Vitek v Taheri

[2013] NSWSC 589

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Vitek & Anor v Taheri & Ors [2013] NSWSC 589
Hearing dates:	12, 13, 14 and 15 March 2013
Decision date:	20 May 2013
Jurisdiction:	Equity Division
Before:	Bergin CJ in Eq
Decision:	Consent Orders to be set aside
Catchwords:	[JUDGMENTS AND ORDERS] - Application to set aside Consent Orders made upon a settlement agreement made during the course of previous litigation [MISREPRESENTATIONS] - whether representations made in affidavit were misrepresentations (fraudulent or innocent) - whether plaintiffs relied upon those representations in deciding to settle the litigation against the party making the misrepresentations
Legislation Cited:	Conveyancing Act 1919
Cases Cited:	Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 Cabassi v Vila (1940) 64 CLR 130 Gipps v Gipps [1978] 1 NSWLR 454 Gould v Vaggelas (1984) 157 CLR 215 Harrisons & Crossfield Ltd v London & North-Western Railway Company Ltd [1917] 2 KB 755 Hughes v Hughes [2011] NSWSC 729 Jones v Dunkel (1959) 101 CLR 298 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381 Perochinsky v Kirschner [2013] NSWSC 400 Rayner v NJ Sheaffe Pty Ltd [2010] NSWSC 810 Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 Siahos v JP Morgan Trust Australia Ltd [2009] NSWCA 20 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 Spina v Conran Associates Pty Ltd (2008) 13 BPR 25,435 Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463 Svanosio v McNamara (1956) 96 CLR 186 Toubia v Schwenke (2002) 54 NSWLR 46 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 Wentworth v Rogers (No 5) (1986) 6 NSWLR 534
Texts Cited:	The Macquarie Dictionary, The Macquarie Library, Federation Edition (2001) Meagher, Heydon and Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, 2002)
Category:	Principal judgment
Parties:	Peter Vitek (First Plaintiff) Shoshanna Vitek (Second Plaintiff) Veeda Taheri (First Defendant) Siamac Taheri (Second Defendant) Estate Homes Pty Ltd (now deregistered) (Third Defendant) Bernard O'Donnell (Fourth Defendant)
Representation:	SD Robb QC/BM Zipser (First and Second Plaintiffs) JB Simpkins SC/MW Sneddon (First Defendant) Farrar Lawyers (Plaintiffs) McLaughlin & Riordan (First Defendant)
File Number(s):	2010/328982

Judgment

1. The plaintiffs, Peter Vitek and Shoshanna Vitek, as vendors, entered into a Contract for the Sale of Land at Redfern with the purchaser, Estate Homes Pty Limited (Estate Homes) on 15 September 2003 (the Contract). The first defendant, Veeda Taheri, and her then husband, the second defendant, Siamac Taheri, were named as guarantors of Estate Homes' obligations under the Contract. Clause 51 of the Special Conditions of the Contract contained the guarantee purportedly signed by Mr and Mrs Taheri. The solicitor acting for Estate Homes and Mr and Mrs Taheri on the conveyance was the fourth defendant, Bernard O'Donnell.

1. A dispute arose between the parties to the Contract and the plaintiffs commenced proceedings in this Court in 2005 against Estate Homes (as first defendant) and Mr and Mrs Taheri (as second and third defendants respectively), seeking damages for breach of contract (the 2005 proceedings). Estate Homes and Mr and Mrs Taheri brought a Cross-Claim against the plaintiffs and Mr O'Donnell. The relief sought against the plaintiffs, as first and second cross-defendants, included declarations that the Contract was rescinded and terminated by Notice of Rescission served by Estate Homes on 15 September 2003 and that the plaintiffs had, in contravention of the Fair Trading Act 1987, made misleading and deceptive representations in relation to the characteristics of the land. The relief sought against Mr O'Donnell, as third cross-defendant, included damages (for failing to advise the cross- claimants, inter alia, that the land could be contaminated) and an order that he indemnify the cross-claimants in respect of any damages they might be ordered to pay to the plaintiffs. Mrs Taheri brought a separate Second Cross-Claim against Mr O'Donnell for damages for allegedly failing to advise her in relation to the guarantee.

1. During the hearing of the 2005 proceedings, the plaintiffs settled their claim with Mrs Taheri and Mrs Taheri settled the Second Cross-Claim with Mr O'Donnell. In the present proceedings commenced in 2010, the plaintiffs seek to set aside the agreement to settle the proceedings and consequential Consent Orders reflecting their settlement with Mrs Taheri.

2005 Proceedings

1. Mr Taheri swore an affidavit in the 2005 proceedings on 16 October 2006 in which he claimed that he relied upon a Power of Attorney from Mrs Taheri to authorise him to sign her name on the guarantee in the Contract. He claimed that it was his understanding that he could sign Mrs Taheri's name where required on the Contract and that he did not know or understand that he had to disclose on the Contract that he was doing so pursuant to the Power of Attorney.

December 2006 Affidavit

1. On 15 December 2006 Mrs Taheri, as third defendant in the 2005 proceedings, swore an affidavit in support of an application to amend her Defence and to file the Second Cross-Claim against Mr O'Donnell. Mrs Taheri's affidavit evidence included the following:

10. My signature as guarantor is not my signature. I have sought to file an Amended Defence in the proceedings that (sic) pleading that the signature of the guarantor is not my signature

11. I have also received advice to file a further Cross-Claim in the proceedings against the solicitors who purported to act on my behalf in connection with the giving of the purported guarantee. I seek the leave of the court to file a Cross Claim against the solicitors, who are the third cross defendants in the proceedings.

The Amended Defence March 2007

1. Mrs Taheri's verified Amended Defence dated 12 March 2007 and filed in April 2007 included the following:

3. The Third Defendant refers to a Contract between the Plaintiffs and the First Defendant dated 15th September 2003 (the Contract) and denies entering into the guarantee contained in Clause 51 of the Special Conditions.

4. The Third Defendant refers to Clause 51 of the Special Conditions contained in the Contract and says that the signature endorsed thereon purporting to be hers is a forgery

5. Further, and in the alternative, the Third Defendant says that the alleged guarantee was procured in circumstances which were unconscionable and which in equity should not be enforced.

Particulars

a. The Third Defendant was not aware that she was required to enter into the guarantee contained in Clause 51 of the Contract.

b. No explanation of the terms of the guarantee or the Contract was given to the Third Defendant.

c. The signature on the guarantee purporting to be that of the Third Defendant is a forgery.

The 4 April 2007 Affidavit

1. Mrs Taheri swore an affidavit on 4 April 2007 which included the following:

6. I have been shown what purports to be my signature on pages 22 and 23 at clause 51 of the Contract. The signatures purporting to be my signatures are not my signatures.

...

10. I was aware that my husband was interested in purchasing the property that is the subject of this dispute. Until this dispute arose, that was the limit of my knowledge. Specifically, I was not aware at any time prior to the Contract being entered into or after that date until this dispute arose that Estate Homes Pty Limited or my husband had entered into a contract, or that I was a guarantor of the purchase.

11. I have been shown a copy of a Defence to the First Cross-Claim, which has been filed on behalf of Mr O'Donnell. Mr O'Donnell says that he had a meeting with my husband and I on or about 18 or 19 August 2003. I deny that I attended at any such meeting.

12. To the best of my recollection, on 18 and 19 August 2003, I was in Melbourne arranging for the appointment of some agents in Melbourne relating to my fashion label. To the best of my recollection, I stayed in Melbourne with my cousin.

13. I have never received any advice in relation to the Contract. I have never received any advice in respect of my obligations as guarantor pursuant to the Contract

14. In about July 2001, my husband and I agreed to purchase a unit in joint names. At that time, I was regularly travelling overseas. Our solicitor at the time suggested that in these circumstances I should give a Power of Attorney to my husband. I subsequently followed her advice. After the purchase, I forgot about the Power of Attorney.

15. I am not aware of my husband ever having used the Power of Attorney either prior to or subsequent to September 2003.

16. I refer to paragraph 26 of the Affidavit of Siamac Taheri and say that I did not authorise my husband to give a guarantee on my behalf or place my signature on the Contract as guarantor.

1. On 24 July 2001 Mrs Taheri had granted a Power of Attorney to Mr Taheri authorising him under s 163B of the Conveyancing Act 1919 "to do on my behalf anything I may lawfully authorise an attorney to do". There were no conditions or limitations and Mr Taheri was authorised to do any other act whereby a benefit was conferred on him (cl 2).

QC's Opinion

1. The parties attended a mediation in April 2008. Although they were unable to settle their differences, they agreed to jointly seek an opinion from Mr BC Oslington QC on the enforceability of the guarantee. Mr Oslington was asked to assume the following:

(a) The Power of Attorney was executed by Mrs Taheri in favour of Mr Taheri and was not impugned.

(b) The Power of Attorney had not been revoked as at the date of the Contract of Sale.

(c) The "signatures", 'V Taheri' that appear on pages 22 and 23 of the Contract of Sale were placed there by Mr Taheri.

(d) Mr Taheri placed those signatures on the Contract in the belief that he acted lawfully pursuant to the Power of Attorney.

