Westpac Banking Corporation v Mitros
[2000] VSC 465
•3 November 2000
| SUPREME COURT OF VICTORIA | |
| AT MELBOURNE | Not Restricted |
COMMERCIAL & EQUITY DIVISION
No. 6673 of 1993
| WESTPAC BANKING CORPORATION | Plaintiff |
| (ACN 007 457 141) | |
| V | |
| HELEN JANE MITROS | Defendant |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 17, 18, 19 and 20 October 2000 | |
DATE OF JUDGMENT: | 3 November 2000 | |
CASE MAY BE CITED AS: | Westpac Banking Corporation v Mitros | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 465 | |
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Equity – Mortgage – wife executes mortgage over her property – debtor a company controlled by husband – mortgagor a volunteer – undue influence – mortgagor’s want of understanding – whether security unenforceable.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr P. J. Cosgrave | Dunhill Madden Butler |
| For the Defendant | Mr. V. A. Morfuni | Dominic Esposito Solicitors |
HIS HONOUR:
The plaintiff, Westpac Banking Corporation (“Westpac”) seeks an order for possession as mortgagee of land situate at and known as 4 Maurine Court, Ringwood North and being the land more particularly described in Certificate of Title Volume 9501 Folio 509. The defendant, Helen Jane Mitros, is the mortgagor and registered proprietor of the land. The formalities of Westpac’s claim were not in dispute. The mortgage was executed by Mrs Mitros on 29 November 1988 to secure loans made and to be made to her husband's company, Bellbird Consolidated Properties & Investments Pty Ltd (“Bellbird”). Bellbird defaulted under its loan and on 22 April 1993 Westpac demanded that Mrs Mitros pay $296,407.38. This she has failed to do so, that there is presently due and payable to Westpac $827,594.59 and she remains in possession of the mortgaged property.
At trial Mrs Mitros relied on three defences to resist the bank’s claim: her husband’s undue influence; her want of understanding of the nature of the transaction; and a subsequent agreement under which the bank agreed to release the security. It is convenient to deal first with the background and circumstances of the execution of the mortgage insofar as these bear upon the first and second of these defences.
The Execution of the Mortgage
Mrs Mitros, then Helen Jane Harrison, met her husband-to-be in 1972 when she was but 16 years old and he a few years older. They married in May 1978 and had three children, Will who was born in 1984, Beth in 1986 and Edward in 1990. She and her husband and the children have, since 1987, lived in the Maurine Court home.
She told me that she completed Year 11 at school and that she worked until about 1982 when she was 25 years of age. Her work was as a clerical assistant in the Australian Taxation Office in the city and later in Dandenong. She said that this involved working in the mail room, sorting and moving tax returns and later, at Dandenong, sending out refund cheques and working in the enquiry area and in Group Tax. She was classified as Class 23 when she retired in about 1982. She told me that she stopped work because she did not enjoy it and because her husband wanted her to attend to domestic tasks. Her first child was born about three years later.
She said that she was born in Carlton and that English is her native tongue. She is able to read the newspaper without difficulty but she thought that she might have learning difficulties so that she would not contemplate reading Shakespeare or the Bible.
Her husband, Constantine George Mitros, also known as Dean Mitros, was educated to tertiary standard as an engineer. In the early 1980s he conducted a furniture manufacturing business and, about 1985, he established Bellbird and the Bellbird group of companies for the purpose of property development and commercial building. His was the controlling interest in Bellbird of which he held 90% of the shares. The remainder were held by his two co-directors, John Robert Ronaldson and Greg Bryant, each with 5%. Mr Ronaldson who is married to Mrs Mitros’ sister, had been previously involved in the furniture retailing business, Leisure Pine Furniture Pty Ltd.
Mrs Mitros was not a shareholder in nor a director of any of the Bellbird companies. She told me that she was aware that her husband was involved in a number of projects in the Ringwood area and that, in the second half of the 1980s, his business expanded. She accepted that she had a general appreciation of the business activities of her husband and of Bellbird, that she knew the names of the sites and that profits were being made. She knew that her husband borrowed money for his enterprises including from the National Australia Bank but maintained that she did not know whether these loans were substantial. In 1988 she knew, too, that her husband was changing from the National Bank to Westpac. She said that he established for the activities of Bellbird an office in Heatherdale Road which she used to visit from time to time. She maintained, however, that she did not at any time work there as a receptionist or in administration or otherwise.
