibit 1, page 252; Nevill affidavit, 13 December 2007, paragraph 24).

73 As at 23 June 2004, the payout figure for the 2001 mortgage was $129,302.19 (Exhibit 1, page 253). On 23 June 2004, the Plaintiffs executed a mortgage in favour of the Defendant with respect to the Punchbowl property, with Wally Estephan witnessing their signatures (Exhibit 1, pages 257-259).

74 In June 2004, Patricia Johnston was employed as a Funding Co-Ordinator at HomeSide. On 23 June 2004, Ms Johnston sent letters to the Plaintiffs addressed to the Punchbowl property confirming that the drawdown of the Plain and Simple Home Loan and Peak Performance Facilities had taken place on 23 June 2004 (Exhibit 1, pages 260-265). That same day, the account for the 2001 mortgage was closed with a credit from the loan settlement of $129,302.19 (Exhibit 1, page 266). Again, on 23 June 2004, the new home loan account was debited with the sum of $128,159.81 (Exhibit 1, pages 319-320).

The Evidence of Gina Assimakis

75 The Defendant called Gina Assimakis as a witness. Ms Assimakis has been employed since 2002 in the HomeSide division of the Defendant. She played no part in the assessment and approval process concerning the 2004 loan to the Plaintiffs. However, she examined the HomeSide lending file for the Plaintiffs and gave evidence with respect to the process followed. Ms Assimakis said that, as at May 2004, approximately 50 new loan applications were received by HomeSide from brokers every day (Assimakis affidavit, 13 December 2008, paragraph 18),

76 Ms Assimakis explained HomeSide’s policy concerning verification of employment information and stated that the information provided with the Plaintiffs’ application from employers together with the payslips, group certificates and Commonwealth Bank passbook records appeared to correlate with information contained in the loan application (Assimakis affidavit, 13 December 2007, paragraphs 15-17). Ms Assimakis stated that the Plaintiffs’ bank account statements provided as part of the application showed a history of the Plaintiffs servicing their 2001 mortgage without default. Ms Assimakis concluded that, on the face of the loan application and supporting documents, “the application was straightforward and there was no reason to make further inquiries before the application was approved in the usual manner” (Assimakis affidavit, 13 December 2007, paragraph 21).

77 Ms Assimakis confirmed that the Defendant used HomeSide to do business with customers via brokers (T245). The broker was paid an upfront commission by the Defendant and also a trail on the life of the loan depending on the balance (T245-246). The upfront commission payable in relation to the Peak Performance equity loan was 0.65% of the loan amount (T246).

78 Ms Assimakis confirmed that HomeSide officers had access to the Defendant’s database for customers (T249-250). She confirmed that a staff briefing note (Exhibit C) required the Applications Co-Ordinator, amongst other things, to see if the applicant had an existing profile with the Defendant and, if so, to print it off and include it on the paper file for the loan application (T250). Ms Assimakis was cross-examined concerning a computer printout headed “3200 Personal Summary” for Mr Antoine Tobaji (Exhibit A, page 552; T251ff). Given the submissions made on this topic, I will set out portions of the evidence of Ms Assimakis on this issue. Ms Assimakis was asked (T251-252):

“Q. Do you see that's a document headed 3200 personal summary?
A. Yes.

Q. Do you recognise what that is?
A. That's the 3200 EBOBS screen, which is our call mainframe that holds all our loans, deposits, credit cards, personal loan information.

Q. It's organised by customer number; is that right?
A. That is correct.

Q. You will see in that document page 552 is the personal summary for Mr Antoine Tobaji?
A. Yes.

Q. Do you see that in about the middle of that box, there is an entry occupation class?
A. Yes I do see that.

Q. That says ‘30930 unemployed’?
A. Yes it does.

Q. Now, are the figures 30930, do they represent a code number for a customer of the bank who is unemployed?
A. I'm assuming that, but yes.

Q. So you're not sure of that?
A. They are used for statistical purposes, so a bank can actually segment its customer base, so I would have assume it's linked to that status.

Q. In your affidavit at paragraph 8 you talk about the application coordinator loading information contained in the loan application and supporting documentation into the system, and the application coordinator also being responsible for arranging a valuation to be conducted of the property. There is another role for the application coordinator which is not mentioned there relating to the customer profile?
A. The role of the application coordinator in my affidavit, I would say, has a lot more levels to it.

Q. So this is just the starting point is it?
A. Yes.

Q. But you have agreed with me that the role includes locating and printing out the customer profile?
A. That is correct.

Q. And the relationships group?
A. Yes.

Q. Are you aware, Ms Assimakas [sic] , that the loan application document submitted on behalf of Mr and Mrs Tobaji represented that Mr Tobaji had been employed by a company called RSS Formworks since 1999?
A. I would have to look at the application.

Q. Exhibit 1 page 146 in front of you at the moment. If you can turn back to page 106?
A. Yes.

Q. You're looking at that, and it says that Mr Tobaji worked full time for RSS Formwork Pty Ltd, and the date of employment started, 10 June 1999?
A. That is correct.

Q. On page 108 the loan application form has a section called borrower income?
A. Yes it does.

Q. That shows a gross annual salary in the name of Antoine of $106,000?
A. Yes.

Q. And a net monthly amount of 5643.99?
A. Yes it does.

Q. That information within the application is inconsistent with the information in the personal summary, isn't it?

A. It is.”

79 Following an objection, the cross-examination of Ms Assimakis continued on this topic (T254-260) (emphasis added):

“Q. Ms Assimakas [sic] , I asked you to have a look at pages 106 and 107 of Exhibit 1. Could you now please turn to page 132. Do you agree that that appears to be a letter from RSS Formwork Pty Ltd, first verifying that Mr Tobaji had been employed by that company for the past 5 years?
A. Yes I do.

Q. That letter is dated 17 May 2004?
A. Yes it is.

Q. And that forms part of the documents that were submitted with the loan application?
A. That is correct.

Q. Turn to page to page 113 and look at that page, and turn to 134, and look at that page. Would you agree that pages 133 and 134 appear to be two pay advice slips?
A. Yes.

Q. In the name of RSS Formworks Pty Ltd?
A. Yes.

Q. For Antoine Tobaji?
A. That's correct.

Q. The loan application and these documents at pages 132 and 134 suggest that Mr Antoine Tobaji at the time of the loan application was employed by RSS Formwork Pty Ltd?
A. Yes it does.

Q. And that he was paid a wage for that work?
A. Yes.

Q. And that he had been employed in that position since June 1999?
A. That is correct.

Q. Would you please have another look at exhibit A page 552?
A. Yes.

Q. I ask you to look down the page at that document where the left hand column has the words ‘profile status’, do you see that?
A. Yes.