(e) Mrs Taheri did not otherwise give Mr Taheri any authority to place her signature on that document.

(f) Mrs Taheri did not otherwise authorise Estate Homes to bind her to the guarantee.

1. Mr Oslington's opinion included the following:

17. An enforceable contract of guarantee does not have to be made by deed, and is not even required to be in writing.

18. In my opinion, the powers given under the power of attorney authorise Siamac Taheri to bind Veeda Taheri to a guarantee in terms recorded in Special Condition 51. I am instructed to assume that Siamac Taheri believed he acted lawfully pursuant to the power of attorney when he wrote "V. Taheri" above the provision in the guarantee for Veeda Taheri's signature. It follows that he intended to exercise the power given to him under the power of attorney to bind Veeda Taheri to the guarantee.

19. I am unable to express an conclusive opinion whether Veeda Taheri is bound by the guarantee because I do not know whether consideration was given by the vendor, or depending on the facts, whether Veeda Taheri would be estopped from denying she is bound by the guarantee even if there was no consideration.

20. The fact, as recorded in assumption (e) that Veeda Taheri "did not otherwise give Siamac Taheri any authority to place her signature on the document" is, in my opinion, irrelevant. I am asked to assume that the authority given by the power of attorney is not impugned. I have already advised that the power is sufficiently wide to enable its exercise to bind Veeda Taheri to the guarantee. The power of attorney is sufficient authority, and no further authority is required.

21. The assumption that Siamac Taheri placed Veeda Taheri's signature on the guarantee cannot be accepted. That could only have been done by Veeda Taheri. Siamac Taheri conveyed to the vendor, through writing "V. Taheri" on the guarantee, that Veeda Taheri intended to be bound by the guarantee. He had authority under the power of attorney to cause her to be bound.

22. I do not understand the relevance of assumed fact (f), namely, that Veeda Taheri did not otherwise authorise Estate Homes Pty. Limited to bind her to the guarantee. The facts upon which I am briefed do not suggest the purchaser, Estate Homes Pty. Limited, did anything to bind Veeda Taheri to the guarantee. My opinion is based on the view that Siamac Taheri was authorised under the power of attorney to bind Veeda Taheri to the guarantee.

1. Mr Roth forwarded a copy of Mr Oslington's opinion to the plaintiffs and advised that it was to the effect that although the guarantee was not signed by Mrs Taheri "she is still liable under the guarantee". That email of 15 April 2008 included the following:

This does not mean that the guarantee issue is finalised but only that the arguement (sic) used by Mrs Taheri's lawyers that she does not need to make any financial contribution at the mediation or even at the hearing because she did not sign the guarantee is not a valid arguement (sic).

1. After receipt of this information Mr Vitek said that he was "totally confused". Mr Roth responded to this communication on 16 April 2008 by advising as follows:

The other issues regarding the guarantee including whether there was any benefit to Mrs Taheri in giving the guarantee in circumstances where the purchaser was a company in which she was neither a director or shareholder. If the guarantee was given by deed this would not be in issue however the advice of the QC is that because it was not signed by V Taheri the witness who signed could not have witnessed the signature of V Taheri as the witness has purported to attest.

1. Mr Vitek responded that he was even more confused and concerned that his case that he thought had been "crystal clear" now had "all these issues". In response to this communication Mr Roth wrote as follows on 16 April 2008:

It was only after we received Mr Taheri's evidence that it was known that Mrs Taheri did not sign the guarantee.

No case is crystal clear to the extent it cannot be lost. This was made clear to you. It was also made clear that there may not be sufficient assets available from which you (sic) claim could be met. As you have a claim against Mr Taheri for the full amount anyway it does not matter that you have an additional claim against him in relation to his wife's guarantee. The value of your claim against Mr. Taheri is limited to the realisable value of his assets.

The guarantee situation is arguable and will depend on who is believed, all of the evidence that is presented to the Court including the witness statements, the result of cross examination and the documents that are tendered.

The Settlement and Consent Orders - 30 April 2009

1. Barrett J (as his Honour then was) heard the 2005 proceedings, commencing in April 2009. After some debate, his Honour agreed to the defendants' application that they not be required to read their affidavit evidence or go into evidence until the close of the plaintiffs' case. The plaintiffs experienced some forensic difficulties in the light of this ruling.

1. On the fourth day of the hearing, 30 April 2009, and prior to the close of the plaintiffs' case, the plaintiffs settled their claims against Mrs Taheri. Consent Orders were made in the following terms:

1. Note the agreement between the third defendant to pay the plaintiffs within 28 days the sum of $100,000 on account of the plaintiffs (sic) costs.

2. Upon compliance with the agreement noted in paragraph 1 verdict and judgment for the third defendant on the plaintiffs (sic) Summons.

3. Note the agreement between O'Donnell and the third defendant (second cross claimant) to pay the third defendant the sum of $50,000 within 28 days.

4. Upon compliance with the agreement noted in paragraph 3 verdict for the (sic) O'Donnell on the second cross claimants (sic) Cross Claim.

5. All existing orders for costs in the proceedings as between the plaintiff (sic), third defendant and O'Donnell are vacated.

1. On 4 May 2009 the plaintiffs' solicitor, Mr Charles Roth, wrote to the plaintiffs in terms that included the following:

I refer to the hearing of the above matter which commenced on 27 April 2009 and concluded part heard on 1 May 2009 and confirm the following:-

1. A compromise was reached on 30 April 2009 in respect of the claim against Mrs Taheri in accordance with Peter's instructions in the amount of $100,000 payable within twenty eight (28) days. The compromise was reached because it was evident that Mrs Taheri had not signed the guarantee and because of the difficulty in being able to prove that she was aware of the contract, the terms of the contract and her requirement to execute as guarantor and that Mr Taheri executed the guarantee on her behalf under a power of attorney and with her authority. The difficulty arose because of the manner in which Judge (sic) Barrett determined that the evidence in the trial would be taken, namely, the plaintiff's evidence first rather than as is the usual course for all parties' affidavits to be read (put into evidence) and then for any examination and cross examination to take place.

Amended Defence

1. The proceedings were heard on further dates in September 2009 and February 2010. On 14 September 2009 an application was made on Mr Taheri's behalf to amend his Defence to plead that by reason of the the settlement between the plaintiffs and Mrs Taheri, Mr Taheri was discharged from his obligations as guarantor. Leave was granted to file that Defence. An essential aspect of Mr Taheri's defence was that he and Mrs Taheri were co-guarantors. In support of this application Mr Taheri relied upon an affidavit of Mrs Taheri sworn on 7 September 2009. That affidavit referred to the Consent Orders pursuant to which the case between the plaintiffs and Mrs Taheri was settled on 30 April 2009. It also included evidence of payment by Mrs Taheri of the $100,000 to the plaintiffs.

1. At that stage Mrs Taheri's other evidence that had been filed and served was to the effect that she knew nothing about the Contract or the guarantee, that she did not authorise her husband to sign the guarantee and that she was not liable under the guarantee. However that position changed in February 2010.

Affidavit - 9 February 2010

1. Shortly prior to the resumption of the hearing in February 2010 Mr Taheri's lawyer served an affidavit of Mrs Taheri sworn on 9 February 2010. That affidavit included the following:

1. I was the third defendant in these proceedings and I am the wife of the second defendant.

2. I crave leave to refer to my affidavit sworn on 4 April 2007 herein and in particular to paragraphs 10, 11 and 12.

3. At the time when I attended at the office of my solicitor Mr Tudehope on 4 April 2007 to swear that affidavit I was very stressed, emotional and crying because of the case brought against me by the plaintiffs. Mr Tudehope presented to me the affidavit and I recall that he explained the contents and asked me to read the affidavit before I signed it which I did. When I read the affidavit in Mr Tudehope's office in (sic) 4 April 2007, I believed it accurately set out the facts and circumstances referred to in the above paragraphs.

4. I was provided with a copy of that affidavit on 4 February 2010 by my husband's solicitor John Hertz.

5. In the period between July and August 2003 I was aware that my husband was interested in purchasing a property suitable for redevelopment and in so far as I recall it was some time during that period when we drove past the property in Elizabeth Street, Redfern and he told me he was in the process of negotiating to purchase that property.

6. I was aware during that period my husband would require finance for a development and it was my intention to assist him by providing security over properties which I owned to enable him to obtain finance.

7. I refer to paragraph 10 in my affidavit and say that it was not correct for me to say I was not aware until this dispute arose that the contract was entered with the plaintiffs or that I was a guarantor.

8. It is my recollection that my husband said to me some time shortly after 15 September 2003 in effect "the contract to purchase the Elizabeth Street property has been exchanged. The vendors wanted both of us to sign a guarantee for Estate Homes. I signed your name using the power of attorney" I said "why did you do that?" he said "they would not proceed with only my signature, I had to do it". I was very angry with my husband when he told me that.

1. In this affidavit Mrs Taheri once again denied that she was present during any conference with Mr O'Donnell and denied receiving any advice from him in relation to the guarantee.

