White, J.G. v The Associates Financial Services Ltd

IN THE FEDERAL COURT

OF AUSTRALIA 1

)

VICTORIA DISTRICT REGISTRY

)

)	VG No. 288 of 1983

DIVISION

GENERAL

) )

EX TEMPORE

JUDGMENT

)

BETWEEN:

JOHN GORDON WHITE &

(Applicants)

AND:

THE ASSOCIATES

FINANCIAL SERVICES

LIMITED & ORS

(Respondentsl

Coram:

Smithers J.

Date:

18 September

1985

I t A I W

q an actlon

aqalnst the flrst respondent, The Associates financlal Services Llmlted ("Associates") as the first respondent

and

Guild

Court

investments

Pty

Limlced

and

Bruce

Charles

Shearer,

second

and

third

respondents

respectlvely; and there is one cause

of actlon pursued

aqalnst the flrst respondent and two causes	of actlon
pursued agalnst the thlrd respondent.

2 .

In the case

of the first respondent, the substantial

case is made under para. 10 of the amended statement of claim. It Is a claim made pursuant to the provisions ot

the Trade Practices

Act 1974 and

it reads that "with

intent to induce

the applicants to enter into the lease,

on numerous occasions prior to the Applicants doing so, the first respondent and the second respondent and the third respondent represented to the applicants that the

first respondent had approved the loan to the applicants

and on the completion

of mere formalities the sum

$28,000 would

paid

the

applicants

within

reasonable time

them entering into the Lease." The

lease referred to was

lease between W S Leasing Pty

Limited as lessor and the appllcants as lessees of two machines. These were machines which the applicants had desired to purchase pursuant to a plan conceived by Mr

White. No doubt his wife concurred in it. The plan was

that Mr. White should cease working as a sub-contractor

and become a head contractor. He believed that using

whlch

machines, together with the two new machines which were

the sub~ect of this particular lease, he would be able

to carry on successfully. And he was seeking financlal

already

had, two

grinding

two

machines

assistance which outgoings which he was then incurring and

would

enable

him

reduce

the

which would

glve him breathing time while he got his new business on

to a good footing.

3 .

For that purpose, he needed to borrow money to pay out

Wensley Bray Pty Ltd. the existing lessor to him of the

two

grinding

machlnes.

Mr. Hayes,

the

manager

Wensley Bray Pty

Ltd, was willing enough

for the company

to be paid out and the amount due was ascertained to be

about $18.000. Mr Whlte says, wlth this in mind, he got In touch wlth one Shearer who was a dlrector of the

second respondent. Mr Shearer says that

was the

other way

round, that he got in touch

with Mr White

because, arlsing out of

Mr White's proposal to buy these

two machines, the vendor to

Mr White who had formerly

done business with Mr Shearer, told Mr Shearer what was

going on and lndlcated to

Mr Shearer that Mr mite might

like to hear from him

with a view

to gettlng his

asslstance to ralse the necessary finance.

Mr Shearer's company, the second respondent, was a

broking company and it was the

busmess of that company

to obtain loans for

persons on commission.

And that Mr

Shearer was wllling to do

for Mr and Mrs White.

Shearer telephoned Mr

White and Mr GJhlte indicated that

he did wish to ralse money for the purpose of reducing

his liabllities

- his current outgoings

- so that he

would get them down to something under

- about or under

$1.000 a month, which would be a considerable reduction

on what he was then paying out.

The	matter was dlscussed between Mr Shearer and Mr

Whlte, and Mr Shearer took from Mr Whlte a great number

of particulars as to the nature

of hls buslness. what

hls assets

and

liabilities

were,

and

some

other

partlculars about his background. He told Mr White that

he would set about endeavourlng to obtaln the money

which was required which was thought, between those	wo,
to be about $24,000.
Amongst the liabilities which were discussed was the liablllty to Wensley Bray Pty. Ltd. which Mr White

thought was about

$16.000 to $18.000 or perhaps even

more, a llability that Mr Whlte had on an overdraft,

about $6,000 and a liability stated to be about $6,700

whlch Mr Whlte had to the Knox Credit Union.