Q. What follows is EST03 02 1987?
A. Yes it does.

Q. Would you agree that that suggests that this profile was established on 3 February 1987?
A. Yes.

Q. Then there is a slash after that and it says ‘amended 31 05 2003?
A. That is correct.

Q. And that represents that this record was amended on 31 May 2003?
A. Yes.

Q. I have already drawn your attention to the entry under occupation class unemployed?
A. Yes.

Q. Would you agree with me there is an inconsistency between this personal summary for Antoine Tobaji and the information in the loan application and the supporting documents that were submitted with that loan application?
A. Yes.

Q. What would you have done if that inconsistency had been drawn to your attention?
A. Am I answering as a manager, or as an applications coordinator?

Q. You are answering as a manager?
A. As a manager. In hindsight, I may have looked at it differently. But having said that, the amendment that is shown in 2003 could be anything in that screen. So I would then take the application and the supporting documents as being the most current version and not necessarily question it, because it may have been updated in the course of the application .

Q. Had you given any directions to applications coordinators about what to do in the case of an inconsistency between a personal summary and the documents in the loan application?
A. As part of managing the unit, one thing that we always discuss, it wouldn't have been an exact directive around that occupation class, but it is always around ensuring that the data is correct and that where due diligence, we are looking at things that may stand out. But there was no specific written direction, no.

Q. Ms Assimakas [sic] , the approach that's taken by Homeside Lending to lending is quite different from the branch based approach to lending, isn't it?
A. Yes it is.

Q. In a branch based system the borrowers give information to a staff member of the bank at a branch?
A. That is correct.

Q. They would see that staff member in person?
A. Yes they would.

Q. In the Homeside Lending approach to lending, at the time that the application is determined, there is no contact between Homeside Lending and the actual customer is there?
A. No there isn't.

Q. But there is within one of the functions of the document coordinator the role of contacting the customer to check details?
A. That is correct.

…

Q. Ms Assimakas [sic] , the document coordinator for this file was a person by the name of Jazz Nevill?
A. That is correct.

Q. You agreed with me a moment ago that the document coordinator would make contact with the applicants at the time the documents were being prepared to clarify details?
A. That is correct.

Q. Is it your understanding of the role of Jazz Nevill in this application that if it had come to his attention there was an inconsistency between the information in the loan application and supporting documents and the personal profile of the customer about employment that he could have contacted the customer to clarify the position with them?
A. The contact that we make with borrowers, or did make at that point in time, was to ascertain the details for the letter of offer that was to go out. So part of that duty would not be to look at the employment. They are there to phone to say, name, product, interest rate, security, to make sure that when we do deliver the letter of offer that it doesn't have to be reworded, and there is an error in it.

Q. Could you please, in Exhibit 1, turn to page 146 under the heading credit/savings history?
A. Yes.

Q. There is the dot point ‘has the NAB system been checked for credit history, if customer has an existing NAB profile, and if any, is history satisfactory’?
A. Yes.

Q. If that box is ticked ‘yes’, would you interpret that as meaning that the applications coordinator has looked at the customer profile 3200 in the BOBS system?
A. Yes.

Q. Would you interpret that tick yes in that box as meaning they had printed out that profile and attached it to the paper line application file?
A. Yes.

Q. Would you agree, Ms Assimakas [sic] , that when the bank deals with brokers for information rather than directly with the customers there is a risk that the information that is being supplied comes from the broker rather than the customer?
A. There is a risk .

Q. The reason that the application coordinator is going through the decision tools approval check list is to address issues of risk, isn't it?
A. Yes it is .

Q. Would you agree with me that the inconsistency between Mr Tobaji's personal profile status as unemployed and the information in the loan application and supporting documents represents a risk to the bank?
A. If you assume that the signature on the application form was not acknowledging current status .

Q. Is it your evidence, Ms Assimakas [sic] , that the view of the bank within its Homeside Lending division is that the issue of risk of incorrect information from the customer is addressed by having the customer's signature on the application?
A. It forms part of our risk .

…

Q. Based on your experience as production manager of Homeside Lendings New South Wales division, would you say that the question of the risk of incorrect information in a loan application form is addressed by the client having signed a form the applicant having signed the form?
A. It's not the only factor, but yes, it forms part of the risk .

Q. Homeside Lending requires a broker who is submitting an application to submit additional documents with that?
A. That is correct.

Q. And it's part of the process of assessment to confirm that the supporting documentation conforms with the information in the application form?
A. That is correct.

Q. Based on your experience as production manager, would you regard it as sufficient to take the information in that application form and support it with documentation at face value where there is inconsistent information in the customer profile?

A.

I think I think that inconsistency may have flagged something but the production of income documents came staggered and I would assume that the details are updated

.”

80 Following a further objection, the cross-examination continued (T262-263) (emphasis added):

“Q. It's the policy of HomeSide Lending, isn't it, to require a tax assessment or a group certificate together with other information about employment, is that right?
A. Yes.

Q. But the minimum requirement is either a tax assessment from the Australian Taxation Office or a group certificate together with the other information?
A. I would have to go back and review the policy at that given time because the verification policy does change, but with that being ticked as a no, I would agree.

Q. I've already drawn your attention to two pay slips from RSS Formwork Pty Limited and the letter from RSS Formwork. That's pages 132, 133 and 134.
A. Yes.

Q. Would you agree with me that that's the totality of the verification information about employment that HomeSide lending obtained in relation to this application?
A. In review of the file, yes.

Q. Now that verification information and the information stated in the application at pages 106 and 107, those are the things that's the information, the totality of the information, collected by HomeSide Lending in relation to Mr Tobaji's employment?
A. Yes.

Q. There is an inconsistency between that information on the one hand, and on the other hand the record that National Australia Bank keeps in its customer profile about Mr Tobaji's employment as it appears updated on 31 May 2003?
A. Yes. Yes.

Q. Doesn't that inconsistency mean that if no further inquiry is made that there is a risk that the employment information that came in the loan application form and with it and followed up with that group certificate is wrong; is false?
A. Yes .

Q. One of the purposes of having the customer profile personal summary available is in order to deal with issues of risk to the bank, isn't it?
A. The customer profile has is a summary of the borrower's, or the customer, not borrower's necessarily, existing accounts and most current information if it is updated.

Q. Is what you're saying that this customer profile personal summary, page 552, can just be disregarded?

A.

No. I'm saying that it is a snapshot at a given point in time and subject to customers giving us that information, for example, changing address. Unless we get the call we don't know to update

.”

81 Following objection, the cross-examination of Ms Assimakis continued (T265-267) (emphasis added):

“Q. Don't you agree, Ms Assimakis, that the information within the personal summary that Mr Tobaji has recorded as unemployed within the customer profile and the information contained within the loan application and the totality of the information about employment which suggests that Mr Tobaji had been employed for the last five years by RSS Formwork, raises an alarm bell?

OBJECTION

HIS HONOUR: What is the objection?

WHITE: The objection is that there is the premise remains to be elucidated, your Honour. Inconsistency.

HIS HONOUR: I think Ms Assimakis has already agreed there is an inconsistency and I propose to allow the question. Could you answer the question.