Further hearing- 16 February 2010

1. When the matter was next before the Court on 16 February 2010, counsel for Mr Taheri advised that the Amended Defence, in which it was pleaded that the settlement had released Mr Taheri from his obligation as guarantor, was no longer pressed. Counsel also advised that he would be reading Mrs Taheri's affidavit of 9 February 2010 that was "correcting errors" in her earlier affidavit.

1. When counsel for Mr Taheri advised that he was relying upon Mrs Taheri's affidavit of 9 February 2010, senior counsel for the plaintiffs said (tr 263):

Your Honour knows well the course, somewhat lengthy course of proceeding where Mrs Taheri was separately represented and effectively put the plaintiffs to the most strict of proof in the circumstances where Mrs Taheri foreshadowed sworn evidence, or actual sworn evidence was that she hadn't authorised anything and didn't know about it.

The consequence is this: Your Honour knows that at the end of the fourth day the proceedings between the plaintiffs, Mrs Taheri and Mr O'Donnell, the third party, were compromised. My instructions, very influential, in effect in that compromise was Mrs Taheri's evidence shortly that she hadn't authorised anything and did not know about it.

1. Senior counsel then advised Barrett J that instructions had been given that the plaintiffs would take or proposed to take proceedings to challenge the validity of that compromise based upon the new evidence that Mrs Taheri had given in her affidavit of 9 February 2010.

Mrs Taheri's oral evidence - 16 and 17 February 2010

1. Mrs Taheri gave the following evidence in cross-examination by counsel for Mr O'Donnell (tr 345-354):

Q. You swore an affidavit on 15 December 2006, didn't you?

A. I can't remember.

Q. I show you this document. Your signature appears at page 3?

A. That's right.

Q. That was witnessed by Mr Tudehope who by this time was your solicitor?

A. That is correct, yes.

Q. If you go to page 2 of that document at paragraph 10 you said "my signature as guarantor is not my signature. I have sought to file an Amended Defence in the proceedings, that pleading, that the signature of the guarantor is not my signature"?

A. That's right.

Q. Now attached to that affidavit is a document headed amended defence, is that right?

A. Yes.

Q. And this was also a document that you read at the time of swearing this affidavit on the 15 December 2006?

A. That's right.

...

Q. C says "the signature on the guarantee purporting to be that of the defendant is a forgery"?

A. Yes.

Q. Do you see that?

A. Yes.

Q. Is it the case that as at the 15 December 2006 you knew that your husband signed your name in the guarantee provision in the contract?

A. Yes.

...

Q. You knew on the 15 December 2006 that your husband signed your name on the guarantee provision in the contract relying upon the power of attorney that you had given him?

A. Yes.

...

Q. When you swore this affidavit on 15 December 2006 you knew that your husband had signed your name to the guarantor provision, didn't you?

A. Yes.

...

Q. At the time that you found out that he signed your name, is your position that you thought that that did legally bind you to the guarantee?

A. Yes, he put me in a position which I didn't want because it is his business. His business and my business are two different thing. What we purchase for living is different. My name can be in there for a guarantor. As for his business, he should be responsible for it not me. I am running my business.

Q. You say, do you, that you didn't authorise him to place your signature on that document?

A. No, I did not.

Q. Do you say that he told you some time after placing your signature on the document that he had done so?

A. Yes.

Q. How long after 15 September 2003 did he tell you that he may have had your signature on this?

A. Look, I can't be exactly sure and I can't give you a date. Some time after that, three weeks, four weeks, five weeks, I'm not sure, next week, I can't remember.

Q. But certainly on the basis of that evidence some time in 2003?

A. Yes, after he signed the contract he told me that he has signed my name as a guarantor on the contract.

Q. Did you have angry words with him about that?

A. I can't say angry words. It was beyond that.

Q. Beyond that?

A. Yes, very angry.

Q. Did you accept though in 2003 and 2004 that you were bound as a guarantor of that contract?

A. What else could I do.

Q. I am not here to advise you what else you could have done. I am simply asking you whether you did accept -

A. Yes, I did of course because I thought he had the power of attorney he could sign my name and he has done it.

...

Q. When you swore this affidavit [sworn 4 April 2007] you knew that it was intended that it be used in legal proceedings?

A. Yes.

Q. To inform a court about the facts of the dispute so far as you knew them?

A. Yes.

Q. In swearing this affidavit you accepted, didn't you, an obligation to tell the truth to the best of your knowledge about the facts as you knew them to be?

A. Yes.

...

Q. You go on in paragraph 10 to say specifically: "I was not aware at any time prior to the contract being entered into or after that date until this dispute arose that Estate Homes Pty Limited or my husband had entered into a contract or that I was guarantor or purchase."

A. No, I knew he was - I was a guarantor and I knew he signed the contract with the seller.

Q. You knew that when you swore the affidavit on 4 April 2007 didn't you -

A. Yes.

Q. - what you put in this affidavit was a lie, wasn't it?

A. Maybe I didn't understand it correctly.

Q. It was a lie wasn't it?

A. No, it wasn't lie. I am not lying.

Judgment - 2005 Proceedings

1. Barrett J recounted the various versions Mrs Taheri had given in her affidavits and oral evidence in relation to her knowledge of the Contract and the guarantee: Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 at [102]-[108] and said:

109 The very clear and unambiguous position taken by Mrs Taheri - and the position to which other parties obviously had regard when assessing the question of settling with her - was that the signature on the guarantee purporting to be hers was not placed there by her and was placed there without her consent.

1. After referring to the cross-examination that is extracted above, Barrett J said:

114 The only conclusion that can be drawn from Mrs Taheri's quite startling evidence is that, although she was aware from shortly after exchange of contracts that her husband had placed her name on the guarantee and she accepted that he, as her attorney, had authority to bind her in that way, she persisted for several years with the allegation that her name had been written by her husband without her authority, that she was not bound by the guarantee and that her signature was a forgery. She allowed that false position to pertain up to and beyond the point at which other parties to these proceedings decided to settle the claims involving her.

1. Barrett J also concluded that the meetings that Mr O'Donnell claimed he had with Mr and Mrs Taheri on 19 August 2003 had occurred as Mr O'Donnell had claimed: at [148].

1. The plaintiffs succeeded against Estate Homes and Mr Taheri. The Cross-Claim was dismissed. On 14 May 2010 orders were entered including judgment in favour of the plaintiffs against Estate Homes and Mr Taheri in the amount of approximately $880,000. Estate Homes had no assets and is now de-registered. Mr Taheri declared himself bankrupt shortly after the 2005 proceedings were concluded.

These Proceedings

1. In October 2010 the plaintiffs commenced these proceedings to set aside the Consent Orders made by Barrett J on 30 April 2013 on the grounds that they were induced to enter into the agreement by Mrs Taheri's actionable misrepresentations. The plaintiffs' principal position is that Mrs Taheri's misrepresentations were fraudulent. Although Estate Homes, Mr Taheri and Mr O'Donnell were joined to the proceedings, Mr O'Donnell filed a submitting appearance and Mr Taheri has taken no active step in the proceedings. As I have said, Estate Homes is de-registered.

The Pleadings

1. In the Amended Statement of Claim filed on 20 February 2013 the plaintiffs allege that in the 2005 proceedings Mrs Taheri represented in her affidavit sworn on 4 April 2007 that she was not aware until March 2005 that: (1) Mr Taheri had exchanged contracts (par 11(a)); (2) she was named as the guarantor of Estate Homes' obligations under the Contract (par 11(b)); (3) Mr Taheri signed the Contract for her or in her name as guarantor (par 11(c)); and (4) Mr Taheri had used the Power of Attorney to sign the Contract for her or in her name as guarantor (par 11(d)). It is also alleged that in her affidavit sworn on 4 April 2007, Mrs Taheri represented that: (5) she did not authorise Mr Taheri to sign the Contract for her or in her name as guarantor (par 11(e)); and (6) that until March 2005 the limit of her knowledge concerning the Property was that Mr Taheri was interested in purchasing the Property (par 11(f)).

1. The plaintiffs allege that each of these representations was false (and false to Mrs Taheri's knowledge) at the time that Mrs Taheri made them in the affidavit. It is alleged (consistently with Mrs Taheri's evidence in 2009) that shortly after 15 September 2003, Mrs Taheri became aware that contracts had been exchanged, that she was named as the guarantor and that Mr Taheri had signed the Contract for her or in her name as guarantor (pars 12(a)-(d)). The plaintiffs also allege that Mrs Taheri falsely represented in the Defence that was filed on 14 March 2007 (par 11(A)) that her signature on the Contract was a "forgery". It is alleged that Mr Taheri informed Mrs Taheri that he had signed her name on the Contract using the Power of Attorney and from that time Mrs Taheri did not believe that the signature on the Contract was a forgery (par 12). It is alleged that the representations were false at the time they were made and that Mrs Taheri knew they were false (pars 12 and 13).

1. The plaintiffs allege that they were induced by and relied on one or more of the representations to enter into the settlement agreement and sign the Consent Orders (par 15). They claim that at the time they signed the Consent Orders, they were unaware that the representations were false (par 16). They allege that Mrs Taheri intended that they rely upon the representations and they were either fraudulent or actionable (pars 18-22).