As a result of this, Mr Shearer prepared applicatlons

wrltinq

addressed

the

first

respondent

which

Indicated to the first respondent that Mr and Mrs White were desirous of obtalning a loan from that company, a

loan in the area

ot $24,000,

and that the way they

intended to do

was to get the first respondent to

pay out Wensley Bray Pty. Ltd. and re-lease

- that IS to

say, lease agaln to Mr and Mrs Whlte the

grmdinq

machines, and also to buy the two new machines from the

vendors and lease those two machines to Mr and	Mrs
White.

And so Mr

Shearer dellvered two appllcatlons for

a loan

to the flrst respondent. He knew the flrst respondent,

wlth

apparently, had been satlsfactory. The flrst respondent

examlned the sltuation and then contacted Mr Shearer and

It before,

all

which

had one

business

informed him

that It did appear that Mr

White had had

some ~udgments against hlm and there was some suggestion of some further outstandlng liabillties and that as

result of that the flrst respondent would prefer not to

pay out Mr Hayes and lease those machlnes to Mr and

Mrs

White, but to lend

Mr and Mrs White the money to pay out

Mr Hayes themselves, and

to make

the

loan

the

securlty of their home, and requested Mr Shearer to put

this proposltlon to Mr and Mrs Whlte.

It appeared that Mr and Mrs White were not

unwlllmg to

enter Into the amended proposltlon, and

mdlcated their

assent. The result was that there were two proposltions

on foot, one for the flrst respondent to buy the new

machlnes and lease them

to Mr

and Mrs Whlte, and the

other, for the borrowmg of $24,000 by the Whites on the

their

It appeared that there was already a first mortgage to

what l may descrlbe as the War Service Homes Department,

home,

and

appeared

that

the

securlty of

securlty which was contemplated was by way of second

mortgage from the Whites to the first respondent.

and

the applicant’s home. Also, there

were

two

caveats and a

second mortgage to the Knox Credit Union,

6 .

and a third mortgage In favour

of a bank. The effectlve

proprletor of that

thlrd

mortgage

was,

due

the

amalgamations which occurred in the last	few years, the
Westpac Bank.

To arrange this necessary that the two caveats be satisfied In some way:

second

mortgage,

therefore,

it was

that the mortgage to the Knox Credlt Union should be

paid off; that Westpac should be persuaded to permit

new mortgage In favour of

the first respondent, to be

reglstered as a second mortgage in prlority to Its third

mortgage.

After conslderation by the first respondent, a letter

was wrltten to Mr Shearer on	22	October in which the
first respondent sald:

"Re: Mortgage Loan: WHITE J.G.

& F.E.

Securlty: Registered Second Mortgage

Property: 17 Helen Road,

FERNTREE GULLY

Your application for a second mortgage loan on

behalf of the abovenamed has been approved sublect

to the followlng terms and conditions

MORTGAGE:

The Associates

Pty Lmlted

2. MORTGAGOR:

John

Gordon

Florence

Ester

WHITE

both

Helen Road,

FERNTREE GULLY

3 .	AMOUNT:	$28,000
4 .	INTEREST RATE:	23% per annum

5. TERM/REPAYMENT: 60 monthly

I erest

instalments of $460.00 plus

final payment of $24,000.

Total term 60 months.

6 . SECURITY:

Reglstered second mortgage

Hel n	over	17	Road,
FERNTREE GULLY.

7 .

COSTS:

All

egal

costs,

tamp

duties

andy

other

charges

relatlng

the

loan

to be paid

by the

borrower before at or settlement.

INSURANCE:

Insurance cover of not less

than $30,000

over security

property. The

Associates

Pty. Limited to be noted as

second

mortgage

the

policy.

Evidence

this

will

requlred

least before settlement.

PRIOR MORTGAGE: Letter

of consent will be

first

requlred

from

mortgagee and confirmation

that the amount owing under

that

mortgage

does

not

exceed $6,000.00

10. LEGAL:

The Assoclates Pty. Limited

legal advlsers are Messrs.

Gai r

and

Brahe,

367

Colllns Street, Melbourne,

attention: Mr. Bruce McNab,

Telephone: 62-5551.

The approval of

this loan is sub~ect

to valuatlon

of property, together with part proceed's being

applied to repay the following accounts:

1. Second Mortgage to Knox Credit Unlon.

2. Bank overdraft - C.B.A.

3. Lease wlth: John Hayes.

...