WITNESS: Yes there is an inconsistency. Alarm bells, in hindsight, yes. At the time it's not one of most obvious inconsistencies when assessing an application .

BATLEY

Q. Couldn't the bank, sorry HomeSide Lending, one of its officers dealing with this application have contacted Mr Tobaji and said, ‘We have you recorded as unemployed. But with the loan application we've received documents suggesting that you've been working for RSS Formwork for the last five years. Can you clarify that?’

A.

Yes, they could have

.”

82 I will return to consider submissions made with respect to the evidence of Ms Assimakis.

Antoine Tobaji and Wally Estephan Visit the Defendant on 24 June 2004

83 Events of particular importance to the resolution of these proceedings occurred on 24 June 2004.

84 According to Mr Tobaji, on that day, Wally Estephan came to the Punchbowl property and said “I have a few more documents for you and Mary to sign and then we can go to the bank and finish things off”. Wally Estephan placed a number of documents in front of Mr and Mrs Tobaji and showed them where to sign and then he said to Mr Tobaji “Come with me to the National Bank so that you can get your money into your account” (A Tobaji affidavit, 7 November 2007, paragraphs 17-18).

85 Thereafter, Mr Tobaji and Wally Estephan travelled to the Riverwood branch of the Defendant in Wally Estephan’s vehicle (T108). They were at the premises of the Defendant for about one hour and then Wally Estephan gave Mr Tobaji a lift home (T108-109). Mr Tobaji states that Wally Estephan produced some pieces of paper and said “I need you to sign where I point” and that Mr Tobaji then signed his name in a number of different places. Mr Tobaji states that the following conversation ensued (A Tobaji affidavit, 7 November 2007, paragraph 19):

Antoine: “What’s this for?”

“This is so they know your signature on this new loan and then the money will be put into your account.”

86 In my view, the activities at the Riverwood branch of the Defendant on 24 June 2004 shed considerable light upon the true nature of the Plaintiffs’ dealings with Wally Estephan and, in particular, Mr Tobaji’s true understanding of what was happening.

87 A significant document, touched upon in cross-examination of Mr Tobaji, is a withdrawal slip dated 24 June 2004 in the sum of $300,947.66 (Exhibit 1, page 273). The withdrawal slip had originally been completed in the sum of $5,000.00 with Mr Tobaji’s signature appearing on the slip. The figures “5000” have been crossed out and figures “300,947.66” written in. Mr Tobaji’s signature appears under the replacement figure. Mr White asked Mr Tobaji in cross-examination (T82-83):

“Q. So when you signed it a second time, it did have the number $300,947.66 marked on it, didn't it?
A. INTERPRETER: Probably, but my God I didn't pay attention, I didn't take notice.

Q. I want to suggest to you Mr Tobaji that when you say that I did not take notice, when you signed that form a second time, that you are not telling the Court the truth?
A. INTERPRETER: No, my God, I am telling the truth.

Q. Can you turn to page 275 please? Just before you look at that document, Mr Tobaji, you know just turn back to page 273 please. I am sorry jumped ahead too fast. When you signed that document on page 283 on the 24 June 2004 at the Riverwood branch of the National Australia Bank?
A. WITNESS: Hm.
A. INTERPRETER: Yeah, I sign.

Q. When you signed it on that date you knew you were giving an instruction to the bank to withdraw over $300,000 from the loan account, didn't you?
A. INTERPRETER: Yes, but I wasn't aware what he was doing. I went there to withdraw $12,000 to get me
12,000.

Q. And wasn't aware?
A. WITNESS: I wasn't aware even when we went to the bank that I would go to get the money. I thought when he said, ‘let's go to the bank’ that he and he would take me to see a Manager or to speaking with someone there.

Q. Again, Mr Tobaji, you know that is not an answer to my question, don't you?
A. INTERPRETER: What do you want me to explain?

Q. You are trying not to answer my question because you know how bad this document makes your case look, don't you?
A. WITNESS: Yes.
A. INTERPRETER: I know. I am not aware of what this document is all about, and I know that I have signed, yes.

Q. You now say you have no idea what this document, page 273 is about, is that correct?

A. INTERPRETER: No.”

88 Mr Tobaji was cross-examined about 10 bank cheque applications, each of which was signed by him and dated 24 June 2004 (Exhibit 1, pages 275-278). Ten bank cheques were issued for sums between $5,000.00 and $150,000.00 payable to various persons and entities (Exhibit 1, pages 279-297). I infer that these bank cheques, in the total sum of $295,947.66, were directed to creditors of Gilzan to which reference will be shortly made.

89 In evidence, Mr Tobaji maintained that Wally Estephan required him to sign these many documents at the Riverwood branch of the Defendant on 24 June 2004 as the Defendant required the documents “to be familiar with [his] signature” (T81.39). Mr Tobaji gave the following evidence with respect to his signing of documents at the Riverwood branch on 24 June 2004 (T109-110):

“Q. Did you ask Mr Estephan why he needed you to sign 10 different pieces of paper that were the same types of paper?
A. INTERPRETER: Yes, and he told me that the bank wanted to identify the right signature.

Q. Well, did you ask him why you had to sign on 10 pieces of paper?
A. INTERPRETER: No, I did not ask him because I signed on many papers, and he kept asking me to sign here and there. So I didn't ask him about anything.

Q. How many pieces of paper did you have to sign altogether for this business in 2004?
A. INTERPRETER: A lot. I signed a lot of papers.

Q. And what did you think you were signing these pieces of paper for?
A. INTERPRETER: I was, I was signing it for him to get me the loan, $12,000.

Q. So you thought all these signatures were needed for a $12,000 loan, is that what you are saying?
A. INTERPRETER: He told me that.

Q. Was there any arrangement between you and Mr Estephan for him to get any money for the assistance he was giving you in 2004?
A. INTERPRETER: I didn't understand the question properly.

Q. Did you offer to pay Mr Estephan any money for the work he was doing for you in getting a loan in 2004?
A. No, he told me that you are like my father, and I will try to help you, to get you the loan.

Q. Did you believe he was doing this for you for nothing, is that what you believed?
A. INTERPRETER: Yes, because he used to be good friend of the family.

Q. Why didn't you just go up to the National Australia Bank with one of your children to see if you could get a $12,000 loan?

A. INTERPRETER: Because I was at his father's place and who informed me that he can get you the loan.”

90 In my view, Mr Tobaji’s evidence concerning the events at the Riverwood branch of the Defendant on 24 June 2004 is implausible. He agreed that he had some familiarity with bank documents and practices arising from his own experiences in depositing and withdrawing funds at that branch (T29-30; T73-79). I do not accept his evidence that he believed, at that time, that multiple signatures were required of him for the purpose of a $12,000.00 loan. Of particular significance is Mr Tobaji’s signature below the substituted eight-digit figure on the withdrawal slip. I am satisfied that this figure was on the document at the time when Mr Tobaji signed the slip for a second time, thereby authorising the withdrawal of the amended and substantially larger figure. There is no doubt that Mr Tobaji could read numbers (T43) and this number was clearly written and represented a figure many multiples of his proffered belief that all of these efforts were directed towards a small $12,000.00 loan. I am satisfied that Mr Tobaji had a clear understanding that events in the Riverwood branch on 24 June 2004 were part of an arrangement whereby a much larger sum would be borrowed with the Punchbowl property as security, with that sum to be lent (as suggested by Wally Estephan) so that the Plaintiffs could make a profit from these arrangements. What the documents reveal happened next strongly supports this conclusion.