Mrs Mitros maintained that her relationship with her husband was such that she played no part in his business activities. This was, she said, his area of work; hers was in the home. He told her little, she said, of the detail of his business activities for the reason which she volunteered to me, that “he was always worried if I divorced him I’d know too much”. Later, she said that he was selective about what he told her and responded as follows to cross-examining counsel who suggested that her account of their relationship was not accurate:
“You don’t understand our relationship at all, he is coming from a different background to how I was brought up. I’ve come from a loving caring family with a really soft nice dad to his father was a horrible nasty man with, I would say, psychological problems and he brought Dean up alone. Dean doesn’t know how to treat women properly. He didn’t have a mother at home. And our relationship has been that he is the boss in the house and I don’t – it sounds silly but I don’t know why I’ve – I suppose naïve that I’ve fallen into the pattern with him and that’s how it is. I know what a normal relationship is. I’ve got family that – and friends that openly discuss things but that is not how our relationship works and that’s just how it is. It’s how it’s always been.”
When Mr and Mrs Mitros were first married in 1978 they lived for nine or 10 years in a house at Lynette Avenue, Warrandyte which had been bought some time before in their joint names. The title for this property, Certificate of Title Volume 8966 Folio 015, shows that they had become registered as joint proprietors in December 1976 and that the property remained unencumbered until a mortgage in favour of the State Savings Bank was registered on 23 June 1978. A second mortgage to the National Australia Bank dated 15 December 1987 was registered on 16 May 1988. These mortgages were discharged on 12 January 1989 when a mortgage to Westpac dated 28 December 1988 was registered on the title. Mrs Mitros said that this house was in an incomplete state for the time she lived in it and that she found this unsatisfactory with a young child and another on the way. She told her husband that she had had enough of living in this way and that she had decided to live in a unit he had built in Ford Street, Ringwood. He agreed. The family lived in Ford Street for a few months until early 1987.
Meantime, in 1986, Mr and Mrs Mitros purchased a block of nearly four hectares of vacant land at Illawong Drive, Donvale. This was purchased in their joint names from funds from the estate of Mr Mitros’ late father. The title, Certificate of Title Volume 9731 Folio 617, shows that they became joint proprietors on 10 November 1986 and that a mortgage to the National Australia Savings Bank was registered on 10 April 1987. This was discharged in June 1988 when a mortgage dated 20 May 1988 was registered in favour of AGC (Advances) Ltd, a company associated with Westpac. This was, in turn, discharged when a mortgage in favour of Westpac dated 14 June 1989 was registered on the title on 20 November 1989.
In January 1987 Mrs Mitros purchased Maurine Court, the land and dwelling the subject of this proceeding. She had moved out of Lynette Avenue a few months before and was then living in the small unit in Ford Street. She told me that the summer that year was very hot and the unit very uncomfortable with a child under three years and herself being pregnant. She told me “I just went out and picked a house that we bought”. The price of this, she told me, was $113,000. Mr Mitros said that the decision to purchase Maurine Court was ultimately his but that his wife was extremely forceful in announcing her decision to leave Ford Street. In fact, what happened was this. Mrs Mitros was unhappy with the Ford Street unit and decided to move somewhere better. She found the property in Maurine Court, liked it and paid the deposit of some $10,000 from their joint cheque account and then informed her husband. He inspected the house, approved it, and they completed the purchase with a National Bank loan. She made payments under the mortgage from their joint account. She said that the house was purchased as temporary accommodation until they had acquired a home more in accord with their long term intentions. The title to Maurine Court, Certificate of Title Volume 9501 Folio 509, shows that Mrs Mitros became registered as sole proprietor on 20 February 1987 with a mortgage registered on the same date in favour of the National Australia Savings Bank. This mortgage was discharged on 12 January 1989 upon the registration of the Westpac mortgage with which this litigation is concerned.
As counsel for Westpac observed, this history shows that Mrs Mitros was prepared to act independently of her husband and, further, that she had executed a mortgage as a sole or joint mortgagor on five occasions before she signed the Maurine Court mortgage to Westpac in November 1988.