Wlth that document was sent an involce addressed to Mr and Mrs b i t e stating:

"22 October,

INVOICE

NO.M4491

1982

...

Account

wlth:

AFS LEASING PTY. LIMITED

To: First months rental

Centre Lathe, Vertlcal Mill

Etc.

...$ 448.70

Legal

costs

for

Bill

Sale

...$ 50.00

Legal costs for Real Estate Mortgage

..$ 450.00

Costs f o r valuatlon of home

...$ 100.00

$1,048.70

Due: At date	of settlement
E & 0 E"

On 22 October a letter in similar terms was sent to Mr Shearer, that there was provlsion for acceptance of the proposal, if thought fit, by Mr and Mrs White. It read:

"The

above

terms

and

conditions

are

acceptable

and we

now

request

you to

Instruct your sollcltors to prepare the necessary documentation in accordance with

the terms and conditions stated

herem."

Mr and Mrs Whlte signed this acceptance. Underneath the

signatures

are

written

"22 October

1982".

But

the

signatures were not appended at that stage. They were

appended later.

By letter dated 22 October

Mr Shearer Informed

Mr and

Mrs Whlte of the contents of the letter to them from the flrst respondent.

On 25 October valuatlons of the machines were obtained from one G.A. Roberts and on

29 October, Mr Shearer

wrote agaln to

Mr and Mrs White saylng:

"Dear Mr

& Mrs White,

Further to my telephone conversation

wlth Mr

White today

I conflrm that the financlers will

only allow you both to make a decislon on their offer of flnance untll mld-day Wednesday, 3rd

November 1982.

If I have not heard by that time

will assume you do not wlsh to proceed, and advise

our financier accordingly.

Summarizing their offer, sub~ect

to their terms

and condition the followlng applies:-

A 2nd Mortgage on your resldence of $28000,

for a perlod of 5 years at an Interest rate

of 23%. The cost per month would

be ...

$536.00

A	lease facllity on two machines from Cobatt

Industries, for $12500, for 4 years with a

20% residual. The cost per month would

be ...

$463.00

- #

Total

monthly commitment of ... $999.00

The purpose of the 2nd Mortgage would be to pay

out John Hayes, and also Knox Credit Union.

If you

have any queries please ring me at the

office, or at home on

836 7259."

The lease of the two new machines was sent to Mr and Mrs

White on 22 October 1982 under cover of the letter of 22

October from the second respondent to Mr and Mrs Whlte.

As a result of the communlcatlons to Mr and Mrs White, an arrangement was made

by Mr Shearer with Mr White that

he, Mr Shearer,

would

call

get

the

acceptance

documents and the lease documents signed. He did keep

10.

the appolntment

wlth Mr Whlte but unfortunately

Mrs

Whltc was not therefore that the partles should meet on

attendance

and

It was

arranged

November.

The parties dld meet on 3 November.

Prlor to this date

Mr Shearer had been lnformed by

Mr Buchanan on behalf

the first respondent that

Mr White would need more than

$24,000 and would need

$28,000, and that the first

respondent was ready and wllllng and did approve

of the

loan belng $28,000

instead of $24,000 on the same terms

as outlined in the correspondence, subject however

course to an Increase in the rental which was to be paid

each month

from $400 - odd to $500 - odd as indicated

the letters that

I have lust read.

1s quite clear that

Mr Shearer was quite keen to

obtain the slgnatures of Mr and Mrs

Whlte to the lease

and to get their signatures to the acceptance of the loan. The documents were presented to Mr and Mrs White for slgnature. Mr White belng asked what happened at

this stage sald

it was a little difflcult to remember

but did say that he was asked to sign the lease, that

Shearer said he and his wife could

go ahead wlth the

lease documents lmmediately. He added:

"I qulckly polnted out that

I could not

ahead wlth the lease without the second half

of the deal was assured.

The second half

of the deal? --- Yes.

What

was

that?

---

The

mortgage

the

consolldatmg financlng."

11.

Asked what

Mr Shearer sald about that, he sald that Mr

Shearer sald:

' I . . .

that is not a worry,

It is purely a

formality; there is obviously ample equlty in

the value of

the house. He also sald

the

settlement would be withln two weeks."

