Tonto Home Loans Australia Pty Ltd v Tavares
[2011] NSWCA 389
•21 December 2011
Court of Appeal
New South Wales
Case Title: Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O'Donnell Medium Neutral Citation: [2011] NSWCA 389 Hearing Date(s): 1- 4 August 2011 Decision Date: 21 December 2011 Jurisdiction: Before: Bathurst CJ at 1
Allsop P at 2
Campbell JA at 303Decision: (1) As to appeal number 2009/00298570 (formerly 40454 of 2009) being the Tavares and Rowe appeal:
(a) Allow the appeal in part.
(b) Set aside order 2(b) made by the Supreme Court on 26 February 2010 (as set out in [448] of the primary judge's reasons) and in lieu thereof order that the mortgagee Tonto Home Loans Australia Pty Ltd deliver up to Jose De Carvalho E Rego Tavares and Kim Lee-Anne Rowe a registrable discharge of mortgage, but only on condition that Mr Tavares and Ms Rowe pay or have paid to the mortgagee or at its direction the sums referred to in order 4 made by the Supreme Court on 26 February 2010.
(c) The appellant pay the respondents' costs of the appeal.
(2) As to appeal number 2009/00298571 (previously 40455 of 2009) being the Di Benedetto appeal:
(a) Allow the appeal in part.
(b) Set aside order 2(b) made by the Supreme Court on 26 February 2010 (as set out in [447] of the primary judge's reasons) and in lieu thereof order that the mortgagee, Permanent Trustee Company Limited ("Permanent"), or to the extent that it has acceded to that company's rights, FirstMac Limited, deliver up to Lawrence Di Benedetto and Maria Di Benedetto a registrable discharge of mortgage.
(c) The appellant pay the respondents' costs of the appeal.
(3) As to appeal number 2009/00298572 (previously 40456 of 2009) being the O'Donnell appeal:
(a) Allow the appeal in part.
(b) Set aside orders 2 and 5 made by the Supreme Court on 26 February 2010 (as set out in [446] of the primary judge's reasons) and in lieu thereof order:
(i) The loan agreement dated 10 January 2003 and made between Permanent as lender, or to the extent that it has acceded to that company's rights, FirstMac Limited, and Gillian O'Donnell and John Robert O'Donnell as borrowers be varied to reduce the principal loan from $500,000 to $125,000 such variation to take effect from 1 August 2005, with the effect that thereafter the responsibility for payment of interest and principal be referable to a principal sum of $125,000.
(ii) The security provided by registered mortgage numbered 9386484P between Mr and Mrs O'Donnell and Permanent, or to the extent that it has acceded to Permanent's rights, FirstMac Limited, be limited in effect accordingly such that upon payment of the sum or sums sufficient to repay said loan as varied the O'Donnells be entitled to receipt of a registrable discharge of mortgage.
(iii) The plaintiff pay 75 per cent of the defendants'/cross-claimants' costs of the proceedings.
(c) The appellant pay 75 per cent of the respondents' costs of the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: CONTRACT - unjust - Contracts Review Act 1980 (NSW) - operation of Act where lender uses mortgage originators which in turn use sub-introducers to bring forward potential borrowers - sub-introducers engaged in fraud by falsifying relevant information concerning assets and earnings of borrowers in relation to low documentation lending secured by mortgage over borrowers' homes - lenders had no knowledge of fraud - relevant enquiry for the purposes of the Act, ss 7 and 9 is whether contract is unjust in all the circumstances of the case and whether it is just to grant relief - low documentation lending not unjust of itself but carries inherent systemic risk - principal safeguard against risk in present cases was vigorous application by lender of lending guidelines - lending guidelines not followed - just in all circumstances to grant relief notwithstanding carelessness of borrowers.
AGENCY - nature of relationship - agency is a consensual arrangement whereby one party undertakes to act for or on behalf of another - centrality of conception of identity or representation of the principal - entrusting of organisational or enterprise tasks to another party not of itself sufficient to constitute relationship of agency - no relationship of agency between mortgage originator and sub-introducer.
UNCONSCIONABLE CONDUCT - requirement of moral obloquy or that conduct is irreconcilable with what is just and reasonable - necessary to characterise relevant contracting party's conduct as unconscionable and not that of a third party - unconscionability not made out in absence of knowledge of contracting party of fraud of third party - Australian Securities and Investments Commission Act 2001 (Cth), ss 12CB and 12CC considered.
Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth), ss 1, 5, 12A, 12BAA, 12BAB, 12CA, 12CB, 12CB, 12CC, 12CC, 12GD, 12GH and 12GM
Australian Securities and Investments Commission Regulations 2001 (Cth), Reg 2B
Consumer Protection Act 1967 (British Columbia), s 18
Contracts Review Act 1980 (NSW), ss 6, 7, and 9
Corporations Act 2001 (Cth), s 1330
Fair Trading Act 1987 (NSW), s 43
German Civil Code (BGB)
Industrial Arbitration Act 1940 (NSW), s 88F
Trade Practices Act 1974 (Cth), ss 51AB and 51AC
Unconscionable Transactions Relief Act 1990 (Ontario), s 2Cases Cited: Attorney General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557
Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCA 62; 117 FCR 301
Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132
Baltic Shipping Co v Dillon (1991) 22 NSWLR 1
Beach Petroleum NL v Johnson (1993) 43 FCR 1; 115 ALR 411
Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1
Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] 1 Ch 250
Birtchnell v The Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; 42 CLR 384
Boardman v Phipps [1967] 2 AC 46
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552
Bunnings Group Limited v Laminex Group Limited [2006] FCA 682; 153 FCR 479
Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd [1931] HCA 53; 46 CLR 41
Cook v Permanent Mortgages Pty Ltd [2007] NSWCA 219
Espin v Pemberton (1859) 3 De G & J 547; 44 ER 1380
Hewitt v Loosemore (1851) 9 Hare 449; 68 ER 586
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41
Hygienic Lily Ltd v Deputy Federal Commissioner of Taxation (1987) 13 FCR 396
In re Goldcorp Exchange Ltd [1995] 1 AC 74
International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16; 100 CLR 644
Kennedy v De Trafford [1897] AC 180
Kennedy v Green (1834) 3 My & K 699; 40 ER 266
Kirkpatrick v Kotis [2004] NSWSC 1265; 62 NSWLR 567
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 77 NSWLR 205
Leveraged Equities Ltd v Goodridge [2011] FCAFC 3; 191 FCR 71
Lloyd v Grace, Smith & Co [1912] AC 716.