The circumstances leading to her signing of this mortgage were these. Sometime in September 1988 Mr Mitros was introduced to Lawrence Campbell Findlay, who was then the District Commercial Manager of the Boronia office of Westpac. According to Mr Findlay’s diary note Mr Mitros told him that the Bellbird Group assets were of the order of $22.5M with borrowings of about $10M. His cash flow showed a surplus of $1.25M. Mr Findlay approved an overdraft of $300,000 on the security of a mortgage over two commercial properties owned by a Bellbird Group company, 58th Comet Pty Ltd, in Havelock Road, Bayswater. Two weeks later, on 12 October 1988 Mr Mitros sought and obtained a further $100,000 accommodation on a short term basis to enable settlement of a property in Chapel Street. This extension of the facility was not taken up by Bellbird. By 20 October 1988 the Bellbird account stood at $241,099 against an approved limit of $300,000.
By the end of November 1988 Bellbird had exceeded its overdraft limit and the bank was threatening to dishonour cheques. It was therefore a matter of some urgency that further security be provided. Mr Mitros, therefore, decided to put up the Maurine Court property as security. He said that he did not discuss this decision with his wife. When he heard that the security documents had been prepared by the bank, he telephoned from his Heatherdale Road office to his wife at home. He told her to come in and sign some documents at the Westpac Bank at Boronia. He said that, although he understood the nature of a mortgage, he did not explain to his wife what might be the consequences of her giving this security. He told me that, when she asked him what the documents were about, he told her this:
“I said, ‘Just go sign it, I need the money. It’s just some documents. We’re only going to put it over the house temporarily for a little bit and we will get it back in three months so just’ and to that she sort of argued with me a little bit. In the end she said all right after the protest.”
Mr Ronaldson who was present and within hearing at the Heatherdale Road office during this telephone call said that Mr Mitros was “very insistent that she go”. Her account was consistent with this. She said that she was unhappy about signing the papers and told her husband that his business had nothing to do with her and that she did not like being used. She said that she would not, however, have refused because “he would yell at me and he would demand. He would never physically touch me but he would make life unbearable. I’m letting him down”. Later, she gave this as her reason for compliance,:
“He is responsible for our family financially, not me. I can’t do anything to support our family. I’m not in a position to get a job that I could keep us. So, I didn’t want him to come home angry. I didn’t want him yelling at children. So, whatever it took to work for my family is what I did.”
And so, with her second child, Beth, she drove to the bank. Mr Mitros and Mr Ronaldson attended at the bank where the company seal of Bellbird was affixed to the mortgage in their presence and they signed to that effect. Mr Mitros left and Mr Ronaldson waited for his sister-in-law to arrive. Four witnesses gave evidence of the events that followed.
Mr Findlay said that he was in his office with some people when he was told that Mrs Mitros had arrived to sign the mortgage. He went out and spoke to her. She was alone. He thought she had the Certificate of Title and the Discharge of Mortgage with her. He introduced her to his assistant, Thierry Joseph Le Blanc, and left her with him to arrange the execution.
Mr Le Blanc said that he was at his desk at the back office in the bank when the receptionist told him that Mrs Mitros had arrived to sign the security documents. He went out and met her. He said he believed she was alone; he did not recollect Mr Ronaldson being there at this time and he did not believe that she had a child with her. He did not recollect that she brought with her any documents relating to the transaction. He said that he took Mrs Mitros into an office which he identified by reference to a sketch plan, Exhibit 22, as being Mr Findlay’s office or the office next to it. He said that he told Mrs Mitros before she signed the documents that he needed to explain them to her. She replied that there was no need to do so for she had signed these documents before at the National Bank. Mr Le Blanc said that he remembered this because it was the only occasion in his career that he had been told this by a customer signing security documents for the first time. He told her nevertheless that he must do so and gave her the following explanation.
“I outlined that the certificate and volume – it’s volume and folio number on the mortgage related to her house at Maurine Court in Ringwood. That she, as the owner of that, was mortgaging that property to the bank, which is the mortgagee in item 3. That the mortgagee is being taken to secure the debts of Bellbird Consolidated Properties and Investments and that the – whilst the mortgage is over the property in Maurine Court, it is not limited to the property in Maurine Court and basically covers all assets that she has ever owned, currently owns or is ever likely to own under the covenants of the mortgage. And that if Bellbird Consolidated Properties didn’t repay those – the debts that it owed then, the bank had the power under the mortgage to sell those assets to (indistinct) satisfied.”