The Gilzan Loan Agreement

91 On 25 June 2004, each of the Plaintiffs executed a loan agreement with guarantee whereby a sum of $300,000.00 was lent to Gilzan (Exhibit 1, pages 301-314).

92 The loan agreement between the Plaintiffs and Gilzan provided for a 12-month loan of $300,000.00 from 25 June 2004 with interest payable at 17% per annum at the rate of $4,250.00 per month in advance commencing from the date of drawdown. Louis Allem of Level 1, 29 Grose Street, Parramatta was guarantor of the loan which was secured by a mortgage over property at 37/190-192 Willarong Road, Caringbah (“the Caringbah property”) with a caveat over the Caringbah property (Exhibit 1, page 311). The loan agreement was signed by each of the Plaintiffs in the presence of Wally Estephan on 25 June 2004 (Exhibit 1, page 312).

The Caveat

93 On 25 June 2004, the Plaintiffs signed a statutory declaration as part of a caveat over the Caringbah property (Exhibit 1, pages 315-316). On the face of the document, the signatures of the Plaintiffs were witnessed at Parramatta on 25 June 2004 by James Lahood, solicitor, of 29 Grose Street, Parramatta. The interest secured by the caveat was the equitable interest created pursuant to a loan agreement dated 25 June 2004 whereby the Plaintiffs advanced the sum of $300,000.00 to Gilzan by deed of loan (Exhibit 1, page 316). The caveat was registered on 25 June 2004 (Exhibit 1, page 317).

94 At the time of commencement of these proceedings in 2006, Mr Lahood was the solicitor on the record for the Plaintiffs. As a result of questions asked during the hearing before me, Mr Lahood was granted leave to cease acting for the Plaintiffs and a different solicitor appeared in his stead (T152-158). Mr Lahood became a witness, and a controversial witness, at the hearing.

95 It is apparent that the caveat, on its face, was and remains a most significant document. It constituted part of the security documentation entered into as part of a loan from the Plaintiffs to Gilzan of $300,000.00. The Plaintiffs maintain that, to their knowledge, they had borrowed the sum of $12,000.00 only from the Defendant. The Gilzan loan agreement and caveat are fundamentally inconsistent with such a case. Given the significance of this document, it is appropriate to set out the evidence of the principal participants about it.

96 Mr Tobaji acknowledged that both his wife’s and his own signatures appeared on the caveat (T89). Under cross-examination, Mr Tobaji said (T90-91):

“Q. You remember going to Parramatta on 25 June 2004, don't you?
A. INTERPRETER: No.

Q. You went to the offices of Louis Allem in Parramatta on that date; didn't you?
A. INTERPRETER: Yeah, I remember that I went to see Louis Allem.

Q. And you know that Louis Allem is the man behind the company called Gilzan?
A. INTERPRETER: I don't, I don't know Louis Allem.

Q. You know Gilzan is the company that is the party to the loan agreement that you entered?
A. INTERPRETER: No. At the beginning, I didn't know about that.

Q. Well I'm asking you about your knowledge now?
A. INTERPRETER: Now, yes.

Q. You travelled out to Parramatta on that day with Mr Estephan, is that right?
A. INTERPRETER: When? Before we get the loan, or after we get the loan?

Q. After you get the loan?
A. INTERPRETER: Yes. Once we went with Estephan to Louis Allem.

Q. And when you were out in Parramatta on 25 June 2004 at Louis Allem's office, Mr La Hood [sic] witnessed you sign the document which you see at page 316; didn't he?
A. INTERPRETER: I haven't signed anything except at my place, and at the Bank.

Q. Well, you do remember going out though to Parramatta in June 2004 to Louis Allem's office?
A. WITNESS: Yes.
A. INTERPRETER: Yeah, I remember that I went, but I don't remember the date. And I went with him and his father too, not only him.

Q. Will you turn to page 312 please, Mr Tobaji. You see your signature on that page, don't you?
A. WITNESS: Yes.

Q. And you see your wife's signature on that page?
A. WITNESS: Yes.

Q. If you wish, you can flick through that document starting at page 301 on the first page?
A. INTERPRETER: Yes, but what's in it? What does it mean?

Q. You recognise that this is your agreement with Louis Allem's company, don't you?
A. INTERPRETER: I don't know Louis Allem but.

Q. But you acknowledge meeting him in June 2004 at his Parramatta office, don't you?
A. INTERPRETER: First time I met Louis Allem when we had the problem and I went with Estephan and his father to see him, to see Allem, and he told me 'this is the man who get the money and don't you worry at all, I will get you the money'.

Q. Mr Tobaji, you went to Parramatta on 25 June 2004 to sign this loan agreement, didn't you?
A. INTERPRETER: And I haven't signed anything. I did not sign anything at Louis Allem.

Q. And at the same time you signed a declaration to the caveat which appears on page 316; didn't you?
A. INTERPRETER: Any documents, any paper I signed on it, it has been signed at my place, he brought them to my place. I haven't signed anything at Louis Allem.

Q. When you signed those documents you knew you were loaning $300,000 to Louis Allem's company Gilzan, didn't you?
A. INTERPRETER: No.

Q. You knew you were getting a caveat to protect your investment with his company; didn't you?
A. INTERPRETER: No.

Q. And you knew this because just the day before you had told the bank to withdraw $300,000 to allow that investment to be made; didn't you?

A. INTERPRETER: I didn't ask the bank for anything.”

97 Mrs Tobaji said under cross-examination that she had not signed any document with respect to the loan arrangements apart from documents signed at the Punchbowl property (T121-122). She could not recall the caveat and was uncertain whether her signature appeared on the document (T122). She was asked in cross-examination (T122.27):

“Q. It's possible that on about 25 June 2004 you went to offices in Parramatta to sign some documents, isn't it?

A. INTERPRETER: No, I don't remember. I don't know.”

98 Mr White asked Mrs Tobaji (T123.16):

“Q. Mrs Tobaji, you were, before the questions from his Honour, you were really quite uncertain about whether you had gone out to sign documents at Parramatta on 25 June, weren't you?
A. INTERPRETER: No, I'm not sure of that.

Q. Isn't it true that it's possible that Mr Lahood witnessed your signature on this document in or about 25 June 2004?
A. INTERPRETER: Witness on what? To get the money or what?