McKenzie v McDonald [1927] VLR 134
Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (In liq) [1999] FCA 1820; 96 FCR 217
Nathan v Dollars & Sense Finance Ltd [2007] NZCA 177; [2007] 2 NZLR 747
NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; 107 FCR 270
Perpetual Trustee Company v Khoshaba [2006] NSWCA 41
Perpetual Trustees Victoria Ltd v Longobardi [2009] NSWSC 654
Qantas Airways Ltd v Cameron (1996) 66 FCR 246
Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153
Scott v Davis [2000] HCA 52; 204 CLR 333 South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; 177 ALR 611
Spina v Permanent Custodians Ltd [2009] NSWCA 206
Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; 144 CLR 83Texts Cited: G E Dal Pont Law of Agency (2nd Ed, LexisNexis, 2008)
F E Dowrick "The Relationship of Principal and Agent" (1954) 17 Modern Law Review 24
P Finn Fiduciary Obligations (LawBook Co, 1977)
P Finn "Unconscionable Conduct" (1994) 8(1) Journal of Contract Law 37
R P Meagher, J D Heydon and M J Leeming (eds) Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th Ed, LexisNexis, 2002)
J R Peden Harsh and Unconscionable Contracts: Report to the Minister for Consumer Affairs and Co-operative Societies and the Attorney-General for New South Wales, 1976
J R Peden The Law of Unjust Contracts (Butterworths, 1982)
F M B Reynolds, W Bowstead and M Graziadei Bowstead and Reynolds on Agency (17th Ed, Sweet & Maxwell, 2001)
F M B Reynolds and W Bowstead Bowstead and Reynolds on Agency (16th Ed, Sweet & Maxwell, 1996)
W A Seavey "The Rationale of Agency" (1919-1920) 29 Yale Law Journal 859
J Story "Contract" (1832) 9 Encyclopaedia Americana 156
P Watts and F M B Reynolds Bowstead and Reynolds on Agency (19th Ed, Sweet & Maxwell, 2010)
P Watts, "Imputed Knowledge in Agency Law - Excising the Fraud Exception" (2001) 117 Law Quarterly Review 300Category: Principal judgment Parties: 2009/298570
Tonto Home Loans Australia Pty Ltd (Appellant)
Jose De Carvalho E Rego Tavares (First Respondent)
Kim Lee-Anne Rowe (Second Respondent)
Australian Securities and Investments Commission (Third Respondent)2009/298571
FirstMac Limited (Appellant)
Lawrence Di Benedetto (First Respondent)
Maria Di Benedetto (Second Respondent)
Australian Securities and Investments Commission (Third Respondent)2009/298572
FirstMac Limited (Appellant)
Gillian O'Donnell (First Respondent)
John Robert O'Donnell (Second Respondent)
Australian Securities and Investments Commission (Third Respondent)Representation - Counsel: A Leopold SC, D F C Thomas (FirstMac Limited and Tonto Home Loans Australia Pty Ltd)
P Menzies QC, A Fernon (Jose De Carvalho E Rego Tavares, Kim Lee-Anne Rowe, Lawrence Di Benedetto, Maria Di Benedetto, Gillian O'Donnell and John Robert O'Donnell)
R J Wright SC, J A Arnott (Australian Securities and Investments Commission)- Solicitors: Gadens Lawyers (FirstMac Limited and Tonto Home Loans Australia Pty Ltd)
Champion Legal (Jose De Carvalho E Rego Tavares , Kim Lee-Anne Rowe, Lawrence Di Benedetto, Maria Di Benedetto, Gillian O'Donnell and John Robert O'Donnell)
Australian Securities and Investments Commission Litigation Counsel (Australian Securities and Investments Commission)File number(s): 2009/298570, 2009/298572, 2009/298571 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Price J - Date of Decision: 04 September 2009 - Citation: Permanent Trustee Company Limited v Gillian O'Donnell; Permanent Trustee Company Limited v Di Benedetto; Tonto Home Loans Australia Pty Ltd v Tavares [2009] NSWSC 902 - Court File Number(s) 2006/12148; 2006/12147; 2005/15644 Publication Restriction:
JUDGMENT
BATHURST CJ: I agree with Allsop P.
ALLSOP P: These three appeals principally concern the operation of the Contracts Review Act 1980 (NSW) (the " CRA ") in circumstances where a lender uses contracted so-called "mortgage originators" which in turn use their own networks of so-called "sub-introducers" to find and bring forward potential borrowers and one of those sub-introducers engages in deceptive, indeed dishonest, conduct that leads to the borrowers borrowing funds from the lender and providing mortgage securities in return. In each case, the borrowers, after a body of conduct directed towards them involving a mixture of falsehoods and pressure and their own imprudence, entered the borrowing arrangements and provided the funds obtained to a company associated with the sub-introducer, which funds were ultimately lost. The primary judge set aside the loans of all borrowers thereby relieving them of any obligations to the lenders in question: Permanent Trustee Company Limited v Gillian O'Donnell; Permanent Trustee Company Limited v Di Benedetto; Tonto Home Loans Australia Pty Ltd v Tavares [2009] NSWSC 902 . The appeals also concern the operation of the Australian Securities and Investments Commission Act 2001 (Cth) (the " ASIC Act "), ss 12CB and 12CC.
The judgment of the primary judge and the submissions discuss phrases or concepts of "asset lending" and "Lo Doc Lending". At the outset, it is important to stress that such labels should be eschewed as determinative of legal reasoning. That said, the widespread use of the commercial structure of the lending in this case has led the Australian Securities and Investments Commission ("ASIC") to intervene in these appeals under the Corporations Act 2001 (Cth), s 1330.