She then signed the mortgage in duplicate and a further document acknowledging that Bellbird was already indebted to the bank. Mr Le Blanc then signed an internal memorandum that he had given her a full explanation. There was some debate as to when this last document came into existence but I am satisfied that this occurred on or shortly after the execution.
The third witness was, of course, Mrs Mitros herself. She told me of receiving her husband’s telephone call and taking her child, Beth, then aged about two years in her car and of finding the Boronia office. It was, she said, the first time she had been to this bank. Mr Ronaldson was there when she arrived. Mr Le Blanc introduced himself to her and took them into a room which she identified as being on the other side of the corridor from those indicated by Mr Le Blanc on his sketch. She said that the documents were spread out ready for signing. They spoke briefly about Mr Le Blanc’s name which she found unusual and interesting. He then simply told her where to sign and she did so. She did not read the documents nor was she told that she might or should do so. She did not recall what the documents were or how many there were. No explanation was provided about them. This done, she and Mr Ronaldson left with Beth. In cross-examination she remembered that Mr Le Blanc told her that the document before her was a mortgage and that she was the mortgagor and Westpac the mortgagee. She denied Mr Le Blanc’s account of his explanation when it was put to her. She said that she knew she was signing a mortgage and thought that this meant only that the bank would hold the title until either another title was given or that debt secured by the mortgage had been repaid. On no previous occasion when she signed a mortgage was she given any explanation of its effect.
Finally, evidence of the signing was given by Mr Ronaldson. He said that he waited in the foyer of the bank after Mr Mitros left. When Mrs Mitros arrived with Beth Mr Le Blanc came out of his office and took her into the signing room. He stood there holding the child while his sister-in-law signed the documents. He said that there was some discussion between Mr Le Blanc and her about some unrelated matter but that there was no explanation of the documents which she was signing.
In resolving these conflicts, I am acutely aware that the events are nearly 12 years old. From Mr Le Blanc’s perspective this would have been an everyday occurrence, the significance of which may not have arisen for many years. For Mrs Mitros and, to a lesser extent, Mr Ronaldson, the events might have been more out of the ordinary. She, however, went to the Westpac Bank to sign security documents on a number of occasions in late 1988 and 1989 and there is a possibility of confusion. For her, too, there is a powerful motive to recollect, even innocently, that she was given no explanation. I can derive no support from any contemporary note other than Mr Le Blanc’s memorandum that he provided an explanation. There are, inevitably, significant differences of detail between the various accounts, including the room where the signing took place. I have had regard to the demeanour of the witnesses including their answers under cross-examination and to what I have learnt of them from the evidence generally. I have formed the impression that Mrs Mitros is an intelligent woman for whom these events were important and her recollection of them was vivid. I am satisfied that she is an honest witness although the colour of much of her evidence is tinged with an acute desire to protect her family home. I nevertheless prefer her evidence on this matter to that of Mr Le Blanc. I find that the signing of the documents and the explanations given by him were as I have summarised her evidence. In particular, I find that Mr Le Blanc told her that she was signing a mortgage over her home in favour of the bank and that she handed to him the title and the discharge of the National Bank mortgage.
Undue Influence
Mrs Mitros said that when she executed the mortgage she did not bring a free will and mind to that decision; her will was overborne by pressure from her husband. She said, and this was not in contest, that the bank took no step to enquire whether she had had independent advice or to ensure that she obtain such advice or otherwise to relieve her from the influence of her husband. Counsel relied upon the observations of Dixon J in Yerkey v Jones[1] which have recently been approved by the High Court in Garcia v National Australia Bank Ltd[2].
[1](1939) 63 CLR 649 at 684
[2](1998) 194 CLR 395 at 405
In Johnson v Buttress[3] Dixon J required for the establishment of undue influence proof of facts “showing that the transaction was the outcome of such actual influence over the mind of the alienor that it cannot be considered his free act”. More recently, in Commercial Bank of Australia Ltd v Amadio[4] expressions used are that “the will of the innocent party is not independent and voluntary because it is overborne”[5] and “undue influence, like common law duress, looks to the quality of the consent or assent of the weak party”[6]. The concept, however expressed, contains two components: the exercise of actual influence over the decision-making process of the grantor; and the undue nature of that influence[7]. In Union Bank of Australia Ltd v Whitelaw[8] Hodges J said this:
“’Influence’ as I understand the term in this connection, is the ascendancy acquired by one person over another. ‘Undue influence’ is the improper use by the ascendant person of such ascendancy for the benefit of himself or someone else, so that the acts of the person influenced are not, in the fullest sense of the word, his free voluntary acts.”