Q. Can you please just attend to the question I've asked you. Isn't it true that it's possible Mr Lahood witnessed your signature which appears on the document at page 316 on or about 25 June 2004?

A. INTERPRETER: Probably this is right but honestly I cannot remember.”

99 In re-examination, Mrs Tobaji said that she did not see Mr Lahood signing papers (T124).

Did Mr Lahood Witness the Plaintiffs’ Signature on the Caveat

100 In an affidavit sworn 12 November 2008, Mr Lahood said that he did not sign the caveat and he did not know how or when the caveat was brought into existence (paragraphs 3-6). He said that he first became aware of the caveat when it was shown to him by the Plaintiffs in about February 2006. He said that he had informed the Law Society of New South Wales (“Law Society”) in about late February 2006 of the caveat and the fact that the signature was not his (paragraph 10). Mr Lahood stated that he had sought and obtained advice from counsel and had come to the view that the caveat was not material to the present proceedings (paragraphs 11-12).

101 There are a number of troubling features in Mr Lahood’s evidence.

102 Mr Lahood stated that he had informed the Law Society of the existence of the caveat bearing, on his account, a forgery of his signature (T159). He produced a file copy of a letter dated 25 February 2006 which he said reflected the letter sent by him (Exhibit 7). I observe that 25 February 2006 was a Saturday. The letterhead on Exhibit 7 states “Principal: James J Lahood” and “Senior Associate: Elias S Yamine”. The letter is in the following terms:

“Law Society of NSW

DX 362 SYDNEY

Dear Sirs

Re: False Signature of James Joseph Lahood

We advise that we have been provided with a caveat purportedly witnessed by the writer.

We feel it prudent to advise the law society that the writer did not execute this document, a copy of which we enclose for your information.

Should you have any queries please do not hesitate in contacting the writer.

Yours faithfully

James Lahood & Associates

Per:

James J Lahood Solicitor

…”

103 Mr Lahood said he did not receive a reply to this letter (T160). The Defendant caused a subpoena to issue to the Law Society seeking production of the letter dated 25 February 2006 from Mr Lahood (Exhibit 5). Ms Lucy Pang, a solicitor employed in the Corporate Legal Department of the Law Society appeared in answer to the subpoena and gave evidence that, after all appropriate enquiries had been made, the letter had not been located and there was nothing on the Law Society’s tracking system that revealed that the letter of 25 February 2006 had been received (T279-287).

104 A further difficulty for Mr Lahood arises from correspondence between the solicitors for the Defendant and his firm earlier this year. On 26 March 2008, a subpoena issued directed to Mr Lahood seeking production, amongst other things, of the caveat for the Caringbah property, described in the subpoena as the caveat “to which is subscribed the statutory declaration of the plaintiffs, witnessed by you”. Following service of the subpoena, Mr Lahood corresponded with the Defendant’s solicitors (Exhibit 4). Mr Lahood signed a series of letters directed to the Defendant’s solicitors in this context, dated 3, 10 and 11 April 2008 and 7 July 2008, none of which asserted that Mr Lahood had not witnessed the Plaintiffs’ signature on the caveat, let alone that the signature was a forgery. Other letters dated 24 April 2008 and 24 July 2008 signed by other persons within Mr Lahood’s office did not contend that Mr Lahood’s signature on the caveat was a forgery (Exhibit 4).

105 During his evidence, Mr Lahood stated that he had contacted the Land Titles Office and advised them of what he had discovered concerning the caveat (T182.2). A subpoena issued to the Proper Officer of the Department of Lands seeking a copy of any letter, telephone or file notes or any other records of any communication by Mr Lahood concerning the caveat or authorship or forgery of the signature of Mr Lahood on the statutory declaration appended to the caveat (Exhibit 6). In response to the subpoena, Joseph Steyns, a Public Enquiry Officer and Courts Officer with the Department of Lands, appeared and said that, after appropriate enquiries had been made, no record had been located of any contact by Mr Lahood concerning the caveat (T293-294).

106 A further issue raised with Mr Lahood concerned the description of Mr Yamine as a “Senior Associate” in the letterhead of the letter bearing the date 25 February 2006 (Exhibit 7). A series of letters from Mr Yamine, as a solicitor in Mr Lahood’s office, sent to the Defendant’s solicitors with respect to the present litigation, were tendered (Exhibit 8). The point of the tender was that Mr Yamine was described in the letterhead as an “Associate” and not a “Senior Associate” in letters dated 31 May 2006, 8 June 2006, 22 June 2006, 30 June 2006 and 31 July 2006. It was put to Mr Lahood in cross-examination, and denied, that the Law Society letter (Exhibit 7) was a recent invention given the variation in the description of Mr Yamine’s status in the letterhead.

107 Mr Lahood said in evidence that he did not report the matter to the police but advised his clients to report the whole transaction to the police, including the caveat (T181.4).

108 During the course of his evidence, I asked Mr Lahood (T181-182):

“Q. I just want to have an understanding of why you say in paragraph 11 of your affidavit that you had the view that the caveat was not material to the proceedings. Why did you have that view?

159 Mr White accepts that the question of the unjustness of the contract transcends a simple question of agency. He observes that it has not been suggested in evidence or submissions that the Defendant was motivated by asset lending considerations.

160 Mr White made submissions with respect to the issue raised in the cross-examination of Ms Assimakis (see [78]-[81] above). Although it had not been particularised, Mr White notes that the Plaintiffs contend that the Defendant had the means of detecting the alleged fraud by its possession of information (in the form of the 3200 BOBS screen dump) which indicated that Mr Tobaji had “unemployed” status (at least in or before 2003) and that the Defendant had failed to act. In cross-examination, Ms Assimakis agreed that there is “a risk” that when the bank deals with brokers for information, rather than directly with the customers, that the information that is being supplied comes from the broker rather than the customer (T257). Ms Assimakis acknowledged an inconsistency between the employment verification information received by HomeSide on the May 2004 application and the customer profile information as to employment status as updated on 31 May 2003 (T255, 263) and that such an inconsistency means that, in the absence of further enquiry, there is a risk that the employment information provided is false. Mr White pointed to the evidence of Ms Assimakis in cross-examination acknowledging an inconsistency and agreeing that it raised “alarm bells, in hindsight”, but that “at the time it’s not one of [the] most obvious inconsistencies when assessing an application” (T266.25). Mr White submits that this evidence must be assessed against the earlier evidence of Ms Assimakis which was based upon a false premise. In any event, Mr White observes that the customer profile information only contains what a customer tells the Defendant. He points to the evidence of Ms Assimakis that she would “take the [2004] application and the supporting documents as being the most current version and not necessarily question it” (T256.2).