Structure of these reasons
These reasons have been organised as follows:
Factual background to the borrowings [5]-[90]
The O'Donnells [ 5 ]
The Di Benedettos [54]
Mr Tavares and Ms Rowe [ 71 ]
The structure and operation of the lending arrangements: the Origin Program and the FirstMac Program [ 91 ]-[151]
General outline of structure [ 91 ]
The Origin Program [92]
The FirstMac Program [ 99 ]
Some commercial incidents of the lending structure [101]
The place of the loan introducer [ 103 ]
The lending guidelines [106]
Origin Program guidelines [107]
FirstMac Program guidelines [ 113 ]
Failure to follow the guidelines by Tonto HL [ 122 ]
The relationship between Tonto and Streetwise [129 ]
The terms of the arrangement [130]
The role played by Streetwise and the risks of the arrangements [133]
The question of Streetwise (S Loans) as agent for Tonto HL [ 141 ]
The imputation of Streetwise's knowledge to the lenders [147]
Asset lending [ 152 ] - [ 155 ]
The application of the CRA [156]-[167]
The O'Donnell Loan [157]
The Di Benedetto Loan [ 163 ]
The Tavares and Rowe Loan [164]
Relief [165]
The appeal [168]-[298]
Agency [170]-[213]
Introductory remarks on agency [170]
The Introduction Deed [181]
Conclusion on agency [ 195 ]
Aspects of the primary judge's reasoning as to agency [ 198 ]-[213]
Streetwise's part in the administrative process [ 198 ]
The joint venture agreements [199]
Tonto HL's knowledge of Streetwise [ 201 ]
Imputation of knowledge [ 206 ]
The other grounds of the appeal [ 214 ]-[250]
Giving manifestly insufficient weight to the misleading conduct of the borrowers [215]
Other relevant factual errors asserted [229]
Erroneous finding of borrowers not exposing lenders to risk of fraud [ 236 ]
Erroneous finding that the borrowers obtained no benefit
[238]
The question of legal advice [246]
Asset lending [ 248 ]
Reconsideration of the CRA and the notice of contention [ 251 ]-[281]
Reapplication of the CRA [251]
Whether the contracts were unjust [ 252 ]
Public interest [269]
Relief [ 273 ]
Notice of contention - other statutory relief [ 282 ]-[298]
Orders [299]
Factual background to the borrowings
The O'Donnells
The first two borrowers, John O'Donnell and Gillian O'Donnell, were registered proprietors as joint tenants of their home at Harbord in Sydney. The home had been purchased in 1984 with the assistance of a bank loan. On about 10 January 2003, the O'Donnells entered into a loan agreement for an advance of $500,000 with Permanent Trustee Company Limited ("Permanent"). The security was a first registered mortgage over their home. The loan was settled on 7 February 2003.
The primary judge described the facts concerning and leading up to the borrowing by the O'Donnells at [29]-[95] of his reasons. I will seek to distil what occurred.
In September 2002, Mr O'Donnell was 54 years of age. He had been unemployed for 18 months after selling a small business which he had run from 1993 to 2001 with the assistance of his wife. The O'Donnells had borrowed $100,000 on the security of their home to buy that business. Mrs O'Donnell was employed as a customer service officer at a bank, earning about $23,000. The primary judge described them as follows at [32]:
"Mr and Mrs O'Donnell were neither sophisticated nor na i ve in financial matters. Before they commenced their dealings with Streetwise they understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property."
In 2002, there was very little owing on their home, which was worth about $750,000. They had savings, superannuation and shares of under $300,000. Mr O'Donnell had some experience in share market trading and had managed the family superannuation fund for a few years.
In September 2002, Mr O'Donnell was approached in a shopping mall by a young woman employed by one of the companies in what can be called for present purposes the "Streetwise Group". At this stage, I will not seek to differentiate the various Streetwise companies. It suffices at this point to say that one of the Streetwise companies (to which I will refer as "S Loans" when needing to be precise) carried on business as a finance broker and was a sub-introducer of loans to the mortgage schemes to which I will come. Another Streetwise company (to which I will refer as "S Property" when needing to be precise) carried on the business of land development.
The young woman asked Mr O'Donnell if he was interested in using the equity in his home to fund a property investment. She took Mr O'Donnell's contact details. A few days later, Mr Downs from Streetwise rang and arranged a meeting at the O'Donnells' home.
Before the meeting took place, Mr O'Donnell made a telephone call to ASIC about Streetwise. He was told there was nothing negative known. He considered bringing his accountant to the meeting, but decided against that because of the cost.
The first meeting took place on 11 October 2002 at the home of the O'Donnells. Mr Downs attended. He asked the O'Donnells about assets, liabilities and income and was told the matters that I have described. He sought to explain a scheme whereby, using 75 - 80 per cent of the equity in their home, they could partner Streetwise in a joint venture building project, splitting the profits on sale, and buy (or build) a second property as an investment property. It would all cost $500,000. To Mrs O'Donnell's statement that they could not afford to borrow $500,000 and she did not want to lose their house, Mr Downs said:
"'It's okay. Streetwise will pay the majority of the loan. You can borrow about $500,000. We'll use about $52,000 of this as a deposit for the house and land package. The rest will be used to enter the joint venture with Streetwise. We will get a good house and land package for you.
...
Your portion of the payments should be about $300 to $400 per month.'"
During the meeting, Mrs O'Donnell said:
"I don't know how you'll get a loan on my income."
Mr Downs responded by saying:
"That's not a problem. We'll get the loan."
At the meeting, Mrs O'Donnell took detailed notes. Mr Downs made notes which he left with them. The O'Donnells gave Mr Downs a cheque for $495 for a so-called financial strategy. Another meeting was arranged at premises of Streetwise. Mr Downs told them that they would have to then pay $2,500 to ensure that they would be given a project.
After the meeting, Mrs O'Donnell spent some time explaining to her husband how she understood that the investment would work.
Also after the meeting, a letter from Streetwise Financial Strategies Pty Ltd bearing the Streetwise logo dated 11 October 2002 and signed by Mr Luke Hajje was sent to the O'Donnells. It appointed 2 pm on 17 October for the next meeting. The letter stated:
"Thank you for choosing Streetwise as your value-adding partner to work a proven financial strategy for wealth creation and tax reduction.
As one of Streetwise's valued clients, the rewards that you will realise through methodical application of the strategy combined with reasonable cash flow discipline, will put you and your family in a stronger financial position.
We are preparing your financial strategy based on the information you furnished your streetwise client advisor.
...
Our aim is for you both to have a thorough understanding of our proposal and the mechanics involved in the structure. We, at Streetwise, feel this is essential before we can progress any further."
The letter requested the O'Donnells to bring to the meeting various documents that gave information about income, including recent pay slips, mortgage or other loan statements, rental statements from any rental property, council rates, PAYE group certificates or full tax returns for the last two years or self-employed or corporate tax returns or partnership accounts for the last two years.
The second meeting took place on 17 October 2002, at Streetwise offices in Milsons Point, Sydney. Mr and Mrs O'Donnell met Mr Downs and Mr Hajje. Mrs O'Donnell took a number of the documents requested in the letter of 11 October: her pay records and council rate notices. The primary judge at [40] of his reasons described how the scheme was explained using a white board:
"At the meeting Mr Hajje gave a presentation as to how the O'Donnells could invest $500,000 of which $50,000 was to be used as a deposit on a house and land package in either Narre Warren or Shell Cove. The rest of the money would be used to enter a joint venture agreement to develop a block of land in Botany with six townhouses on it."
Mrs O'Donnell once again said that they could not afford the loan, as Mr O'Donnell was not working and that she did not want to lose their house. This time Mr Hajje said:
"It's okay because Streetwise pays the majority of the loan."
At the meeting, the O'Donnells were given a document entitled "Irrevocable authority to act as co-ordinator and Project Manager". This was the joint venture agreement that they later signed. It was a document that was said to represent a "formal agreement" with Streetwise Property & Projects Pty Ltd (S Property). The O'Donnells took it away with them. Mrs O'Donnell recalled that either Mr Downs or Mr Hajje asked whether their accountant could come to the next meeting.