1. In the Defence to the Amended Statement of Claim filed on 25 February 2013, Mrs Taheri admitted that she swore the affidavit of 4 April 2007 and the affidavit verifying the Defence in the 2005 proceedings. However Mrs Taheri denied that the representations were false and/or that she knew they were false (pars 11 and 12).

The hearing

1. The proceedings were heard on 12, 13, 14 and 15 March 2013. Mr SD Robb QC leading Mr BM Zipser, of counsel, appeared for the plaintiffs. Mr JB Simpkins SC leading Mr MW Sneddon, of counsel, appeared for Mrs Taheri.

1. The plaintiffs gave affidavit evidence and were cross-examined. Mr Graham Segal, counsel appearing for the plaintiffs in the 2005 proceedings, also gave affidavit evidence and was cross-examined. The defendant called no evidence other than tendering Mr Roth's letter to the plaintiffs referred to earlier.

Evidence of Peter Vitek

1. Mr Vitek gave affidavit evidence that during the hearing of the 2005 proceedings on 30 April 2009 his counsel, Mr Segal, said words to the following effect to him:

The Judge has chosen a different way of approaching the case. We may not be able to cross-examine Mrs Taheri. Normally I get to cross-examine the other parties and their witnesses. But we may not be able to cross-examine Mrs Taheri. We have no express evidence that Mrs Taheri knew about the purchase of the property or that she had entered into the guarantee. You may lose against Mrs Taheri because it will be hard to prove that she was involved in or knew about the purchase of the property Given the state of the evidence I recommend that you settle with Mrs Taheri.

1. Mr Vitek gave evidence that at the time of this discussion he was aware that Mrs Taheri had filed an affidavit in which she claimed her signature on the guarantee was not her signature and that she had not authorised her husband to sign it. He was also aware that Mrs Taheri claimed that it was not until much later, after the dispute arose, that she became aware she was a guarantor (par 16). Mr Vitek also gave evidence that he and Mr Roth calculated the value of the assets that Mr Taheri owned to consider whether they were sufficient to cover any judgment that the plaintiffs might secure against Mr Taheri.

1. In cross-examination Mr Vitek gave the following evidence (tr 20-21):

Q. By no later [than] April 2009 you knew that one of the arguments being advanced on Mrs Taheri's behalf was that she didn't know anything about the contract for sale and its execution or its content before it was executed?

A. That's right, yes.

Q. You accept, don't you, that if you were aware of the argument being advanced to (sic) Mrs Taheri and there was evidence from a solicitor, Mr O'Donnell, to suggest Mrs Taheri had had a conference with him about the contract for sale before it was entered into, that would be potentially important to your claim against her. You understood that at the time, didn't you?

A. But I understood that she denied that.

Q. I'm going to come to that, but one of the things you understood in April 2009 was that apart from Mrs Taheri's denial, there was affidavit evidence from a solicitor, Mr O'Donnell, that he had met with Mrs Taheri before the contract for sale was signed and gone through the contract with her. You accept don't you that you knew that at the time, before the settlement discussions concluded in April 2009?

A. I don't recall that.

Q. Do you at least accept that if you knew that Mr O'Donnell was apparently going to, or likely to, give evidence to that effect, that would have a significant impact upon what prospects you would regard yourself as having in making a claim out under the guarantee against Mrs Taheri. You accept that, don't you?

A. No. No. She kept denying, she made an affidavit that she was not aware, it was a forgery, and she was telling Mr O'Donnell she wasn't there, she was in Melbourne. So I had to believe it. She swore affidavit.

1. The cross-examination of Mr Vitek was aimed in part at establishing that he relied on a number of matters rather than Mrs Taheri's affidavit evidence in deciding to settle the proceedings against Mrs Taheri. He was asked about his recollection of what was said to him about settling the case against Mrs Taheri. He said he could not remember the conversation "precisely" but that he was informed that it would be "better" for him to settle the case against Mrs Taheri because, if he could not prove that Mrs Taheri did sign the guarantee and was liable under the guarantee, he could lose the case against her (tr 28). He was also cross-examined as follows (tr 29-32):

Q. What is it that you can now recall that either Mr Segal or Mr Roth said to you during the course of this discussion in the meeting room?

A. That it will be hard to prove that Mrs Taheri is liable and because of the affidavit she swore a number of times that she wasn't involved in that purchase of the property, she stood as guarantor, and I could lose the case. I should settle.

...

Q. So, regardless of what Mrs Taheri said in her affidavit, you understood that Mr Segal was expressing concern that Mrs Taheri's evidence just might not be used at all; is that right?

A. I don't understand what it means exactly. They had an affidavit, number of affidavits where she denied signing of the document and I was told by my legal people it will be hard to prove that she did and she was aware of it and she was not coming to be cross-examined, so that will be difficult to prove.

Q. Isn't what Mr Segal, or Mr Roth told you that there was a real risk that, because Mrs Taheri may not give evidence through her affidavits, that you would need to prove what her knowledge was and that would be very hard; isn't that the effect of what Mr Segal told you, or Mr Roth?

A. I don't know if they told me that, but they told me it will be hard to prove the case.

Q. Well, is this right; being fair about it, the most that you can recall Mr Segal, or Mr Roth saying to you during the course of this discussion proceeding to settlement in April 2009 was that the way things were going before the Judge, it might be hard to prove what Mrs Taheri knew about the contract for sale and the guarantee?

A. I presume so, yes.

Q. That is really all you can remember Mr Segal and Mr Roth saying to you; isn't it?

A. Based on affidavit, that is what affidavit she did before, yes.

Q. All you can really recall Mr Segal saying to you is that, given the way the case was proceeding before the Judge, it might be very hard to prove what Mrs Taheri knew about the guarantee and the contract for sale?

A. Yes.

Q. That is really all you can remember about the advice given to you as to the problems with the case as far as they related [to] Mrs Taheri; isn't it, isn't it?

A. I presume so, yes.

1. Mr Vitek also gave evidence that he was advised prior to settling the proceedings against Mrs Taheri that if he lost the case against her, he might be liable for "considerable" costs (tr 35). His evidence was that his decision to settle his claim against Mrs Taheri was based upon the recommendation that he received from Mr Segal or Mr Roth or both of them and the prospect that he might be exposed to having to pay Mrs Taheri's costs (tr 36). He accepted that the things that were on his mind in deciding to settle the proceedings against Mrs Taheri included that he had been given advice that he had a good case against Mr Taheri and that Mr Taheri had assets that would be available to meet (or almost meet) the amount of any judgment he may secure against Mr Taheri (tr 36).

Evidence of Mrs Vitek

1. Mrs Vitek gave affidavit evidence that as at April 2009 she was aware that Mrs Taheri was claiming that she was unaware of the Contract or the guarantee. She gave evidence that in April 2009 Mr Vitek rang her from the Court and informed her that it had been suggested that they settle with Mrs Taheri because "it would be hard to prove that she signed the contract" (tr 39). Mrs Vitek said that she accepted what Mr Vitek said and that it obviously seemed "right for everyone" (tr 39).

The Evidence of Mr Segal

1. Mr Segal's affidavit affirmed on 18 July 2012 included evidence that at the time he gave the advice to the plaintiffs to settle the proceedings against Mrs Taheri, he believed that there was a "real issue" as to whether Mrs Taheri signed the guarantee pursuant to the Power of Attorney; that there was an argument being raised on Mrs Taheri's behalf that Mr Taheri had not used the Power of Attorney to sign the guarantee and that Mrs Taheri was not bound or liable under the guarantee; and that by use of the expression "forgery", Mrs Taheri was alleging that Mr Taheri's actions were dishonest (par 11(a)-(c)). The affidavit also included evidence that Mr Segal was "concerned" that the plaintiffs may not be able to prove the case against Mrs Taheri (par 11(d)).

1. Mr Segal was cross-examined in relation to his strategy and discussions relating to the settlement with Mrs Taheri. He accepted that Mr Taheri had claimed in his affidavit that he had signed the guarantee on Mrs Taheri's behalf pursuant to the Power of Attorney. He was cross-examined on this aspect of the matter as follows (tr 45-46):

Q. And if that evidence was accepted, your belief was that you would succeed against Mrs Tahari (sic)?

A. Not necessarily.

Q. Well, you thought that it would enhance your prospects of success?

A. Yes.

Q. To the point that you had good prospects?

A. There were still other issues.

Q. To the point you would have reasonable prospects?

A. You mean if I got past the hurdle I would otherwise have reasonable prospects? Reasonable prospects, perhaps, but what they are --

Q. But I am really trying to capture, if I can, what your state of mind was --

A. Sure.

Q. -- in April 2009 as accurately as we can looking backwards?

A. Sure.

Q. Your state of mind was if Mrs (sic) Tahari's (sic) evidence about his use of the Power of Attorney was accepted you would have reasonable prospects of holding Mrs Tahari (sic) liable under the guarantee?

A. Sorry, if --

Q. Do you want me to ask --

A. No, I understood your question. I am just reflecting back for a moment. If this - if you are putting to me if Mr Tahari's (sic) evidence was accepted - I'm sorry, I am repeating your question I presume - that this was, in fact, a document executed under the Power of Attorney, then there was still an issue - I am just trying to think back for a moment, I'm sorry to hold you - about whether or not there was any consideration because it was not - this was not executed as a deed, according to Bruce Oslington. So I am just trying to reflect on the importance of that particular aspect when I answer your question. That was my hesitation.