[3](1936) 56 CLR 113 at 134
[4](1983) 151 CLR 447
[5](1983) 151 CLR 447 at 461, per Mason J
[6](1983) 151 CLR 447 at 474, per Deane J
[7]Harris v Jenkins (1922) 31 CLR 341 at 367-8, per Starke J
[8][1906] VLR 711 at 720
After referring to these passages Doyle CJ in Liptak v Commonwealth Bank of Australia[9] says this:
“[48]It is clear that the reference in the cases cited to free will, and to the mind being overborne, do not mean that Mrs Liptak had to establish something like duress. The law of undue influence is not concerned with the exercise of compulsion but with influence and persuasion. However, like duress, the law of undue influence does look to the ‘quality of the consent or assent of the weaker party’. It looks to the circumstances in which that assent was produced. It is concerned not with the mere exercise of influence, but with the exercise of influence that can be regarded as undue.
[49]My understanding of the principle is that at its heart is the issue of whether the relevant party was able to give proper consideration to his or her own interests, and whether the degree or nature of the influence exercised prevented the relevant party from giving proper consideration to the transaction in question. In considering these matters one must be careful not to confuse the effect of a factor, such as a wish to save a spouse’s business, with the question of whether, in the presence of that factor, the spouse exercised undue influence.
[50]The law of undue influence does not produce the result that a spouse who, without getting independent advice, mortgages property to save the business of the other spouse from ruin, can as a matter of course have the mortgage set aside, even if the mortgage was given at the request of the other spouse. The issue is whether the influence exerted under all the circumstances was undue. The law does not seek to isolate a spouse from influences that would naturally arise from the marital relationship, and from the trust, confidence and affection that exists in that setting. It would be impracticable to do so.”
[9]Unreported, SC (SA), 2 October 1998, BC 9805098 at [48] – [50]
The burden of proving undue influence lies upon Mrs Mitros in this case. I have summarised above the evidence which was given by her husband and herself on this matter. I have concluded, as I have said, that she is an intelligent woman. She was also a good deal more independent and better informed as to financial matters than she would have led me to believe, at least where her home was concerned. I instance by way of example her decisions to move to Ford Street and to purchase Maurine Court. She was well aware, too, of the relative cost of Maurine Court and of Lynette Avenue. She painted a picture of her husband as a domineering and overbearing man although this was not the impression that he gave to Mr Le Blanc. He certainly told me that he insisted that she sign the mortgage and that he did so in a peremptory way, but I do not accept his evidence as to this, as on many other matters. My impression of him was that he presented an appearance of geniality and charm but that, nevertheless, he is a man who is determined to have his way. I likewise approach the evidence of Mr Ronaldson with some caution for it was apparent to me that he was keen to assist his family members.
Accepting, as I do, her description of their relationship, I conclude that Mrs Mitros acceded to her husband’s demand that she execute the mortgage in circumstances where she had little alternative if she wanted to preserve her domestic situation. She had no economic or other power which gave her true independence from her husband. Her will was, in the sense to which I have referred, overborne by him when she executed the security documents. Moreover, the influence which he exercised was undue inasmuch as he failed to explain to her the nature of the obligation which he required her to undertake and the nature and extent of the debt for which she was providing security. I find that she signed the mortgage in circumstances which amount in law to undue influence.
This is, of course, a matter between the spouses. It is not suggested, and I do not find, that any officer of Westpac was aware of this. Nevertheless, the law is that even an innocent and ignorant creditor of a husband or of his company who accepts a security from a wife who is a volunteer does so at the risk that it may be set aside in equity if there be undue influence unless the creditor takes certain steps. It is not sufficient that the creditor explains to the wife the nature of the transaction, for her want of understanding is not to the point. The creditor must ensure that she has independent advice or that she is, at the time of executing the security, free of the influence of the husband over her judgment[10]. It may be that there are other circumstances in which the creditor will, nevertheless, be permitted to enforce the security, but nothing of the kind was suggested on behalf of Westpac. Nor was any other exculpatory circumstance proffered. It follows from this that the security is voidable at the instance of Mrs Mitros and, since she has established undue influence, the security is unenforceable against her.