The primary judge succinctly described the joint venture agreement at [42] of his reasons:
"The O'Donnells were given a document called an ' Irrevocable authority to act as co-ordinator and Project Manager '. The document provided inter alia that the agreement was expressed to be 'binding and irrevocable' and that Streetwise Property was irrevocably appointed as co-ordinator and project manager on the O'Donnells' behalf to locate and develop a ' suitable ' site. The document further stated that:
'Streetwise will, whether through Streetwise Home & Investment Loans Pty Ltd or through an external financier, obtain necessary finance for the original purchase and construction of the proposed development.
All external costs, including government statutory charges, legal, finance, construction costs as well as the financing of the borrowed funds, will be the responsibility of John and Gillian O'Donnell'."
The company mentioned, Streetwise Home & Investment Loans Pty Ltd, was S Loans.
The extent of the advice sought by the O'Donnells was described by the primary judge at [43]-[45] of his reasons, as follows:
"[43] Sometime after the meeting, Mrs O'Donnell showed the document to Ms Liddle, a solicitor, who was a friend. Ms Liddle told her there was no escape clause once she had signed on the dotted line, but 'otherwise it seems okay'. Mrs O'Donnell did not otherwise seek advice from Mrs Liddle in relation to Streetwise or the investment generally.
[44] On around 18 October 2002, the O'Donnells attended the office of their accountant Mr Burchall principally for the completion of their taxation returns. The accountant was handed a booklet entitled 'Streetwise Financial Strategy' which had been given to them by Mr Hajje. Mr Burchall did a company search of Streetwise and circled the directors' names and said:
'There's been a few. Just be careful.'
[45] When asked by the O'Donnells if he would come to their next meeting with Streetwise, the accountant advised it would cost them about $300 per hour and that he did not think it was worthwhile for him to come."
Thus, at this point, it is to be noted that the O'Donnells were in effect told they could bring their accountant to a meeting, were given the joint venture agreement to take away, had and took the opportunity to consult an accountant and solicitor, but declined to retain them, it can be inferred because of considerations of cost.
The third meeting took place at Streetwise's offices in Clarence Street, Sydney on 23 October 2002. The O'Donnells met with Mr Downs, Mr Hajje, Mr Bassili and Mr Bangaru. The primary judge made the following findings about this meeting at [47]-[54] of his reasons:
"[47] Mr Hajje explained to them that Streetwise was having difficulties with the Botany project and the Narre Warren house and land package was discussed. Mr O'Donnell recalled that Mr Hajje told them they had to sign some papers. When they hesitated signing, Mr Downs left the room and returned with Kovelan Bangaru. Mr Bangaru said:
'I will personally guarantee your money'
and
'We provide the loan and do everything in-house. You can use our solicitors.'[48] It seems that the joint venture agreement was signed at this meeting.
[49] Mr O'Donnell in his affidavit gives an account of being provided with a loan application form by Mr Bassili.
[50] Paras 70-73 are as follows:
'Jill and I were handed documents by Mr Bassili which appeared to be a loan application form. I did not read the document, however, I did observe that some information had already been handwritten on this form, including my name and address. The section concerning my income was left blank, as I had already informed them that I was unemployed. I also noticed that there were figures concerning our assets, however, I did not get the chance to look at the document in detail as everyone in the room kept talking about the projects.'
There were various conversations going on at the same time. They seemed keen to progress quickly and were rushing us.
I recall Jill saying words to the effect of:
"It's a bit high"
I was talking to someone else at the time however, and did not hear the rest of the conversation.
I signed the document while everyone was still talking. A copy of the loan application is at pages 117-120 of exhibit JR01. It is not in my handwriting.'
[51] Mrs O'Donnell recounts in para 66 of her affidavit that she looked down at the paperwork and saw the heading ' Streetwise Home and Investment Loans' . She asked Mr Bangaru:
'...are we getting the loan from you?'
To which he replied:
'Yes. We like to keep everything in house.'
[52] Mr Bassili told Mrs O'Donnell that [Streetwise] preferred to use its own solicitors and there was no need for other solicitors. Mrs O'Donnell understood that they would be using Streetwise solicitors as it all needed to be done quickly and that there was no time for other lawyers.
Mr Bangaru said, Mrs O'Donnell recounts:
'I will personally guarantee your mortgage. Streetwise will pay the bulk of the repayments.'
[53] Mrs O'Donnell told him that she did not want to lose their house and was assured by Mr Bangaru that they would not.
[54] Mrs O'Donnell recalls at para 70 of her affidavit of 5 October 2007:
'After Mr Bangaru left the room, I briefly looked down at the paper work regarding the application again. Mr Downs and Mr Bassilli kept talking to Johnno and I while I looked at the application. It was already filled out with my name, income and my assets. I noticed that Johnno's income was blank however this made sense as he was unemployed. I also noticed that some of the figures regarding our assets were larger than John and I had estimated at our earlier meeting, particularly our furniture and superannuation. I said words to the effect of
"It's a bit too much"
Either Mr Downs or Mr Hajje said words to the effect of:
"Most people underestimate their assets"
Johnno and I had never independently checked the estimates that we had earlier given them regarding our assets or referred to any paper work, so we accepted what they said. We thought they knew what they were doing. I did not have time to read the document in detail as Mr Downs and Mr Bassili continued to talk to Johnno and I while we signed."
The two page loan application form, with a Streetwise logo, had, as Mrs O'Donnell apparently noticed, "Streetwise Home & Investment Loans Pty Ltd" printed at the bottom of both pages. The document consisted of one and a half pages of boxes for relevant information, a credit card authorisation and a detailed declaration by the O'Donnells.
The loan application form was largely blank when the O'Donnells signed it. It had only their names, address and basic details including driver's licence numbers. Many of the boxes could legitimately have been left blank as not applicable. Both Mr and Mrs O'Donnell were cross-examined by Mr Adam Bell SC, counsel for the lenders below. The questions were pointed (but fair) and were answered frankly. They were set out by the primary judge at [63] and [64] of his reasons. Importantly, they reveal that the O'Donnells knew that this was a document that the lender would look at in assessing the loan (for $500,000), that it was (with hindsight) careless and that they were leaving it to Streetwise to fill in. It was not put to them that they intended to mislead the lender or that they should have appreciated that the lender would or might be misled. It is also important to understand that, at this point, the O'Donnells had been told, falsely, that S Loans was the lender.