161 Mr White refers to the evidence of Ms Assimakis that the customer’s signature on the loan application is, in part, the way HomeSide addresses the risk of incorrect information in the application process although there are other factors (T258.41). He submits that the highest point to which evidence on this topic rises is that:

(a) a fairly senior manager in HomeSide;

(b) with the benefit of hindsight (but not necessarily at the time of processing an application);

(c) who assumed that the BOBS indicated that the customer was, at 31 May 2003, unemployed, because any amendment to the entry had been occasioned by the change of the customer’s employment status; and

(d) who saw a loan application indicating that the customer had been employed since 1999 -

“alarm bells”

162 Mr White submits that the Defendant was in no special relationship with the Plaintiffs which imposed on the Defendant a duty to investigate whether the Plaintiffs were telling the truth about their financial position or whether the Plaintiffs, in fact, had the capacity to repay which they represented they had: Steele-Smith v Liberty Financial Pty Limited at [84]. He submits that a prospective borrower is not entitled to expect the lender to be alert for fraud by or on behalf of the borrower and a lender is not required, in the interests of the borrower, to have “a high index of suspicion” for fraud by the borrower or the borrower’s agent. He relies upon the statement of Brereton J in Riz v Perpetual Trustee Australia Limited at [78] that to “hold that the undetected provision of false information by or on behalf of a borrower to a lender in an attempt to obtain a loan resulted in the loan contract being unjust against the lender would be to invert commonsense, logic and justice by protecting the wrongdoer against the victim”.

163 Mr White submits that an objective assessment of the position not only of the Plaintiffs, but of the Defendant, its behaviour in the circumstances and its motivation, compels the conclusion that the loan agreement was not unjust for the purposes of the CR Act.

164 Mr White makes three submissions with respect to the claim that the loan agreement was unfair due to the lack of independent legal advice for the Plaintiffs. Firstly, both Plaintiffs say that they were aware of the importance of getting legal advice in relation to a loan transaction before they entered into this one, that they turned their mind to the question when the loan documentation was provided to them and they determined not to seek advice although they had a solicitor (Mr Shad) at the time. Secondly, it is not universally incumbent upon the lender to ensure that a borrower obtains legal or financial advice: St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [79]. Thirdly, reliance is placed upon the observations of Spigelman CJ concerning “independent advice” in s.9(2)(h) CR Act in Perpetual Trustee Company Limited v Khoshaba at [89]-[90]. It is submitted that the asserted denial of opportunity to obtain legal advice is without factual foundation and, in any event, as a matter of principle, no significant weight ought be given to the nature of the transaction. Mr White submits there is simply no evidence that the Plaintiffs sought to negotiate different terms to the loan agreement, and it cannot be said that they were denied any opportunity to do so.

165 With respect to the claim of serious disadvantage due to poor education and lack of English as a first language, Mr White submits that the serious disadvantage said to afflict the Plaintiffs was simply not productive of any unjustness in the loan transaction. They had experience in the loan and mortgage transactions they were undertaking and knew they were undertaking such a transaction in this case. The Defendant submits that the Plaintiffs did, in fact, understand the true extent of the financial commitment they were undertaking. Even if they did not, however, each turned their mind to the question of legal advice and decided against that course.

166 Mr White submits that if, contrary to the Defendant’s submissions, the Court determines that the second facility was unjust, the Court should exercise its discretion not to grant relief. He submits that a similar approach to that taken by Brereton J in Riz v Perpetual Trustee Australia Limited at [84]-[85] ought be taken here, in circumstances where the lender has assessed the loan for serviceability and the Defendant has not demonstrated the indifference that was evident in Perpetual Trustee Company Limited v Khoshaba.

167 The Defendant observes that the Plaintiffs’ claim, as pleaded under the Code, is limited to five particulars of unjustness, and that these particulars raise issues similar to those already considered in the context of the CR Act claim of the Plaintiffs. Mr White submits that the Code really replicates, in the context of consumer lending, the regime for setting aside an unfair contract that is already provided for under the CR Act. For reasons advanced by the Defendant with respect to the CR Act claim, Mr White submits that the Court would not find any unjustness for the purpose of s.70 of the Code that would justify the grant of relief to the Plaintiffs.

168 With respect to the controversy as to whether the provisions of the Code apply to the second facility, Mr White queries the necessity for separate examination of issues that relate solely to the question of application of the Code given the availability of CR Act.

169 With respect to the Plaintiffs’ claim under the general law of unconscionability, Mr White submits that the Court would not grant the Plaintiffs equitable relief. The only special disadvantage which the Plaintiffs could arguably identify is poor education and their limited ability to speak or write English as their first language. Mr White invites a similar approach to that taken by Brereton J in Riz v Perpetual Trustee Australia Limited at [87], whereby the reasons for concluding that the loan was not unjust equally inform a conclusion that it was not unconscionable. He submits that there is no evidence that the Defendant had knowledge of any asserted disadvantage. He submits that, from HomeSide’s perspective, the loan transaction was not an imprudent, let alone an improvident, one. Accordingly, he submits that there can be no basis for concluding that the Defendant unconscientiously took advantage of the Plaintiffs.

170 Mr White submits that there should be judgment for the Defendant on the Statement of Claim and judgment for the Defendant on the Cross Claim. He submits that the Court should direct the Defendant to bring in Short Minutes of Order giving effect to the reasons for judgment, accompanied by a final affidavit of debt.

Resolution of Competing Submissions

171 It is appropriate to record the facts as found, and to then apply relevant legal principles in light of those factual findings.

172 I have already made a number of findings of fact in the course of the judgment. See, in particular, the findings at [30], [34]-[35], [63], [67], [70], [90], [95], [114]-[118], [119]-[120]. My findings of fact with respect to the conduct of the Plaintiffs, may be summarised as follows:

(a) probably from the time of his initial conversation with Wally Estephan in May 2004, and certainly by early June 2004, Mr Tobaji was well aware that Wally Estephan was obtaining loans in favour of the Plaintiffs using the Punchbowl property as security for a sum far beyond $12,000.00, being a figure in excess of $400,000.00;

(b) Mr Tobaji was aware that Wally Estephan would be required to provide employment information to the Defendant so as to demonstrate a capacity on the part of the Plaintiffs to service a loan in excess of $400,000.00 - although it is probable that Wally Estephan caused the false documents to be created with respect to the alleged employment of Mr and Mrs Tobaji, the appropriate inference to be drawn is that Mr Tobaji and Sassine Bou Francis provided the detailed information to Wally Estephan which was then used to create the relevant documents;

(c) Mr Tobaji was aware that the true purpose of the loan was to obtain a substantial sum at a lower interest rate which could be then lent at a higher interest rate, thereby providing a profit to the Plaintiffs - the true purpose of the loan was not to obtain a loan for $12,000.00 to permit concreting work to be undertaken at the Punchbowl property;

(d) although there is less direct evidence against Mrs Tobaji to support findings against her in the terms of subparagraphs (a) and (c) above, an inference is available, and ought be drawn, that she was aware as well by early June 2004 of the true purpose and quantum of the loan - in this respect, the variety and number of documents signed by her, including the execution of the Gilzan loan document and caveat at Parramatta on 25 June 2004 supports this finding;