[10]Yerkey v Jones (1939) 63 CLR 649 at 684, per Dixon J
Want of Understanding
Next, it was put on behalf of Mrs Mitros that she did not understand the effect of the mortgage document or the nature of her obligations under it.
The judgment of the majority of the High Court in Garcia v National Australia Bank Ltd[11] imposes on a party such as Westpac in the present case the responsibility to explain to Mrs Mitros or to be satisfied that she had had explained the purport and effect of the document which she signed. She was a volunteer in the sense that she derived no relevant benefit from the mortgage, and the wife of a man who controlled Bellbird, the bank's debtor. The bank is taken to understand that her husband may not have fully and accurately explained the purport and effect of this document to his wife. If, in these circumstances, she executes the document without the necessary understanding, the law says that, unless the bank discharges its own responsibility in this regard, it would be unconscionable for it to enforce the security.
[11](1998) 194 CLR 395 at 409
It is clear that the bank officers at the relevant time knew that Mrs Mitros was the wife of the man with whom they were dealing and that it was he who managed the Bellbird Group of companies. The facts as I have found them show that the bank officer told Mrs Mitros no more than that she was signing a mortgage and who were the parties to it. She knew, too, that the mortgage affected the title to the Maurine Court property and that the mortgage was required so that the bank would provide money for her husband’s business activities. She said that at the time she signed the mortgage she did not know that it meant that the bank could sell her home if Bellbird defaulted; she thought it might only retain the title until payment was made or a new security substituted. She told me that at the time of signing she did not give a thought to this possibility. The following exchange in her cross-examination demonstrates her state of mind:
“Counsel: I suggest you also knew the consequences which would follow in relation to the Maurine Court property in the event that the debtor failed to pay the debt secured under the mortgage?
Witness: To be honest I hadn’t considered it. I – I grew up in a family that Mum and Dad had a mortgage on the house, they paid it and in the end they got the title. All of my life any loan or mortgage I had was paid. I had never seen or been involved in anything that had never been paid so I hadn’t considered that a debt wouldn’t be paid and what would happen if it wasn’t paid.”
I accept this evidence. Moreover, I am satisfied that the explanation provided by the Westpac officer was not, in the circumstances, a sufficient explanation of the nature and effect of the mortgage. It may be that Mr Le Blanc and Mr Findlay assumed that Mrs Mitros knew these matters which were, for them, elementary. It may be that they assumed that Mr Mitros had given her the information. On the facts as I find them, Mr Le Blanc made no enquiry to satisfy himself that she had an adequate comprehension of the obligations she was undertaking. The bank officers had no reason to think that she had obtained competent and independent advice as to the nature and effect of the security. In these circumstances, the enforcement by the bank of the security over her property would be unconscionable and, for this reason, too, the mortgage must be set aside.
The Agreement to Release the Security
By an amendment to her defence made in June 1997, Mrs Mitros alleges that, in or about early 1991, the bank agreed with the Bellbird Group and herself that, in consideration of members of the Bellbird Group and herself selling assets and paying the proceeds to the bank in reduction of the debt owed to the bank, Westpac would discharge the mortgage. In her particulars dated 2 September 1999 she says this about the agreement:
“(i) the said agreement was partly written, partly oral partly to be implied. In so far as it was oral it was constituted by conversation between Dean Mitros on behalf of the Bellbird and the Defendant and Jim Glenwright Boronia District Commercial Manager of the Plaintiff. The substance of the conversation was to the effect alleged. In so far as it was written it was evidenced by documents of the Plaintiff being the Plaintiff’s discovered documents numbers 1115 dated 18 February 1991 wherein it is recorded “Proposed rearrangement of security involves releasing of Mitros home and vacant land.” In so far as it is to be implied it arises by virtue of the existence of the said conversation, the fact that the related companies and the Defendant sold real estate and paid the proceeds over to the Plaintiff in the course of dealing between the parties and the need to give business efficacy thereto.