Q. You have identified in that answer that one issue in your mind in April 2009 was whether Mr Tahari's (sic) evidence about his use of the Power of Attorney would be accepted?

A. Oh yes.

Q. And another issue in your mind was if it was accepted whether there was consideration for the guarantee?

A. Yes.

Q. But if you could overcome these two hurdles, your belief in April 2009 was that you had reasonable prospects of holding Mrs Tahari (sic) liable under the guarantee; is that right?

A. I think that's right. I think the answer is, yes. Well, I can't think of any reason why it wouldn't be so.

1. Mr Segal accepted that for the plaintiffs to succeed against Mrs Taheri, it was "very important" for the defendants to go into evidence enabling the plaintiffs to prove things that they could not prove otherwise (tr 48). However, Mr Segal was at pains to point out that much of Mr Taheri's affidavit was against the case that the plaintiffs were seeking to present (tr 48).

1. At the time of the settlement with Mrs Taheri on 30 April 2009, Mr Segal was aware that Mr O'Donnell's affidavit evidence included an account of a discussion he claimed he had with Mr and Mrs Taheri in which he had given Mrs Taheri an explanation not only about the Contract but also about the guarantee (tr 52). Mr Segal agreed that Mr O'Donnell's daughter's affidavit evidence appeared to corroborate Mr O'Donnell's affidavit evidence that Mrs Taheri attended the August meeting (rather than being in Melbourne on the day in question as Mrs Taheri claimed in her affidavit) (tr 53).

1. Mr Segal had a general view in mid-2007 that the plaintiffs had "reasonable prospects" of succeeding against Mrs Taheri on the guarantee, given the evidence that had been filed and served (tr 54). He accepted that at the commencement of the hearing before Barrett J in 2009 it was his intention, as part of the plaintiffs' case, to rely upon Mr O'Donnell's evidence in relation to the explanation that he had given to Mrs Taheri at the conference on 19 August 2003 in relation to the Contract for Sale, including the guarantee (tr 65). He was anticipating that such evidence would be before the Court and that he would rely upon it (tr 65). He agreed that at the commencement of the hearing before Barrett J he intended (if given the opportunity) to cross-examine Mrs Taheri about her claimed lack of knowledge (tr 66). He contemplated that at the end of the case he would make submissions that Mrs Taheri could not be accepted in her disavowal of knowledge (tr 66).

1. In opening the plaintiffs' case before Barrett J, Mr Segal said (Ex A: 321):

So the plaintiff's (sic) position is well we only know what we can see. We don't know with certainty obviously, but I can tell your Honour without giving anything way (sic) that it is pretty clear from the outline that Mr Muddle has put forward that he is going to take some point about the admissibility of the contract, and no doubt will seek to make some submissions about that at that stage and I will say more about that when we (sic) says it.

If indeed your Honour were to conclude that it is not Mrs Taheri's signature, and I can't make a positive assertion beyond what the document says, then there will be issues arising as to whether or not the power of attorney covers it, and there will be issues as to whether or not Mrs Taheri's (sic) is otherwise bound or not bound, and there will be issues as to whether or not it amounts to a deed.

1. Mr Segal accepted in cross-examination that he had in mind a number of matters in relation to the "consideration" argument, including that Mrs Taheri had a real interest in the outcome of the transaction. In this regard he said that reliance would be placed upon a payment Mrs Taheri made for a particular fee relevant to the transaction with the contention that she would have contemplated a benefit (tr 71).

1. Mr Segal was cross-examined about his belief or otherwise of the evidence that Mrs Taheri had given in her affidavit. He claimed that he had "no beliefs at all" (tr 73). He accepted that he had formed the opinion that notwithstanding Mrs Taheri's evidence of 4 April 2007, there were still reasonable prospects of success (tr 73). He had an interest in supporting Mr Taheri's asserted belief that he thought he was acting pursuant to the Power of Attorney (tr 74). He also accepted that if the trial judge held that Mr Taheri was operating under the Power of Attorney then Mr Taheri could bind Mrs Taheri (tr 75).

1. One of the matters in Mr Segal's mind in recommending settlement of the plaintiffs' claim against Mrs Taheri was that Mr Taheri's credibility was to be challenged and accordingly his evidence that he believed he was acting pursuant to the Power of Attorney might not survive (tr 76). Mr Segal accepted that in deciding what recommendation he would make in respect of settlement, he reflected upon how the case would run and what facts he was most likely going to be able to demonstrate to the Judge's satisfaction (tr 77). He said that an important factor was whether Mr Taheri's claim that he signed the guarantee for his wife purportedly acting in reliance on the Power of Attorney would be accepted. He agreed that this could be a critical fact (tr 77). He was cross-examined as follows (tr 79-81):

Q. So, is this right: That really, something happened as the trial was running that caused you to engage in a process of reconsideration of where the case was likely to go, particularly against Mrs Taheri?

A. The answer is yes.

...

Q. Does that remind you that what happened pretty shortly after the case started on day one of the trial was that there was considerable discussion about whether the defendants were going to go into evidence, whether they were going to wait until your evidence was completed before they would make a decision about that matter?

A. That's correct, particularly, I think, Mr Muddle on behalf of Mrs Tahari (sic), made that point.

Q. And --

A. It was adopted by others.

...

Q. Page 343 of the courtbook, you will see at line 41, his Honour the trial judge says, "In the circumstances of this case the appropriate course is that for which Mr Muddle contends. The plaintiff should make its case and adduce its evidence, at which point the defendants are entitled to make a decision about how they proceed. That means that we should have cross-examination now of the plaintiff's (sic) witnesses". That was his Honour's ruling I think you were alluding to earlier when he said, basically, he accepted you would have to present your case?

A. Correct.

Q. That was very different, wasn't it, from on day one how you contemplated the case might run?

A. In that respect, yes.

1. Mr Segal accepted that he had contemplated that the procedure that would be adopted for the trial was that all the affidavits of all parties would be read and cross-examination would then proceed (tr 81). He accepted that if that procedure had been adopted he would have had available to him the evidence of Mr O'Donnell and his daughter and the opportunity to cross-examine each of those witnesses as well as Mr and Mrs Taheri. He was cross-examined as follows (tr 82-83):

Q. It is fair to say, isn't it, Mr Segal, that given the regime that the trial judge said he would adopt at courtbook page 343, namely, you presented your case first and then the defendants can decide whether they go into evidence, caused you to consider how you would run your case?

A. Cause me to consider that, yes, of course.

Q. And it caused you to consider what you could prove in your case in-chief about Mrs Tahari's (sic) knowledge of the contract for sale and the guarantee?

A. Yes.

Q. And the context in which you were considering settlement of the claim against Mrs Tahari (sic) a few days later was a context in which Mrs Tahari's (sic) affidavits hadn't been read?

A. Correct.

Q. In particular, her affidavit of 4 April 2007 hadn't been read?

A. Amongst other things, yes.

Q. There was uncertainty about whether anything ever would be read?

A. That is true.

...

Q. When you considered how you would proceed with this case without all of the defendants' evidence having been read you became acutely concerned, didn't you, as to what you could actually prove in your case in-chief about Mrs Tahari's (sic) knowledge, or lack of knowledge of the contract for sale or the guarantee?

A. Certainly was a matter that caused me to reconsider how I was going to deal with it and it certainly presented a new challenge for me.

...

Q. Isn't it the fact, Mr Segal, that when his Honour made this ruling at courtbook page 343 on day one of the trial you regarded it as devastating, in the sense that you thought that there were almost insurmountable problems you were going to have in your case in-chief in proving that Mrs Tahari (sic) had any knowledge of the contract for sale or any knowledge of the guarantee; isn't that the fact?

A. The answer is, probably, that would have been my initial thought, but when you go back to your Chambers and start thinking, those initial thoughts get overtaken by, "What can I do now?" And you start focussing on the way in which you will deal with the position as it obtains and I did so.

1. Mr Segal agreed that he made a number of attempts to tender the plaintiffs' valuation evidence. However this was rejected (tr 86). He conceded that this rejection was "obviously, a concern" and a "significant concern" (tr 87).

1. Mr Segal gave evidence that a number of matters caused him to advise the plaintiffs to settle their case against Mrs Taheri. These included factual issues, pleading issues, the evidentiary basis of the case and the manner in which the trial judge directed the trial to proceed (tr 92). He accepted that the "pivotal change in the position" from his view at the commencement of trial that the plaintiffs had reasonable prospects of success to the "road being harder" was the regime that had been imposed by the trial judge, that the plaintiffs had to complete their case before any defendant had to elect whether or not to give evidence (tr 94). He gave the following evidence (tr 95-96):

Q. Is it fair to infer that something that was happening either on day four or over those preceding days caused you to decide to make a recommendation about settlement on day four of the trial?

A. Well, assuming my recall is right that I hadn't raised it earlier, and I am not certain that it is, then either something occurred or more likely it was a cumulative effect of my perception of how the Judge was responding to my attempts to keep adding the evidence from other sources to build my prima facie case.