And so it would seem that Mr White 1 s saying that havlng been satlsfied that there was no worry about what was called the second half of the proposal, namely, the loan

of $28,000

on the house, he was ready and wllling to

sign the lease, and that as a result, he and

hls wlfe

did slgn it. The general purport

of Mr White's evldence

is supported by Mrs White.

Mrs.

Whlte said, on belng

asked to say what happened at the meeting:

"My husband introduced me

to Mr Shearer. I

had never met him before. He had the papers

there.

I explained them to him and made it

very clear on several occaslons that one part

of the agreement could not

go through without

the other, for financial reasons ourself. We

would not be able to carry the lease wlthout

the other part of the thing golng through

whlch was the $28,000 mortgage."

She then signed the papers. Asked what she then sald to

Mr Shearer she sald:

"I had to leave because I had to get home to

a retarded daughter.

I was in a hurry. I

dld ask Mr Shearer when the other part

of he

agreement would be through and he told me It was a mere formality and would take between

10 to 14 days.

I then shook hands with Mr

Shearer and left the premlses."

12 .

Mr Shearer's verslon of the conversatlon appears ln two parts of hls evldence. He was asked:

"What was It you told Mr

Whlte on that day?

_ _ _ That Mr Buchanan,

of Assoclates, had

contacted

advlse

that

the

$28,000

second mortgage had been approved."

Asked

what

date

was

told

that,

said,

"3rd

November". Then it appeared that he really meant

October. And he said he understood that the

$28,000 was

subject to Associates' terms and conditions.

In cross-examinatlon by

Mr Kennan, Mr Shearer agreed

that he

knew that the lease, without the loan to the

Whites, was of no value to them, and that

he knew that

come

understanding that the package of the lease and the loan

had been approved.

along

on 3 November

the

Whites

had

He agreed that he had said some words to the effect that

they could	go ahead immedlately on the lease. And he
was asked,	"well, they were being asked to slgn the

lease on that day" and

tiie answer was, "right". It was

put, first by

Mr White, "that the lease without the loan

was of no use to them", and Mr Shearer said, "correct".

He was then asked, "and you responded that the loan was coming through, the loan was merely a formality". In

13.

answer to that Mr Shearer sald, "a formallty as far as

equity in the home was concerned. And

I had, all three

of us had, of course, the document from Associates".

Afterwards he was asked, "and I take It if you had not

been fully satlsfled in

your own mlnd that It really was

only

a matter of the form being

done, that you felt

qulte satlsfied that the transactlon was to all intents

and purposes arranged." Answer,

"I certainly did, I mean

I had the documents delivered to my office invoiced from

the

Assoclates,

including

the

legal

costs

for the

presentation of the mortgage. Why should	I	have any
cause for concern".

Later he was asked, "and you indeed Indicated to both

and Mrs White that settlement could be expected within two weeks". And the witness sald, that that was

so,

from his experlence, and used

the

word, "absolutely".

Mr. Kennan said, "and it was on that basls that the wife

signed the lease". The answer was, "correct".

The next

questlon

was.

"and

you

have

sald

that

settlement would be wlthin two weeks, when two weeks

went by

did you make any Inquiries to see whether the

settlement had taken place?" The answer was "No, I did not, but at the tlme I would have thought if there had been a problem I would probably have been the first to

know.

I had had experience with the Associates in the

past, and

I had not had this type

experience. But

14.

once documents had been attended to	I have never had any
hiccups whatsoever".

Later he was asked, "dld you say anythlng to the effect

that

when you were

talking

about

the

loan

belnq

something In the nature of a formality, as to

Its going

to be completed, did

you say anything to the effect that

there was plenty of equlty

m the house?" Answer,

did, or some equity in the home."

And then, asked how he worked it	out, he indicated how
he worked it out.

It would seem that Mr White, himself, in December, took steps to arrange for the War Servlce Homes to Indicate that the organization would consent to a second mortgage of $28,000 over the property owned by Mr and Mrs. White.

Apart

from

that,

there

seemed

very

little

activity, except that Mr White rang Mr McNab on

a number

of occaslons to

know when settlement would take place.