Those properties are: Proceeds paid to
the Plaintiff(a) 25 Lynette Avenue Warrandyte on or about 23 April 1990 $197,571.74 (b) 5/10 Yannis Court Springvale on or about 10 May 1990 $47,347.97 (c) 2/43 Thomas Road Ringwood on or about 25 May 1990 $47,023.66 (d) 10/383 Dorset Road Bayswater on or about 28 May 1990 Approx $80,000.00 (e) 1/383 Dorset Road Bayswater on or about 7 June 1990 Approx $200,000.00 (f) 1/3 New Castle Road Bayswater on or about 30 June 1990 Approx $15,000.00 (g) Fact. 2, Lot 6&& New Castle Rd Bayswater on or about 31 July 1990 $44,966.27 (h) 3 Hillcrest Avenue Warranwood on or about 23 January 1991 $291,604.95 (i) Unit 3, 12-14 Andrew Street Ringwood on or about 7 March 1991 $101,227.25 (j) Lot 30/18 Illawong Drive Donvale on or about 27 August 1991 $171,888.94 (k) Unit 2/12-14 Andrew Street Ringwood on or about 4 September 1991 $88,694.02 (l) Unit 18/11 Havelock Road Bayswater on or about 11 October 1991 $138,766.16 (m) Unit 17/11 Havelock Road Bayswater on or about 1 April 1992 $119,271.95 (n) Unit 13/11 Havelock Road Bayswater on or about 10 June 1992 $99,166.02 From the Plaintiff’s discovered documents the following amounts have been paid into various accounts and are currently held by the Plaintiff as detailed below.
HJ Mitros Sec. Real. A/C Cr $291,595.65 CJ & HJ Mitros Sec. Real. A/C Cr $171,744.81 58th Comet Pty Ltd Cr $367,401.22 Bellbird Builders Pty Ltd Cr $192,760.38 90th Thriller Pty Ltd Cr $21,230.54”
At trial, the agreement was presented rather differently. As 1990 reached its close, the financial position of the Bellbird Group was exceedingly precarious. The bank diary note of 26 October 1990 shows an indebtedness of $2.064M against a limit of $1.926M with securities held valued at $2.506M plus directors’ guarantees. Of this indebtedness, the Bellbird overdraft stood at $1.111M and, by 31 December 1990 this had grown to $1,164,163.38. Mr Mitros had some years previously commenced a program of selling down the Bellbird properties. Indeed, he told me that he was already selling them down at the end of 1988 and had made no new purchases after December 1987.
This last statement may not be entirely accurate because, in March 1989 he purchased 10 acres of vacant land at Hillcrest Road, Warranwood for $265,000. This purchase appears to have been made on an impulse by Mr Mitros and for use in the future as a site for his family home. For a reason which he was unable to explain, it was registered in the name of Mrs Mitros alone. This property was on 26 January 1989 mortgaged to the Westpac Savings Bank to secure a debt owed by Mr and Mrs Mitros and again on 10 April 1990 to Westpac as security for the indebtedness of Bellbird. This second mortgage was put in place at the request of Westpac as a replacement security for the former matrimonial home at Lynette Avenue which had been sold in March 1990.
By December 1990 the Hillcrest Road land, too, had been sold and the proceeds applied to reduce the debt of Bellbird to the bank. In December, Mr Mitros was under pressure from the bank to meet Bellbird’s interest commitments which were running at about $8,000 per month. At that time, he had sold certain properties owned by two of the Bellbird Group companies, 89th Thriller Pty Ltd and 90th Thriller Pty Ltd, and after payment of secured creditors there was a surplus available of $20,000 and $13,300 respectively. I should mention for completeness that on 19 December 1990 Bellbird went into liquidation.
The agreement was said to have occurred one or two weeks before or after the directors of Bellbird resolved that it be wound up. Evidence of this agreement was given by Mr Mitros. He told me that sometime in December 1990 he had a meeting at the Boronia office of Westpac with James Michael Glenwright, then the senior commercial manager at the Outer Eastern Commercial Banking Centre at Boronia. It was agreed at this meeting that he, Mitros, would assist the bank by arranging a complete sell-down of all the security properties, except Maurine Court, and that the bank would then forgive the outstanding indebtedness and release the title to that property. It was also agreed that Mr Mitros would pay to the bank the sums totalling $33,300 held by the two Thriller companies which were not the subject of security to the bank. These two sums were in the hands of the bank by 21 December.