It was an on-going process, as I recall, and it was very obvious as time wore on that although I was making some headway it was by no means an easy road. Every step was a fight and my impression was that I was having to take the step by step approach which was showing some signs of success but the cumulative impression as the days wore on as I was seeking to build it and his Honour getting upset the time the trial was taking, that it was getting and likely to get harder and one has to read the, no disrespect, the Judge's mind to the extent one can and you form an impression as to where things are going in the judicial mind to the best you can and as the process kept going and seemed to be, you know, even if making progress, it was pretty clear that I was not going to find the continuation of the battle easy. I think that is the best way I can describe it.

Q. Is it fair to summarise that as meaning that you decided to make a recommendation on day four of the trial because of your increasing concern about the difficulties that would lay ahead having regard to the Judge's ruling about how the case was to proceed?

A. Yeah.

Q. Is that right?

A. Yeah, I think that's fair as I can put it at the moment.

Consideration

1. The plaintiffs claim that in her affidavit sworn on 4 April 2007, Mrs Taheri fraudulently misrepresented that until March 2005 she knew nothing about the Contract or the guarantee that had been signed in September 2003, that the signature on the guarantee was not hers (and it was a "forgery") and that she did not authorise her husband to sign the guarantee on her behalf. They claim that they relied upon those misrepresentations in deciding to settle their claims against Mrs Taheri. In those circumstances they contend that the agreement upon which the Consent Orders were made is invalid and the Consent Orders should be set aside. The plaintiffs seek an order that the 2005 proceedings as between them and Mrs Taheri be listed for directions for the purpose of preparing that case for hearing.

1. The jurisdiction of this Court to set aside consent orders in such circumstances was referred to in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 in which Handley JA, with whom Mahoney and Clarke JJA agreed, said at 696-697:

At this point it is convenient to refer to the nature of the jurisdiction which has been invoked by the appellant's motion to set aside what is in substance a consent judgment. In Harvey v Phillips (1956) 95 CLR 235 at 243-244, the High Court said:

"...The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. The rule appears rather from positive statements of the grounds that suffice ... but there is a dictum of Lindley LJ which is distinct enough '...nor have I the slightest doubt that a consent order may be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses ...To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good.' Huddersfield Banking Co Ltd v Lister [1895] 2 Ch 273 at 280."

1. This jurisdiction was also referred to in Toubia v Schwenke (2002) 54 NSWLR 46 in which Handley JA, with whom Heydon and Hodgson JJA agreed, said at 49 [5]:

Under the general law a party who claims that an adverse judgment was procured by the fraud of his adversary can bring an action to set aside that judgment. Such proceedings are equitable in origin and nature (Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538) and in fact are proceedings for the judicial rescission of the judgment (Boswell v Coaks (1894) 6 R 167 at 169). Such proceedings, when successful, do not result in "the scandal of conflicting decisions" (Rogers v The Queen (1994) 181 CLR 251 at 273; Spencer Bower, Turner and Handley The Doctrine of Res Judicata 3rd ed (1996) London, Butterworths at 50) because if the second action succeeds the first judgment is set aside.

1. The orders in question in the present case were not entered consequent upon a decision of the Court after a hearing on the merits. The difficulties with the setting aside of judgments or orders entered in circumstances where there has been a hearing on the merits are not relevant in this case: Cabassi v Vila (1940) 64 CLR 130 at 147-148 per Williams J.

1. A person makes a fraudulent misrepresentation if, at the time the person makes it, it is false and the person "had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood": Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 578 per Brennan, Deane, Gaudron and McHugh JJ. In that case their Honours also said at 576-577:

The sense in which a representation would be understood by a reasonable person in the position of the representee is prima facie the sense relevant to the question whether the representation is false. The sense in which a representation is understood by the representee is relevant to the question whether the representation induced the representee to act upon it. And the sense in which the representor intended the representation to be understood is relevant to the question whether the representation was made fraudulently.

The Representations

1. A preliminary argument was made on Mrs Taheri's behalf that the plaintiffs' case must fail because they did not claim and did not prove that they believed that the alleged misrepresentations were true. It was submitted that "a fundamental aspect of a representational case" is that there is "a belief in the truth either entirely or at least substantially of what was represented" (tr 143). It was submitted that when one comes to consider the evidence of Mr Segal, all that really mattered was that Mrs Taheri's affidavit was "somewhere in the background" and it was something to which he had regard "even though he had no belief in its truthfulness" (tr 147). In those circumstances it was submitted that the representational case made by the plaintiffs is "unknown to law".

1. The alleged misrepresentations were made in the context of the litigious process pursuant to which parties who wish to give evidence are required to either swear or affirm affidavits or make statements that are relied upon as evidence in the proceedings. In this instance Mrs Taheri swore an affidavit verifying the Amended Defence, an affidavit in support of that Defence and the so-called "correcting" affidavit. In Gipps v Gipps [1978] 1 NSWLR 454 Hutley JA, with whom Glass and Samuels JJA agreed, referred to the appellant's submission that as a matter of law, the trial judge could not find the respondent was induced by the misrepresentation when in fact she did not believe they were true (at 459). His Honour said at 460 (footnotes omitted):

There is no authority which supports the proposition advanced by the appellant. In fact, it by no means necessarily follows that complete knowledge of the falsity of representations defeats a case based on them: it is only if the knowledge is such as to destroy the effect of the misrepresentations as inducements. Only if knowledge is of the falsity of representations, and that knowledge is accepted as true so that the false belief is wholly dissipated does knowledge defeat misrepresentation. The true legal position is, in my opinion, stated by Burt J, as he then was, in Sinclair v Preston: "I might say in passing that I do not agree, that if a person to whom a misrepresentation of fact inducing in character has been made subsequently but before agreement finds out that the statement is not wholly true, that it must follow that he was not induced by such statement to enter into the agreement. The question whether a person has been induced by a statement made to him to enter into an agreement is, in my opinion, a single issue of fact. No doubt pre-contractual knowledge that the statement made is not wholly true has a very direct bearing upon the resolution of this question of fact but it does not of itself necessarily provide the answer. To say that it does is to formulate a different question."

1. In the present case the Contract with the purported signature "V Taheri" upon the guarantee was in evidence at the trial. The plaintiffs had been served with Mrs Taheri's verified Defence in which it was claimed that her signature was a "forgery". They had also been served with Mr Taheri's affidavit evidence that he had written Mrs Taheri's signature on the guarantee purportedly pursuant to a Power of Attorney and Mrs Taheri's affidavit that she did not so authorise Mr Taheri. It is true that Mr Segal intended to call into question the credit of both Mr Taheri and Mrs Taheri. However Mrs Taheri had proffered evidence on oath in a litigious context that she knew nothing about the Contract or the guarantee knowing that it was to be used to inform the Court (and the plaintiffs) "about the facts of the dispute" as far as she knew them (tr 354). The fact that the plaintiffs and/or Mr Segal may have had doubts about the truthfulness of some of the representations (and with a hope of having Mrs Taheri disbelieved on her oath) does not mean that the inducing effect of the misrepresentations was destroyed. The plaintiffs claimed that they were induced by the misrepresentations. If it were to be shown that they had little or no belief in the misrepresentations, that is a factor to be taken into account as to whether they were not so induced.

1. Although the plaintiffs did not expressly plead that they believed in the truth of the representations, they did plead that that they did not know that the representations were false. Although Mr Segal gave evidence that he did not hold any beliefs, I am of the view that he was expressing that view as an advocate for his clients. He was giving advice on the forensic probabilities based on the prospect that Mrs Taheri may be believed on her oath. In any event Mr Vitek's evidence as elicited in cross-examination was that he believed Mrs Taheri's claims (tr 21). It cannot be said that the plaintiffs or Mr Segal had such knowledge of the representations' falsity that they were "wholly dissipated", as Hutley JA described it in Gipps v Gipps. I do not accept that the preliminary argument has force.

1. One other matter with which I should deal is the submission on Mrs Taheri's behalf that the best evidence of the reason for the settlement is found in Mr Roth's letter to the plaintiffs dated 4 May 2009 referred to earlier at paragraph [16]. That letter stated that it was "evident" that Mrs Taheri had not signed the guarantee. I have no doubt that this was a reference to the evidence that Mrs Taheri had filed and served claiming a lack of knowledge of the Contract and the guarantee. The letter also referred to the difficulty in proving Mrs Taheri's knowledge and the fact that this difficulty arose because of the process that was adopted by the trial judge in requiring the plaintiffs' case to be closed before the defendants were required to give evidence. Mr Segal was cross-examined in relation to the difficulties that arose (as he perceived them) by reason of the regime adopted by the trial judge. However it is clear that this was but one of the matters affecting the circumstances in which his advice was given. But whether or not Mrs Taheri's representations were the sole cause of the plaintiffs' compromising the 2005 proceedings with Mrs Taheri is not to the point. As Wilson J said in Gould v Vaggelas (1984) 157 CLR 215 at 236, "[t]he representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract."