The primary judge recorded at [59] the false information put in the form by someone at Streetwise:
"It is evident that the loan application form after it had been signed by the O'Donnells was altered by an undisclosed person or persons at Streetwise inserting in the box headed 'Current Occupation & Employer' that John O'Donnell was a ' Self-Employed - Sole Trader Coffee Shop ' for ' 5 years ' and in the box provided for 'Salary' a fortnightly income of $3,500. The form also disclosed superannuation to the value of $241,000, cash to the value of $60,000 and furniture to the value of $60,000. All of this material was untrue and was inserted without the knowledge of Mr and Mrs O'Donnell."
The above finding that the disclosed values of superannuation ($241,000), cash ($60,000) and furniture ($60,000) were placed on the form after the event was not correct. These figures were placed on the form at the meeting. They were incorrect. The O'Donnells had previously told Mr Downs the figures of $165,000 - $179,000 (superannuation), $40,000 (cash) and $40,000 (furniture). Mrs O'Donnell gave evidence about these figures in para 70 of her affidavit (see [ 24 ] above).
The information concerning Mr O'Donnell referred to in the first half of [59] of his Honour's reasons, set out above, was apparently placed there later by someone at Streetwise. It was false and contrary to what Streetwise was told by the O'Donnells.
Mrs O'Donnell was cross-examined to the effect that she was careless signing a form with incorrect information. She was not cross-examined to the effect that she intended to mislead the lender.
The loan product written on the first page was "1 st Run Lo Doc" loan; and the loan purpose was recorded as being "Purchase Investment Property".
The declaration was one by "Applicant and Guarantor". It was thirty lines of close type that commenced:
"I/We have made an application for credit from Nationale Limited ABN ... trading as Tonto Home Loans (Tonto)"
Tonto was then mentioned a number of times in the text. At the bottom of the declaration above the signature panels, there appeared the following:
"I/We declare that to the best of my/our knowledge and belief, the facts, information and statements set out in this application are true and correct, and that no information, which might affect the decision of the credit provider, has been withheld. Unless indicated below I/We consent to Tonto using and disclosing information about me/us for the purposes of direct marketing and agree to being contacted by Tonto and its business partners to be informed about products and services that I/We may be interested in."
Below the signature panels for Mr and Mrs O'Donnell was a declaration by the "Introducer or Introducer's Agent", as follows:
"I declare that I have sighted and validated and/or will sight and validate all the original documents of all copies of documents associated with this loan application forwarded or to be forwarded to Tonto Home Loans and I declare that I have given to the Applicant/s/Guarantor/s a copy of the Tonto Home Loans Personal Information Collection Statement."
The O'Donnells also signed a one page document also under Streetwise logo entitled "Declaration as to Purpose of Credit". This contained a declaration and warning as follows:
"I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purpose (or for both purposes).
Important
You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code."
The O'Donnells signed immediately below this. The document also had an authority to Tonto Home Loans to discharge the pre-existing mortgage. The O'Donnells also signed immediately below this.
The O'Donnells also each signed a document, again under the Streetwise logo, with "Streetwise Home & Investment Loans Pty Ltd" printed at the bottom of the page and entitled "Borrower Income Declaration for the First Run & Flexi Range of Lo Doc Loans". That signed by Mrs O'Donnell stated in handwriting $25,000 (which was substantially accurate); that signed by Mr O'Donnell contained a declaration of $91,000. The primary judge made the following findings about Mr O'Donnell's declaration at [67] of his reasons:
"It is plainly the case that when Mr O'Donnell signed the document the space provided for the insertion of income had been left blank. The false income figure of $91,000 was subsequently inserted by an undisclosed person at Streetwise without Mr O'Donnell's knowledge."
Each of these forms had the following acknowledgments printed on it:
"I acknowledge that Permanent and FirstMac have relied upon the information contained in the application for credit including the following information provided by me in or with the application in assessing whether to approve the application.
...
I acknowledge that neither Permanent nor FirstMac have independently verified the information relating to my personal income provided by me in or with the application. I declare that the information provided in or with the loan application is true and correct and that I can afford to make the loan repayments without any undue financial hardship."
The O'Donnells were not given copies of the documents they signed. The primary judge made the following findings about this meeting at [68] of his reasons:
"Mr and Mrs O'Donnell were not told by Streetwise that the loan application was for a Lo Doc loan or what a Lo Doc Loan was. They were not informed of the particular significance that the information provided as to their income had in Lo Doc Lending. They were rushed by Streetwise into signing the incomplete loan application and income declaration and at the time believed that Streetwise knew what it was doing. Mr and Mrs O'Donnell acknowledged what they did was careless. Regrettably, it exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise."
A document under Streetwise logo headed "Irrevocable Authority to act as Co-ordinator & Project Manager" in the form of the document taken away by them from the second meeting that was signed by the O'Donnells also bears the date 23 October 2002. It records that upon signing they will pay an "Establishment Fee" of $2,000.
A week later, on 30 October, after the O'Donnells returned from Melbourne, having been flown there, with Mr Bassili, by Streetwise to inspect the land at Narre Warren, they signed another document, again under Streetwise logo, entitled "Irrevocable letter of intent and authority to act". In this document, the O'Donnells acknowledged that S Property had proposed the Narre Warren property and that they were proceeding with the purchase of that property at a price of $261,000. The document authorised Streetwise Financial Strategies Pty Ltd to appoint a solicitor to act on their behalf to effect a transfer and settlement and further authorised the financial institution providing the mortgage finance to forward the mortgage documents direct to Streetwise. They paid a "deposit" of $2,000.
On or shortly after 7 November 2002, the O'Donnells received a preliminary approval letter bearing that date under Streetwise logo from S Loans. It commenced, "Dear Customer" and stated:
"We are pleased to indicate the basis on which a loan will be made to you ..."
Whilst the borrowers were identified, no lender was, though there was reference to the "Lenders". The product was called a "FirstRun LoDoc Variable". Indicative payments were $2,895.83 per month (over 30 years). Interest only was payable for the first five years. There was a special condition about cashing out stated to be as follows:
"Any cash out component in excess of $100K is to be fully documented and the purpose considered acceptable by the Funder and Mortgage Insurer."
Insurance of various kinds was mentioned:
"We recommend that all borrowers carry risk cover and life insurance to at least the value of their loan commitments. A representative from our insurance department will call you to offer an extremely attractive package.
Lenders mortgage insurance may be required. Lenders mortgage insurance protects the lender against loss in certain circumstances. Lenders mortgage insurance does not protect the Borrower."
The following was stated as to solicitors:
"If the proposed loan is approved, we will instruct our solicitors who will prepare and forward documents to you or your solicitors."
To all intents and purposes, the letter appeared to reflect what had been said at the meetings - that Streetwise was lending the funds. S Loans was certainly acting to arrange the funds and it was not holding itself out as representing the interests of anyone but Streetwise.