Mr Glenwright agreed in the witness box that there was some discussion with Mr Mitros as to whether the Maurine Court home would be sold. He, however, put the date of this, first, in July 1990 soon after he started at Boronia. Later, by reference to an entry in his diary he fixed the date as June 1991. He said that it was agreed that there should be an orderly sale of the security properties by Mr Mitros or his companies and that, if this were done and the debt reduced to an acceptable amount, the bank would consider granting a loan on the security of Maurine Court for the residual amount, provided the loan could be serviced. For this purpose, it was agreed that the sale of Maurine Court should be deferred until the other securities had been realised.
Counsel for Mrs Mitros relied in support of Mr Mitros’ version of this agreement upon a handwritten document entitled “Filenote 17-12-90” and commencing “Interview with director Mitros and DCM Jim Glenwright at Boronia DCBC”. The handwriting was not identified although it was accepted that the document was from Westpac’s discovery. Its terminology suggests that it is not a note of an officer of Westpac; it may have been made by an AGC officer. The note speaks of interest being paid from funds held by 89th Thriller and 90th Thriller. It contains the following statement: “We discussed several hypotheticals off the record and explored what he can and can’t afford”. This was said to be an oblique reference to the agreement to release the Maurine Court property. This is, to my mind, mere speculation and I will not draw such inference, or indeed, any inference at all from this document.
Counsel for Mrs Mitros then relied upon the subsequent conduct of the parties as showing the existence of the agreement. In a report to his superiors dated 18 February 1991 Mr Glenwright notes that the Maurine Court property is currently not on the market. He mentions, too, a director's proposal which he considered not feasible and which was withdrawn. This proposal, which is set out at some length in Schedule H to his report, involved selling assets, clearing debt and rearranging securities. One aspect of this was the release of the Mitros home, presumably Maurine Court, and some vacant land. Accepting, as I do, that this is an accurate record, it is not consistent with an existing agreement that Maurine Court be released. Next, there is mention of the possible sale of the Maurine Court property in the bank’s internal memorandum of 5 March 1992. And on 16 March 1992 Mr Glenwright records a meeting with Mr Mitros in which the prospect of covering the residual debt with a loan on the security of the home was discussed. Mr Mitros is recorded as having rejected this, not on the basis that it was contrary to the agreement made in December 1990, but because he could not pay the interest. By 27 March 1992 Mr Glenwright’s memorandum shows clearly that he is contemplating the realisation of the Maurine Court security to reduce the debt which was then $1.188M. Securities held, apart from Maurine Court and personal guarantees, were then valued at only $240,000.
By October 1992 the last of the securities had been sold, leaving only Maurine Court. On 26 October Mr Glenwright wrote to Mrs Mitros asking her to see him to discuss the best course to repay the residual amount which then stood at about $277,000. She said she received the letter and gave it to her husband to deal with. She said that she was furious with him. Mr Mitros told me he referred the letter to his solicitor, John Voitin but in cross-examination, he said he could not recall seeing the letter. No response to it was received by Westpac. Likewise with Mr Glenwright’s follow up letter of 13 November 1992. Mr Glenwright said that some time later he received a letter from the firm of solicitors Henty Jepson & Kelly requesting copies of the security documents. This would appear to be a letter from those solicitors dated 14 December 1992.
The bank’s formal demand upon Mrs Mitros for payment was given on 22 April 1993 and the writ was filed on 1 June 1993.
I am not prepared to accept the evidence of Mr Mitros as to the agreement to release the mortgage over Maurine Court. I reach this conclusion for the following reasons. Mr Mitros did not impress me as a reliable witness, I prefer the evidence of Mr Glenwright where it is in conflict with that of Mr Mitros. There is no contemporaneous evidence supportive of Mr Mitros. The bank reports and diaries to which I have referred are not consistent with the agreement contended for. Indeed, mention of this agreement first appeared in 1997 in an amended defence, nearly seven years after it was said to have been made and four years after the litigation was commenced. Moreover, it changed in significant detail between 1997 and trial.
CONCLUSIONS
I conclude, therefore, that the mortgage is not enforceable and that it should be set aside. I will give directions that it be discharged or otherwise removed as an encumbrance on the title. I will hear counsel further as to the precise terms of these orders and as to costs.
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