(e) the Plaintiffs executed the statutory declaration forming part of the caveat over the Caringbah property on 25 June 2004 at Parramatta in the presence of Mr Lahood;

(f) from June 2004 to early 2006, the Plaintiffs acted in a manner consistent with their knowledge of the true quantum of the loan and the existence and purpose of the Gilzan loan - payments were made to the Plaintiffs by Gilzan and withdrawals were made by Mr Tobaji in this period - the conduct of the Plaintiffs, including their failure to raise the matters with Mr Shad, let alone to report them to the police, points to their belief that matters were proceeding as planned until Gilzan defaulted in payment thereby leading to the Plaintiffs defaulting on the loans to the Defendant;

(g) although each of the Plaintiffs have limitations upon their ability to read and understand documents written in English, each of them had a true understanding, at the time of execution by them in June 2004, of the content of the loan documents and, in particular, the fact that the sum being borrowed exceeded $400,000.00 - I am satisfied that each Plaintiff could read and understand numbers and that the numbers contained in a multitude of documents in this case spoke eloquently of the true dimension of the loan;

(h) the Plaintiffs utilised the services of Wally Estephan, a mortgage broker, because they accepted his statement that a large loan could be obtained from the Defendant which could be lent by them at a higher interest rate to the financial advantage of the Plaintiffs - the Plaintiffs were content to have Wally Estephan take all necessary steps to assist them to obtain the relevant loans, with any falling out between them only truly eventuating after Gilzan defaulted in its repayments to the Plaintiffs;

173 I note that neither counsel submitted that any inference ought be drawn, one way or the other, as a result of Wally Estephan not being called as a witness at the hearing. My task is to determine the proceedings by reference to the evidence adduced by the parties.

174 I make the following findings of fact with respect to action taken within HomeSide concerning the Plaintiffs’ loan application:

(a) the application was accompanied by a range of supporting documentation which provided a reasonable and objective foundation for the statements contained in the application concerning the Plaintiffs’ employment, income and banking history;

(b) additional documentation was sought from Wally Estephan which resulted in the production of a group certificate concerning Mr Tobaji which constituted additional objective support and corroboration of his employment;

175 The high point of the Plaintiffs’ argument arises from the evidence of Ms Assimakis with respect to risk (see [78]-[81] above). Upon the basis of certain assumptions, an inconsistency or tension could be observed between the information provided in May 2004 concerning Mr Tobaji’s employment and the information contained in the computer-generated customer file note. I do not accept, however, the Plaintiffs’ submissions on this issue. There are a number of reasons for this conclusion.

176 Firstly, it is necessary to understand, and fairly read, the totality of the evidence of Ms Assimakis on this topic. Properly understood, it rises no higher than a hindsight assessment giving greater weight to the computer-generated customer file than is objectively warranted. I accept Mr White’s submissions in this regard.

177 Secondly, particular care must be taken where the conduct of the parties is seen through the “prism of hindsight”: Rosenberg v Percival [2001] 205 CLR 434 at 441-442 [16]. As Gleeson CJ there observed, there is a danger in a failure, after the event, to take account of the context, before or at the time of the event, in which a contingency was to be evaluated. The documents provided in support of the loan application on 21 May 2004 included letters purporting to certify the employment of both Mr and Mrs Tobaji. In the case of the letter purporting to come from Sassine Bou Francis of RSS Formwork Pty Limited, correct particulars and contact numbers were provided, together with an invitation that further information could be obtained by telephone contact with Mr Bou Francis. As it happened, officers of HomeSide sought additional information which came on 26 May 2004 in the form of a group certificate supportive of the original documentation.

178 In my view, there is an air of unreality in the Plaintiffs’ submission that this body of direct and contemporaneous material with respect to Mr Tobaji’s suggested employment ought to have been viewed with suspicion because of an entry in a computer-generated customer file. Proper analysis of the evidence on this issue, in my view, does not support the Plaintiffs’ argument that this evidence warrants a finding of unjustness for the purpose of the CR Act.

179 The submissions of the Defendant at [148]-[150], [158], [162] and [164] summarise accurately the relevant principles. I agree with the observations of Palmer J in Steele-Smith v Liberty Financial Pty Limited at [84] and Brereton J in Riz v Perpetual Trustee Australia Limited at [78]-[79]. In the circumstances of this case, it would invert commonsense, logic and justice to hold that the undetected provision of false information by or on behalf of a borrower to a lender, in an attempt to obtain a loan, resulted in a loan contract being unjust against a lender. Such an approach would protect the wrongdoer (the Plaintiffs) against the victim (the Defendant). The evidence does not demonstrate any indifference or recklessness on the part of the Defendant: Riz v Perpetual Trustee Australia Limited at [78].

180 The loans obtained by the Plaintiffs from the Defendant in May-June 2004 did not involve asset lending: Riz v Perpetual Trustee Australia Limited at [70]-[71]. There is no other intrinsic feature of the loans which supports a finding of unjustness with respect to them.

181 I have made a number of findings of fact adverse to the Plaintiffs. Given those findings, the Plaintiffs are driven to contend that they ought be granted relief under the CR Act because of the Defendant’s failure to detect the Plaintiffs’ wrongdoing. Even it if it was established that the Defendant or its officers had departed from their own lending guidelines and due diligence procedures, that alone does not establish the injustice of the loan. Rather, any departures would need to be part of a process of reasoning, the ultimate outcome of which is that the loan in question was unjust: Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343 at [117]. I am not satisfied that the circumstances of this loan leads to the conclusion that the contract and mortgage were unjust under the CR Act in the circumstances in which they were made. Even if such a finding had presented itself at the first stage of the inquiry (which it does not), I would decline relief, in any event, at the second stage of the inquiry.

182 Wally Estephan was the Plaintiffs’ broker and thus their agent. This was so notwithstanding the fact that he apparently received commission from the Defendant: Micaroni v Perpetual Trustees Australia Ltd at 123 [632]; Hilton v Gray at [40].

183 I am not satisfied that the Plaintiffs have established a basis for relief under s.70 of the Code. A consequence of my findings of fact is that the Plaintiffs were aware that the vast bulk of the money being borrowed from the Defendant in May-June 2004 was for investment purposes. The business and investment declaration signed by the Plaintiffs and witnessed by Wally Estephan was, in my view, a true indication of the purpose of the loan as understood by the Plaintiffs. My reasoning in rejecting the CR Act claim leads to the rejection of the claim under the Code.

184 Similar reasoning leads me to reject the Plaintiffs’ claim based upon unconscionability under the general law. Although the Plaintiffs did not have a strong command of English, each of them had an accurate understanding of the quantum and purpose of the loan being obtained from the Defendant in May-June 2004. Each Plaintiff understood that the loan was secured by a mortgage over the Punchbowl property.