After preliminary approval of the loan, Mr O'Donnell received enquiry from someone at Streetwise about whether he had an ABN. The evidence was unclear. He told the person or persons who enquired that he and Mrs O'Donnell had deregistered their ABN after sale of their business. An ABN in the name of Mrs O'Donnell appears to have been re-registered. Mrs O'Donnell, who had provided Streetwise with the expired number, denied having sought to re-activate it. The primary judge concluded (at [74] of his reasons) that she did not do so, finding that the re-activation of the ABN and its provision to the lender (as Mr O'Donnell's ABN) was a deception by Streetwise on the lender.
On or shortly after 7 January 2003, the O'Donnells received a final approval letter bearing that date, again under Streetwise logo, and again from S Loans. The letter commenced, "Dear Customer" and stated:
"We are pleased to inform you that the following loan has been approved."
Again no lender was mentioned, but a "Mortgage Manager" was identified: "Tonto Home Loans Limited". (This company, which will be referred to as Tonto HL, was the mortgage manager for the two lending programmes to which I will come.) It will be recalled that the close print of the declaration in the loan application form commenced "I/we have made an application for credit from Nationale Limited ABN ... trading as Tonto Home Loans ('Tonto')." The information was otherwise, broadly, as contained in the preliminary approval letter, including the same cash out condition.
As to the identity of the lender, Mrs O'Donnell gave evidence that she thought Streetwise was the lender (at least up to and at the point of receiving the final approval letter).
On or shortly after 7 January 2003, Hunt and Hunt, who acted for Permanent and Tonto, prepared a letter bearing that date addressed to Mr and Mrs O'Donnell. Before turning to its terms, it is to be noted that the primary judge found (after a contest in the evidence) that the letter, which enclosed the loan agreement, mortgage and memorandum of mortgage, was sent direct to the O'Donnells, and not to Streetwise. This letter was clearly inconsistent with Streetwise being the lender. The subject matter of the letter was described as follows:
"LENDER: PERMANENT TRUSTEE COMPANY LIMITED
MANAGER: TONTO HOME LOANS LIMITED
PROPERTY: ....."The letter commenced:
"We act for the Lender and the Manager."
Under the heading "How to sign the documents", the following appeared:
"Please read the documents carefully to ensure they agree with your understanding of the transaction. If you have any queries, please ask before you sign. The lender is keen to ensure that you understand the transaction.
You may decide whether or not to obtain independent legal advice. You must sign the box on the last page of the Loan Agreement to confirm which option you chose."
Under the heading "Independent legal advice", the following appeared:
"Remember, you are free to contact your own solicitor for explanation of the documents at any stage. If you have any doubts or want more information, contact your government consumer agency or get legal advice."
The O'Donnells signed all relevant transaction documents. In the loan agreement, they signed the box on the last page of the loan agreement which specifically stated that they had chosen not to obtain legal advice. The primary judge made the following findings about Mrs O'Donnell at [84]:
"Mrs O'Donnell agreed in cross-examination that she had the opportunity in her home to read the documents before she signed them but said she had not read them in their entirety. She agreed that she observed the lender was Permanent, the originator was Tonto, that she and her husband were the borrowers, that they were contracting to make payments monthly during the facility term and that a mortgage was being given over their property as security for the loan. Mrs O'Donnell further agreed that she understood what the interest rate was and knew that she was liable to the lender irrespective of what their arrangements with Streetwise were. She agreed that she understood that by giving a mortgage over their property it was at risk if the loan was not repaid. Mrs O'Donnell agreed that they had the right to obtain independent legal advice if they required it."
This involved a rejection of the legitimate continuation of any belief in Mrs O'Donnell, which might hitherto have been engendered by Streetwise and the correspondence that Streetwise was the lender. Mr O'Donnell was cross-examined to the same effect. An answer in cross-examination of Mr O'Donnell recorded by the primary judge at [87] of his reasons reflected the position they both were in with some clarity:
"Q. You took the risk of giving a mortgage to the lender because you believed Streetwise would make those repayments; is that fair?
A. Yes, of course."The actual signing of the documentation took place at a meeting on 10 January 2003 in Streetwise's boardroom with Mr Bangaru and Mr Downs. At the meeting there was discussion about a change of site from Botany to Seaforth for the property joint venture. The O'Donnells gave evidence, which the primary judge accepted, that they were rushed in signing the documents at the meeting. The primary judge summarised the circumstances of signing as follows at [92] of his reasons:
"Although the signing of this documentation was deliberately rushed by Mr Bangaru and the other Streetwise employees at the meeting, Mr and Mrs O'Donnell had had the opportunity of considering the loan agreement and mortgage prior to the meeting and understood, I am satisfied, the gist of what they were signing. They both appreciated that they could obtain independent legal advice but were persuaded not to do so. The impressive Streetwise offices, high pressured and convincing presentations undoubtedly impacted upon the prudence of their considerations and their common belief was that there was little risk that Streetwise would not meet its promise to pay most of the mortgage instalments ."
The primary judge found the following at [91] of his reasons:
"Mr Bangaru assured them during the meeting that their profit from the Battle Boulevard property joint venture should be about $60,000 and it would take 12 to 18 months to complete."
The primary judge crisply summarised the overall circumstances of the taking out of the loan as follows, at [93] of his reasons:
"Mr and Mrs O'Donnell, however, had been dishonestly misled by Streetwise about their investment. Furthermore, Streetwise had fraudulently completed the loan application form and Income declaration as Streetwise knew that truthful disclosure of the O'Donnells' assets and income would not meet the lending guidelines either under the Origin Program or the FirstMac securitised lending program. But for the fraud of Streetwise, the loan would not have been approved. Mr and Mrs O'Donnell were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the application and that their financial position truthfully stated did not meet the lending guidelines, I am satisfied on the balance of probabilities that the O'Donnells would not have proceeded with the loan application."
(I will explain the "Origin Program" and "FirstMac securitised lending program" in due course.)
One of the documents signed by the O'Donnells on 10 January was a direction to Hunt and Hunt authorising them to disburse all the funds on settlement to "Streetwise Property and Projects Pty Ltd". This occurred at settlement on 7 February 2003.
On or shortly after 11 February 2003, the O'Donnells received a letter of that date on Streetwise letterhead thanking them for "choosing Streetwise Home & Investment Loans Pty Ltd to provide your recent funding". It was signed (or purported to be signed) by Mr Kim Cannon on behalf of that company. In fact Mr Cannon was an officer of Tonto. This was found by the primary judge to be a mistake.
The primary judge described the fate of the O'Donnells' loan and interest thereafter and their lack of any financial benefit at [95]-[96] of his reasons, as follows:
"[95] Following the settlement of the loan, Streetwise paid $2,345.86 into Mrs O'Donnell's St George account whilst the O'Donnells paid $319.89. The total amount was withdrawn by Tonto. It appears that Streetwise with interest variations made deposits into the St George account until June 2005. During that time Mr and Mrs O'Donnell had received various assurances from Streetwise about the progress of the Battle Boulevard joint venture and the completion of the Narre Warren property all of which proved to be untrue. They were also assured at a meeting in April 2004 that Mr Bangaru would write a cheque for $6,000 to cover the repayments for the Narre Warren property until the joint venture was completed. The cheque was never received.