1. The plaintiffs claimed that in her affidavit sworn on 4 April 2007, Mrs Taheri represented that she was not aware until March 2005 that Mr Taheri had exchanged contracts. It is alleged that this representation was false at the time it was made and that Mrs Taheri knew it was false. Paragraph 10 of Mrs Taheri's affidavit of 4 April 2007 included the claim that she was not aware at any time prior to the Contract being entered into or after that date, until a dispute arose (accepted to be March 2005) that either Estate Homes or her husband had entered into the Contract, or that she was a guarantor.

1. Mrs Taheri's later affidavit and oral evidence in February 2010 was that it was a few weeks after the exchange of the Contract (meaning within weeks of 15 September 2003) that a conversation with her husband took place as a result of which she became aware that the Contract had been exchanged. That evidence is inconsistent with her earlier evidence that it was not until March 2005 that she became so aware. Indeed in her evidence in cross-examination at the trial before Barrett J, Mrs Taheri admitted that she knew when she swore that affidavit that she was a guarantor and that Mr Taheri had "signed the contract with the seller" (tr 354).

1. Mrs Taheri claimed in her 9 February 2010 affidavit that when she swore the affidavit on 4 April 2007 (in particular paragraphs 10, 11 and 12), she believed "it accurately set out the facts and circumstances". She also claimed that at the time that she swore the 2007 affidavit she was "stressed, emotional and crying". However she said that she read the affidavit before she signed it. Mrs Taheri gave oral evidence that when her husband informed her that he had signed a guarantee on her behalf there were "more than" angry words with him. Rather she said they were "very angry" words. It was suggested to her in cross-examination that her 2007 affidavit contained "a lie". Her response was "Maybe I didn't understand it correctly".

1. As Barrett J said, Mrs Taheri's evidence in the 2007 affidavit was "unambiguous": Vitek v Estate Homes Pty Ltd at [109]. Mrs Taheri did not give evidence in these proceedings and it is necessary to consider her 2007 affidavit, her 2010 affidavit and her oral evidence before Barrett J to decide whether the representations were made, as pleaded, and whether they were fraudulently made. There is really little issue that this representation was made in the 2007 affidavit. Although Mrs Taheri attempted to suggest that she believed that the content of her 2007 affidavit accurately reflected the circumstances as at that date, it is not possible to accept that as a truthful statement. I am satisfied that Mrs Taheri knew on 4 April 2007 that her husband had signed her name on the guarantee. I do not accept that Mrs Taheri would have forgotten such an event about which she became "very angry" and pursuant to which she became liable as a guarantor.

1. It was submitted on Mrs Taheri's behalf that a reasonable explanation for the content of the 2007 affidavit was that she was stressed and crying. I accept that litigation can cause a great deal of stress and upset. However the version of events that Mrs Taheri gave in the 2007 affidavit was diametrically opposed to the version that she gave in her 2010 affidavit. Mrs Taheri swore the 2007 affidavit in support of a Defence against a claim that she was a guarantor in respect of Estate Homes' obligations under the Contract. At the time Mrs Taheri swore her 2010 affidavit an application was extant to amend Mr Taheri's Defence to plead that the settlement between the plaintiffs and Mrs Taheri discharged or released Mr Taheri from his obligations as guarantor. It is probable that this affidavit was sworn in support of that Amended Defence. However although the amendment was not pressed when the matter returned before Barrett J on 16 February 2010, Mrs Taheri's affidavit was read. One reason for this forensic step may have been that Mrs Taheri was claiming that she was not present at the meeting in August 2003 with Mr O'Donnell, a matter that was also relevant to Mr Taheri's case.

1. The plaintiffs submitted that a conclusion adverse to Mrs Taheri can be more comfortably drawn by reason of her failure to give evidence in these proceedings: Jones v Dunkel (1959) 101 CLR 298. Mrs Taheri did not claim in her 2010 affidavit that she forgot about the September/October 2003 conversation with her husband. Nor did she claim that when she read her 2007 affidavit she thought it included a reference to that conversation. Rather in her 2010 affidavit she used the obscure expression that she believed that paragraphs 10, 11 and 12 of the 2007 affidavit "accurately set out the facts and circumstances". Paragraph 10 of the affidavit is the only one relevant to the matter under discussion here in which she simply claimed that she was not aware until the dispute arose (that is, March 2005) that her husband had entered into the Contract or that she was a guarantor. The fact that Mrs Taheri was stressed and crying might tend to suggest that she overlooked something in her affidavit. However, having regard to the obscure terms of her 2010 affidavit, I am satisfied that her failure to disclose it in her 2007 affidavit required an explanation. It is appropriate to apply the principles in respect of a failure to give evidence in this instance. Even if that were not so, I am comfortably satisfied that when Mrs Taheri made the representation in her 2007 affidavit she knew it was false.

1. The second representation the plaintiffs allege Mrs Taheri made in her 2007 affidavit was that she was not aware until March 2005 that in the Contract she was a guarantor of Estate Homes' obligation.

1. The same observations apply to this representation. Mrs Taheri's later evidence that it was a few weeks after 15 September 2003 that she became aware that her husband had signed the guarantee on her behalf, cannot be reconciled with her representation in her 2007 affidavit that it was not until a dispute arose that she became aware that she was the guarantor of Estate Homes in the contract.

1. I am satisfied that the representation was made by Mrs Taheri in her affidavit of 4 April 2007; that the representation was false; and that it was false to Mrs Taheri's knowledge.

1. These representations were made in the course of proceedings and in an affidavit that Mrs Taheri knew was to be served on the plaintiffs. I am satisfied that Mrs Taheri intended that the plaintiffs would rely upon the sworn evidence that she gave in that affidavit to assess their position in the litigation including the prospect of settling the proceedings with her. Mrs Taheri knew that a recipient of the affidavit would understand that she was claiming ignorance of the Contract and her position as guarantor until March 2005.

1. The plaintiffs also allege that Mrs Taheri represented in her 2007 affidavit that she was not aware until March 2005 that Mr Taheri had signed the Contract for her, or in her name, as guarantor. Once again Mrs Taheri's evidence in February 2010 clearly indicates that she knew as at September or October 2003 that her husband had signed the Contract in her name and/or on her behalf pursuant to the Power of Attorney. This representation made in Mrs Taheri's 2007 affidavit was false and I am satisfied that it was false to her knowledge.

1. The plaintiffs also allege that in her affidavit sworn on 4 April 2007, Mrs Taheri represented that she did not authorise Mr Taheri to sign the Contract for or in her name as guarantor. I am satisfied that Mrs Taheri knew at the time she swore the affidavit that Mr Taheri had indeed signed the guarantee purportedly pursuant to the Power of Attorney that had been granted to him in 2001 and that she took no action to change that position after she was informed of it shortly after the Contract was signed. This representation is in a different category. The effect of Mrs Taheri's 2010 evidence was that at the time she swore the 2007 affidavit her husband had advised her that he had signed her name on the guarantee purportedly pursuant to the Power of Attorney. A representation that Mrs Taheri did not authorise her husband at the time the Contract was entered into to sign the guarantee for her or in her name is not false. Mrs Taheri did not know until some weeks later in 2003 that the Contract and the guarantee had been signed. However the representation that was made in the context of a Defence that claimed that the signature was a forgery with no mention of the fact that her husband had advised her that he had used the Power of Atorney to sign her name on the guarantee, conveys the clear meaning that she knew nothing of the Contract and guarantee. However the representation as pleaded is technically not false.

1. The next representation relied upon by the plaintiffs is that in her 2007 affidavit, Mrs Taheri represented that until March 2005 all that she knew concerning the Property was that her husband was interested in purchasing it. It is clear from Mrs Taheri's 2010 affidavit that her husband informed her that he had signed the guarantee in her name because that is what the vendors required. I am satisfied that when Mrs Taheri made this representation it was false and it was false to her knowledge.

1. There is also the alleged misrepresentation that the signature on the guarantee was "a forgery". This claim was made in paragraph 5c of the verified Amended Defence referred to in paragraph [6] above. The plaintiffs submitted that the natural meaning of the word "forgery" is the "counterfeiting or alteration of a document, or part of a document, with intent to defraud" or the "act of fabricating or producing falsely": The Macquarie Dictionary, The Macquarie Library, Federation Edition, (2001) page 736. I am of the view that when read with the totality of her evidence, a reasonable reading of the Amended Defence is that Mrs Taheri was intending to convey that she had not authorised her husband to sign the guarantee in her name pursuant to the Power of Attorney. I am not satisfied that it is a separate actionable misrepresentation. However it was a most unsatisfactory term to use in the Amended Defence in the circumstances of Mrs Taheri's understanding and evidence otherwise.