185 I do not consider that the Plaintiffs’ case is advanced by the fact that officers of the Defendant at the Lakemba and Campsie branches would have had some knowledge of the language limitations of the Plaintiffs arising from the 2001 mortgage obtained through that branch with the assistance of the Plaintiffs’ daughter. I do not accept that knowledge of some officers of the Defendant (in 2001) can be called in aid to advance materially the Plaintiffs’ case arising from events, in different circumstances, involving other officers of the Defendant (in 2004): cf The Bell Group Ltd (In Liq) v Westpac Banking Corporation [No. 9] [2008] WASC 239 at [6138]-[6165].

186 I am not satisfied that either Plaintiff suffered from a relevant special disadvantage with respect to their dealings with the Defendant for the purpose of these loans. I reject the Plaintiffs’ claim for relief under the general law.

187 The Plaintiffs have failed to establish an entitlement to relief as sought by them in the Statement of Claim.

188 In closing submissions, Mr Batley advanced an alternative argument which sought to differentiate between Mr and Mrs Tobaji (see [141] above). Although there is a more substantial volume of direct evidence against Mr Tobaji, I have concluded that Mrs Tobaji was aware of the quantum and purpose of the loans being obtained from the Defendant in May-June 2004. This finding is not dependent upon any process of reasoning which deems Mrs Tobaji, as the wife, to be vested with the knowledge of Mr Tobaji, her husband. Rather, my findings with respect to the state of knowledge of Mrs Tobaji are based upon inferences to be drawn from her involvement in the substantial process of document completion to obtain the loans and the execution of the Gilzan loan agreement and caveat at Parramatta on 25 June 2004 in the presence of Mr Lahood. I do not accept Mr Batley’s submission of an alternative approach differentiating the relief to be granted with respect to Mr and Mrs Tobaji. In my view, this case is far removed from the factual circumstances in Elkofairi v Permanent Trustee Company Limited.

189 Accordingly, the Plaintiffs have failed entirely with respect to relief sought in the Statement of Claim.

190 With respect to the Cross Claim, I agree that the Defendant’s claim is a simple one for possession of the Punchbowl property which is secured by the loans and mortgage taken out by the Plaintiffs with the Defendant in June 2004. The Defendant has demonstrated substantial default on the part of the Plaintiffs under the mortgage and Mr Batley does not contend that a contrary finding ought be made. The Plaintiffs have not pleaded a Defence to the Cross Claim apart from agitating the matters advanced in the Statement of Claim which I have rejected.

191 Accordingly, I am satisfied that the Defendant has demonstrated an entitlement to relief as sought in the Cross Claim.

Referral to Law Society Concerning Mr Lahood

192 The witnessing of a signature on a registrable document is a solemn and important function: Graham v Hall (2006) 67 NSWLR 135 at 143 [58]-[59]. Mr Lahood’s account to this Court (which I have rejected) was to the effect that someone had forged his signature on the caveat. If Mr Lahood’s signature had in fact been forged, such a false attestation would constitute an attack on the integrity and reliability of the registration system: Graham v Hall at 143 [59]. If Mr Lahood had truly thought that his signature had been forged on the caveat, his response to such a gross and serious act of dishonesty would have far exceeded the modest steps which he says he took, and the response of the relevant authorities would have been of a type which recognised the gravity of the allegation as an attack on the integrity and reliability of the registration system. As I have concluded above at [114]-[118], it was in truth Mr Lahood who witnessed the Plaintiffs’ signatures on the statutory declaration forming part of the caveat. Serious issues are accordingly raised concerning the professional conduct of Mr Lahood which warrants investigation by the appropriate authorities.

193 Having regard to the findings made by me with respect to Mr Lahood’s witnessing of the signatures of the Plaintiffs on the statutory declaration forming part of the caveat dated 25 June 2004, I will direct that a copy of this judgment be furnished to the Chief Executive Officer of the Law Society for the purpose of investigation with respect to Mr Lahood.

Conclusion and Orders

194 There should be judgment for the Defendant on the Statement of Claim. There should be judgment for the Defendant (as Cross Claimant) on the Cross Claim. I direct the Defendant to bring in Short Minutes of Order giving effect to these reasons for judgment, accompanied by a final affidavit of debt.

195 I direct that a copy of this judgment be furnished to the Chief Executive Officer of the Law Society of New South Wales for the purpose of investigation of the conduct of James Joseph Lahood.

**********

Citations

Tobaji v National Australia Bank Limited [2009] NSWSC 41

Most Recent Citation

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Statutory Material Cited

5

St George Bank Ltd v Trimarchi [2004] NSWCA 120

Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343

Graham v Hall [2006] NSWCA 208

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CITATION:	Tobaji and Anor v National Australia Bank Limited [2009] NSWSC 41
HEARING DATE(S):	10 November 2008, 11 November 2008, 12 November 2008, 13 November 2008, 14 November 2008, 19 November 2008
JUDGMENT DATE :	12 February 2009
JUDGMENT OF:	Johnson J at 1
DECISION:	Judgment for the Defendant on the Statement of Claim. Judgment for the Defendant/Cross-Claimant on the Cross Claim.
CATCHWORDS:	CONTRACTS - unjust contracts - mortgage and loan contract - relevant circumstances - substantial loan obtained through mortgage broker - whether borrowers aware of true quantum and purpose of loan - whether unjust that lender failed to detect false information supplied to it - relief declined
LEGISLATION CITED:	Contracts Review Act 1980 Consumer Credit (New South Wales) Code 1995 Financial Transaction Reports Act 1988 (Cth) Evidence Act 1995 Real Property Act 1900
CATEGORY:	Principal judgment
CASES CITED:	Briginshaw v Briginshaw (1938) 60 CLR 336 Palmer v Dolman [2005] NSWCA 361 R v Doney (2001) 126 A Crim R 271 Jeans v Cleary [2006] NSWSC 647 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Elkofairi v Permanent Trustee Company Limited [2002] NSWCA 413 Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 West v AGC (Advances) Limited (1986) 5 NSWLR 610 Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153 Micarone v Perpetual Trustees (Australia) Ltd (1999) 75 SASR 1 Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Aust) Limited (1986) 160 CLR 226 Steele-Smith v Liberty Financial Pty Limited [2005] NSWSC 398 Hilton v Gray [2007] QSC 410 St George Bank Ltd v Trimarchi [2004] NSWCA 120 Rosenberg v Percival [2001] 205 CLR 434 Graham v Hall (2006) 67 NSWLR 135 Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343 The Bell Group Ltd (In Liq) v Westpac Banking Corporation [No. 9] [2008] WASC 239
PARTIES:	Antoine Tobaji and Mary Tobaji (Plaintiffs) National Australia Bank Limited (Defendant)
FILE NUMBER(S):	SC 20153/06
COUNSEL:	Mr P Batley (Plaintiffs) Mr JM White (Defendant)
SOLICITORS:	James Lahood & Associates (until 12 November 2008)/Frontier Law Group (from 12 November 2008 (Plaintiffs) Dibbs Abbott Stillman (Defendant)