[96] Property searches undertaken after Streetwise went into liquidation revealed that Mr and Mrs O'Donnell had neither received security over the Narre Warren property nor the property at Battle Boulevard. Mr and Mrs O'Donnell obtained no financial benefit whatsoever from their investment with Streetwise."
There was no evidence dealing in any detail with the affairs of Streetwise, and in particular the specific use of the O'Donnells' funds.
The Di Benedettos
The history of the Di Benedettos' involvement with Streetwise and the borrowing from Permanent was similar to the O'Donnells' and was set out at [97]-[136] of the primary judge's reasons. Mrs Di Benedetto met a Streetwise representative in Warringah Mall in late October 2002 and gave the person her contact details. A Mr Steve Fassos came to their home and informed them that Streetwise did property joint ventures and suggested a consultation. The Di Benedettos, who operated a smallgoods business, and whose tax returns disclosed modest taxable income, gave Mr Fassos information at this meeting which reflected their modest financial worth and which the primary judge set out at [101] of his reasons:
"Income: $45,000 (combined average for the past two years)
House: $600,000
Business: $25,000 (purchase price)
Cash $25,000 (in name of business)
Furniture $25,000 to $30,000
Grace Bros Card: $750 (limit)
No Superannuation"They provided Mr Fassos with the name of their accountant.
The primary judge described the Di Benedettos at [100] of his reasons, as follows:
"Mr and Mrs Di Benedetto were neither sophisticated nor na i ve in financial matters before they commenced their dealings with Streetwise. They understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property."
Meetings then occurred in January 2003, described by the primary judge at [103]-[104] as follows:
"[103] In early January 2003, Mr and Mrs Di Benedetto met Luke Hajje at the Streetwise office in Clarence Street. Mr Hajje explained how they could use the equity in their home as a deposit in a Streetwise development at Shell Cove. When asked questions by Mr Fassos about their business and income, Mrs Di Benedetto provided him with the same figures with which he had been previously provided. At the end of the meeting, the Di Benedettos met Kovelan Bangaru who told them:
'Streetwise are a one-stop shop. We do everything. We get the loan and you can use our legals.'
[104] On the following Saturday, Mr and Mrs Di Benedettos met Mr Bangaru and Trevor Downs at the Streetwise Clarence Street office where they discussed a joint venture arrangement in connection with a property at Battle Boulevard Seaforth. This was the same Battle Boulevard property which was the subject of Mr and Mrs O'Donnell's joint venture with Streetwise. Mr Bangaru informed them that Streetwise paid the loan payments each month and that Streetwise was in the process of buying the property. After inspecting the property and returning to the Streetwise office, the Di Benedettos were informed that it would cost them $500,000 to participate in the joint venture."
At this second meeting, the Di Benedettos said they could not afford a loan of $500,000. They were assured by Mr Bangaru that Streetwise would pay all the interest (on the interest only loan). After saying that "Tonto" would be used, Mr Bangaru said:
"... Tonto knows all about this. The director of Tonto, Kim Cannon knows what we do. He knows we pay the loan. We do this all the time."
After some hesitation, the Di Benedettos then signed a loan application (in the same form as the O'Donnells') in blank, not knowing, the primary judge found, what it was. It was said to be a form to "get the loan underway" which "we'll fill out later". The Di Benedettos did not read the forms.
The fate of the blank application form was described by the primary judge at [109] of his reasons, as follows:
"It is evident that the application was subsequently falsely completed by an undisclosed person or persons at Streetwise. Mr and Mrs Di Benedetto's income was inserted as each having income of $55,000 per annum. The business was valued at $125,000 when the estimation provided was $25,000. Although the Di Benedettos had no superannuation an amount for superannuation was inserted as being $30,000. Furniture was valued at $75,000 notwithstanding Mrs Di Benedetto's estimation of $25,000-$30,000. The value of shares was inserted as being $10,000 when no value for shares was provided by Mrs Di Benedetto. All of this false information was inserted without the knowledge of Mr and Mrs Di Benedetto."
Once again the loan product applied for was a "First Run Lo Doc" loan of $500,000. The purpose of the loan was stated to be "free up equity for investment purchase". The Di Benedettos were not told or given a copy of the form of the application as it was submitted by Streetwise.
In cross-examination, the Di Benedettos conceded that they appreciated that the document related to the loan application and that, looking back, it was careless to sign in blank.
They each also signed income declaration forms in blank in the same form as those signed by the O'Donnells. Each form falsely stated an annual income of $55,000. The primary judge found the following at [114]-[115] about the circumstances of these signings:
"[114] It is plain that Mr and Mrs Di Benedetto were pressured by the salesmanship of Streetwise into signing the loan application and income declaration forms which were in blank and about which their understanding was limited. They did not know that the application was for a Lo Doc loan nor had they been informed of the particular significance that the information provided as to their income had in Lo Doc lending. Nevertheless with their experience in financial matters which included operating a small business and the borrowing and granting of mortgages on earlier occasions, the signing of these documents in blank, even without the benefit of hindsight, was careless. They exposed themselves, Tonto and Permanent to the risk of fraud by Streetwise.
[115] Mr Bangaru told Mr and Mrs Di Benedetto that they would make between $50,000 to $70,000 on the Seaforth property and Streetwise would make the repayments which would be deducted from their share of the profit."
The Di Benedettos received letters from Streetwise dated respectively 31 January and 13 February 2003 informing them of preliminary and final approval for the loans, in the same terms, mutatis mutandis , as received by the O'Donnells.
Shortly thereafter, Mr Fassos and Mr Bangaru came to their home with the loan agreement, mortgage and direct debit authority. These had been sent by Hunt and Hunt to the Di Benedettos care of Streetwise, in the circumstances which are discussed below. Mrs Di Benedetto did, however, also receive in the mail directly a letter from Hunt and Hunt enclosing, at least a copy of, the loan agreement. Mrs Di Benedetto said she kept the loan agreement and may have read it. The primary judge made the following comments at [123] of his reasons about the failure of Hunt and Hunt to send the transaction documents directly to the Di Benedettos:
"Hunt and Hunt had been appointed to the Origin program panel for documenting mortgage loan transactions in June 1997. The firm's failure to comply with Origin's service requirements placed the loan documentation in the hands of Streetwise thereby assisting Mr Bangaru and Mr Fassos to rush Mr and Mrs Di Benedetto into signing the loan agreement and mortgage without the Di Benedettos having the opportunity to consider the documents."