1. The plaintiffs were both aware of Mrs Taheri's claims in her 2007 affidavit. As Mr Roth's letter recorded, the settlement was reached because "it was evident that Mrs Taheri had not signed the guarantee". This was a clear reference to the reliance placed on Mrs Taheri's misrepresentations, and the inducement thereby of the plaintiffs into the agreement to settle. Although a deal of time was spent in cross-examination of Mr Segal about his thoughts and attitude at the time of the advice, I am satisfied that the plaintiffs were induced by Mrs Taheri's fraudulent misrepresentations into settling their claim against her and that the equitable remedy of rescission is available in respect of such agreement and the Consent Orders are amenable to being set aside. However it is contended on Mrs Taheri's behalf that such an order should not be made. The first contention is that the settlement agreement was a tripartite agreement between the plaintiffs, Mrs Taheri and Mr O'Donnell and if there were partial rescission only as between the plaintiff's and Mrs Taheri, substantial restitutio in integrum would not be available (the Tripartite Agreement Defence). The second is that there is no utility in making the order because the plaintiffs have no seriously arguable case against Mrs Taheri (the No Utility Defence).

1. Before considering those contentions I should record that the parties addressed submissions as to whether an innocent misrepresentation is a ground for setting aside the Consent Orders. It was contended on Mrs Taheri's behalf that an executed contract (other than for the sale of land) cannot be rescinded on the ground of innocent misrepresentation. In support of this contention reliance was placed upon Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326. In that case Joyce J said at 333 that there could "be no successful claim, after completion, for damages for misrepresentation unless that misrepresentation was fraudulent" (the rule in Seddon's case). Reliance was also placed on Svanosio v McNamara (1956) 96 CLR 186. The High Court was there dealing with an executed contract for the sale of land, in respect of which it was held that equity would not undo a sale of land after conveyance unless there had been fraud (Dixon CJ and Fullagar J at 198; McTiernan, Williams and Webb JJ at 207). The plaintiffs submitted that the High Court expressly reserved deciding whether the rule in Seddon's case was correctly decided (Dixon CJ and Fullagar J at 198; McTiernan, Williams and Webb JJ at 209). Although in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 the High Court referred to this decision and to Seddon in footnote 45 at 585 in support of the proposition that, absent fraud, equity would not order rescission of a contract of sale after conveyance, it does not seem to me that such a reference can be seen as an approval of the rule in Seddon's case in relation to contracts other than for the sale of land.

1. The plaintiffs submitted that rescission is available for innocent misrepresentation in the case of an executed contract, other than for the sale of land, for instance, for the sale of goods: Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381 at 387. Reliance was placed upon Young J's decision in Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 379-380 in which his Honour expressed the view that there was no reason in principle behind the rule in Seddon's case and that the Court should no longer apply that "mistaken view". The rule has also been strongly criticised by respected commentators in Australia: Meagher, Heydon and Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, 2002) at 471-473.

1. I have found that the misrepresentations were fraudulent and it is therefore unnecessary to decide this issue. However it is difficult to understand why a party who has been induced into a contractual relationship on a totally false premise should not have access to the equitable remedy of rescission in the appropriate case.

The Tripartite Agreement Defence

1. It was submitted on Mrs Taheri's behalf that the settlement agreement was a tripartite agreement between the plaintiffs and Mrs Taheri and Mr O'Donnell. The plaintiffs submitted that the Consent Orders reflect two separate agreements, one between the plaintiffs and Mrs Taheri and one between Mrs Taheri and Mr O'Donnell. The plaintiffs seek only to set aside the agreement and the Consent Orders in the 2005 proceedings as between them and Mrs Taheri.

1. Reliance was placed upon the following passage of the judgment of the High Court in Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 115-6:

The appellant is "seeking the assistance of a court of equity and he who seeks equity must do equity". The Court must look at what is practically just for both parties, not only the appellant. To enforce the guarantee to the extent of future indebtedness is to do no more than hold the appellant to what he was prepared to undertake independently of any misrepresentation. This approach has been taken in several cases. A similar approach was taken by the Court of Appeal in New South Wales to proceedings under the Contracts Review Act 1980 (NSW) in setting aside an "unjust" contract. There a guarantee was enforced against the guarantor to the extent that she believed she had agreed to. As Olsson J said in the present case: "the practical approach adopted by the learned trial judge was clearly justified, if not demanded, by the situation revealed by the evidence".

1. It was submitted on Mrs Taheri's behalf that partial rescission in the present case ought not be granted because substantial restitutio in integrum is not available unless all parties to the tripartite agreement are restored to their respective pre-contract positions, including Mrs Taheri and Mr O'Donnell. In this regard particular reliance was placed upon paragraph 4 of the Consent Orders (vacating earlier costs orders). I do not accept that what is reflected in the Consent Orders is reasonably described as a "tripartite" agreement. The plaintiffs were not dependent upon any agreement that Mrs Taheri and Mr O'Donnell reached in settling their differences with Mrs Taheri. There is no evidence that there was any communication of any condition imposed upon the plaintiffs' settlement with Mrs Taheri that related to a settlement with Mr O'Donnell. They were two separate transactions and agreements. The first agreement was between the plaintiffs and Mrs Taheri that Mrs Taheri would pay $100,000 to the plaintiffs on account of the plaintiffs' costs. When Mrs Taheri paid the plaintiffs $100,000, judgment was to be entered for Mrs Taheri on the plaintiffs' Summons.

1. The second agreement was between Mr O'Donnell and Mrs Taheri that Mr O'Donnell would pay her $50,000. Although Mrs Taheri's decision to settle with the plaintiffs obviated the need for the Second Cross-Claim against Mr O'Donnell, it was separate from the agreement between Mrs Taheri and the plaintiffs. When Mr O'Donnell paid Mrs Taheri $50,000, judgment was to be entered in favour of Mr O'Donnell on the Cross-Claim brought by Mrs Taheri.

1. The order made vacating previous costs orders, although expressed as being "as between the plaintiff, third defendant and O'Donnell" is an order reflective of each agreement. The parties to the two agreements reached their settlements on the basis that the only amounts that would be paid by way of costs would be those reflected in their respective agreements and any previous liability, as between the plaintiffs and Mrs Taheri and as between Mrs Taheri and Mr O'Donnell would be vacated. There is no suggestion in any of the evidence that there were any orders as between the plaintiffs and Mr O'Donnell. I am satisfied that the contention that this was a tripartite agreement should not be accepted. In any event, Mrs Taheri is not precluded from making any relevant application in respect of her agreement with Mr O'Donnell.

1. This defence fails.

The No Utility Defence

1. It is contended that there is no utility in setting aside the Consent Orders and allowing the case between the plaintiffs and Mrs Taheri to go forward. It is contended that the benefit that was obtained by Mr Taheri in utilising the Power of Attorney to bind Mrs Taheri to the guarantee was a benefit solely for himself and was not within the terms of the power: Spina v Conran Associates Pty Ltd (2008) 13 BPR 25,435 at 25,448-25,452 [64]-[84]. Reference was made to the differing interpretations of the provisions of the Power of Attorney and s 163B of the Conveyancing Act 1919 in this Court: Rayner v NJ Sheaffe Pty Ltd [2010] NSWSC 810; Hughes v Hughes [2011] NSWSC 729; Spina v Permanent Custodians Ltd (2008) 13 BPR 25,463; Siahos and Anor v JP Morgan Trust Australia Ltd [2009] NSWCA 20; and Perochinsky v Kirschner [2013] NSWSC 400.

1. On the assumption that the correct interpretation is that Mr Taheri was not entitled to exercise the power for his sole benefit, the question whether it was for his sole benefit is a matter for the trial judge. Certainly the plaintiffs have referred to some documentary material to suggest that Mrs Taheri paid a fee in respect of the relevant transaction and may have expected a benefit.

1. This defence fails.

1. I should record that it was also contended on Mrs Taheri's behalf that the plaintiffs' case would be wanting, if they wished to rely upon a ratification argument. It was submitted that Mrs Taheri's evidence before Barrett J would not amount to "the approval after the event of the assumption of an authority" for Mr Taheri's actions: Harrisons & Crossfield Ltd v London & North-Western Railway Company Ltd [1917] 2 KB 755 at 758. Once again this will be a matter for the trial judge.

1. I should also refer to the contention put on Mrs Taheri's behalf that the plaintiffs ought be refused any relief by reason of their delay in notifying Mrs Taheri of, and bringing, these proceedings. In this regard reliance was placed on the principle that there is a public interest in finality of litigation and that parties who have evidence of fraud which may taint a judgment should move promptly: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 at 538 per Kirby P. This contention was neither notified nor pleaded. That is the end of that matter. In any event, on 16 February 2010 when counsel for Mr Taheri advised the Court that Mrs Taheri's affidavit of 9 February 2010 would be read, senior counsel for the plaintiffs immediately indicated that the plaintiffs would take proceedings to challenge the validity of the settlement.

Orders

1. The plaintiffs are entitled to the equitable remedy of rescission in respect of their agreement with Mrs Taheri. The order for the entry of verdict and judgment for Mrs Taheri on the plaintiffs' Summons is to be set aside. The order setting aside existing costs orders as between the plaintiffs and Mrs Taheri is to be set aside. The plaintiffs are to pay $100,000 into Court pending further argument in relation to how that money should be dealt with pending trial. Such payment is to be made on the next occasion the matter is listed. The matter is listed on 29 May 2013 for the filing of Short Minutes of Order and for the making of costs orders and orders for the future conduct of the 2005 proceedings as between the plaintiffs and Mrs Taheri.

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Amendments

20 May 2013 - Typographical error

Amended paragraphs: Coversheet

Decision last updated: 20 May 2013