The Di Benedettos signed the transaction documents at their home during the visit of Mr Fassos and Mr Bangaru. The Di Benedettos did not read them; the documents were not explained to them; Mr Bangaru told them that they did not need legal advice. In cross-examination, Mrs Di Benedetto accepted that she looked at the first page, saw they were described as borrowers of $500,000, noticed who the other parties were and what the interest rate was. It was her understanding that Streetwise was going to pay the interest to them and they would pay Tonto. She understood that she was giving a mortgage over her home as security for the loan.
In his cross-examination, Mr Di Benedetto made similar concessions, though he said that he thought that the lender was Tonto. He accepted that he left it to his wife to make the decision, and that he did not read the documentation because he was relying on Streetwise to fund the interest payments from their account.
Settlement took place. The funds were directed to S Property in accordance with an authorisation signed by the Di Benedettos. The Di Benedettos were notified as described by the primary judge at [125] of his reasons:
"The first letter Mr and Mrs Di Benedetto received from Tonto was dated 21 February 2003 and advised of a variation in some of the loan terms and conditions. By a letter dated 27 February 2003, Streetwise informed the Di Benedettos that the loan settled on 26 February 2003. Ms Lau from Streetwise in a telephone conversation confirmed the settlement of the loan and that they were now part owners of the Seaforth property . On or after 7 March 2003, the Di Benedettos received a letter from Tonto advising of the settlement of the loan."
A little later, the Di Benedettos realised that they had no proof of any investment with Streetwise. They then signed a document in circumstances described by the primary judge in [126] of his reasons, as follows:
"... Mr Bangaru came to their home after Streetwise had been contacted bringing a document entitled "Deed of Investment " ... The Deed recorded that Mr and Mrs Di Benedetto had entered into a joint venture with Streetwise Property to acquire and develop the Battle Boulevard property for the purpose of resale and purported to set out the Framework of the joint venture. The Framework includes the incorporation of a "property investment vehicle" and that Mr and Mrs Di Benedetto "are to raise capital via a mortgage (refinance/redraw) from the equity of their property(ies)" namely $487,660.41 as capital. The Deed, inter alia, authorised the "Trustee and/or the Directors" to borrow monies "for and on behalf of the Investment vehicle." Mr and Mrs Di Benedetto signed the agreement which is dated 5 March 2003. This was the joint venture agreement which Mr and Mrs Di Benedetto entered into with Streetwise."
Streetwise made the interest payments into the Di Benedettos' account until mid-2005. At [127] of his reasons, the primary judge found:
"... A title search made by Mrs Di Benedetto after the collapse of Streetwise disclosed that Streetwise was not the registered proprietor of the Battle Boulevard property. Mr and Mrs Di Benedetto obtained no financial benefit whatsoever from their investment with Streetwise. They had been dishonestly misled by Streetwise about their investment."
Mrs Di Benedetto rang Tonto in July 2005, at which time she learnt that Tonto did not know of the arrangement that Streetwise would pay the interest and that she and her husband were liable for the loan payments. The primary judge did, however, find Mrs Di Benedetto's evidence of her understanding of the effect of the loan agreement and mortgage to be less than satisfactory: see [132] of the reasons. It was clear from later ASIC interviews that she always understood that their home was at risk under the mortgage, but they relied on Streetwise to pay it for them: see [131] of the reasons. The primary judge's essential conclusions about the Di Benedettos' entry into the arrangements were set out at [134]-[136] of his reasons, as follows:
[134] Although at the time of signing Mr and Mrs Di Benedetto did not have the opportunity to closely consider the loan agreement and mortgage, I am satisfied on the balance of probabilities they knew at that time that they were responsible for the loan repayments and their property was at risk if the payments were not made. They understood the gist of what they were signing. They considered, however, that there was little risk of default as Streetwise had agreed to make the payments. For this reason, neither of them took the time to read the documentation after it had been left at their home. Unfortunately they, like Mr and Mrs O'Donnell, had been seduced by Kovelan Bangaru and by high pressured and clever salesmanship into believing that they could place their trust in Streetwise.
[135] Mr and Mrs Di Benedetto had been dishonestly misled by Streetwise and persuaded not to seek independent legal advice. Streetwise had fraudulently altered the loan application form and income declaration as Streetwise knew that truthful disclosure of the assets and income of Mr and Mrs Di Benedetto would not meet the lending guidelines either under the Origin Program or the FirstMac securitised lending program. The loan would not have been approved without the fraud of Streetwise.
[136] The Di Benedettos were unaware that the loan had been approved upon the fraudulent material inserted by Streetwise. If they had known that the lender did not take into account the promise by Streetwise to contribute to the loan repayments when considering the application and that their financial position truthfully stated did not meet the lending guidelines, I am satisfied on the balance of probabilities that Mr and Mrs Di Benedetto would not have proceeded with the loan application."
Mr Tavares and Ms Rowe
The history of Mr Tavares' and Ms Rowe's borrowing was set out at [137]-[185] of the reasons of the primary judge. In December 2002, Mr Tavares and Ms Rowe were also approached by a Streetwise representative at a shopping centre at Castle Hill. They were persuaded to provide their contact details.
Mr Tavares was 53 years old, a self-employed musician, creator and publisher of music, with an income of $33,000 - $46,000 per annum. Ms Rowe was employed as a toll booth operator and casual swimming instructor whose income in 2002 was about $28,000. They had a home at Castle Hill, with $40,000 owing; Mr Tavares had superannuation of $35,000. Their financial experience was limited to buying land or a home. The primary judge described them at [140] of his reasons, as follows:
"Of all the cross-claimants in the three proceedings, Ms Rowe had the least financial experience. She had not been self-employed in a small business. Nevertheless, Ms Rowe had been party to the borrowing and the granting of a mortgage when the home unit at Lane Cove and the Castle Hill home were purchased. Mr Tavares and Ms Rowe were neither sophisticated nor na i ve in financial matters. Before they commenced their dealings with Streetwise they understood what it meant to provide a mortgage and that a possible consequence of default in the loan repayments was the sale of the secured property."
In the context in which [223] appeared, the topic under discussion was whether the fraud of Streetwise should have been left out of the balancing exercise because it is reasonably foreseeable that handing over signed documents containing blanks might lead to fraud. Thus, in that context, what was relevant was what was reasonably foreseeable to the respondents.
Another aspect of this case concerned whether the fraud of Streetwise was reasonably foreseeable by Tonto HL in its position of running a substantial lending business using a structure that involved deliberately keeping itself out of communication with potential borrowers. To such a person the risk was reasonably foreseeable, and thus appropriately entered into the balancing exercise.
I agree with the orders proposed by Allsop P.
**********
157