Mr. McNab was the solicltor in the office of Messrs Galr

& Brahe, Solicitors, engaged by the first respondent to

loan during the period between then and the end

transaction

completion.

rang

carry

the

of January

and

enqulred as to

the

progress

of settlement.

received answers which were not altogether satisfactory,

but generally the matter appeared	to be proceeding in Mr
McNab's hands.

15.

It would seem that wlth a vlew to

carrymg out the

mortgage, the company, that

1 s

the first respondent,

took steps

to verify the amount due to Mr Hayes,

the

amount that was requlred to satlsfy one of the caveats

which had been lodged by

Mr Hayes, and satlsfied itself

that the second mortgage could be registered as such

notwlthstandlnq the other caveat. In January,

Mr McNab

got In touch with Knox Credit Unlon and

as a result made

a note whlch reads, "verified wlth a lady there, Mrs

Marvin, that the amount requlred to pay out the mortgage

of the Knox Union was In the vlclnity

of $7,000-odd."

This was satlsfactory and had that been the fact,

would seem through. Unfortunately, however, on 21 January, before

that

this

transactlon

would

have

gone

the

matter was concluded,

the

Knox

Credit

Union

indicated to Mr McNab that

it would not sign a discharge

of the mortgage to

unless It recelved not only the

$7,000-odd mentloned above, but also In addition, a sum

of about $10,000 which was a debt payable to It by Mr White's son In respect of a motor

ca deal In respect

whlch there

was

guarantee

White.

had

guaranteed the son's debt. And there was a document

signed by Mr White under which he had agreed that the

amount of the son's liability of about $10,000 could be

added to the amount already secured to the Knox Credit

Union on its second mortgage. And

the accounts as

they stood, at the end

of January, If that were

so, then

16.

instead of there being $7,000-odd required to pay out

the Knox Credit Union mortgage, there was some $17,000

required to pay out the Knox Credit Union.

Mr White had not mentioned

this supposed addition to his

mortgage liabillty to the Knox Company either to

Shearer

the recollection of entering into the document and he

flrst

respondent.

had

knew

that it did purport to add the amount of the son’s liability under his guarantee to the amount secured by the second mortgage given by him to the Knox Credit

Union.

It seems, and

I would accept, that at the

tlme he

entered into that agreement

he had said to the Knox

Credlt Union that, although he

was signing the document,

it was his

view that it had

no force and effect, or

words to that effect, because unless it had the consent

of the War Service Homes, nothing could be added to the

mortgage.

It seems that on receipt

of this lnformation Mr McNab

did get In touch

with

Mr White and told him of the

attitude of contacted the Knox Credit Union and argued with it that

Knox

Credit

Union,

and

then

White

it should not demand the additional

$10,000 to release

the mortgage because

it well knew, or ought to know,

17.

that addition effect because

to their mortgage was of

no force and

of the absence of consent of War Servlce

Homes.

Nevertheless, untll at any rate some date in March the

Knox Credit discharge of the

Unlon

continued

refuse

give

second mortgage unless the full amount

of some $17,000-odd were pald to

it. The result was, of

course, that unless sufficient force

of some kind or

other could be applied or sufficient argument could be

directed to the Knox Credit Unlon there was no discharge

of	mortgage In prospect. Unless that discharge was

glven then there was no hope of the first respondent

bemg glven a registerable second mortgage to secure the

proposed loan

of $28,000.

And the matter seems to have stayed like that with, as

far as one can gather, the flrst respondent belng

willing enough to give the loan, provlded It could get

the second mortgage. But that, of course, was dependent

on procuring a dlscharge from the Knox Credit Unlon of

its mortgage. At one stage in March, it seems that

the

Knox Credit Union actually Indicated that it would grant

the discharge on being pald an amount of money excluding

the amount due in respect of the guarantee of the son.

But this was not exploited by anybody. It would seem

that there is good reason to think that this did not

represent an unqualified undertaking on the part of the

Knox Credit Union.

appears that the Knox Credlt

Union wrote its letter of 7

March under the impression

that the son's loan would

be, or had been, taken over by

another organization and that they

had, or

would be,

pald

out.

But

hat

expectation

was

not

fact

realised.

One

would

infer

that

for

all

practical

purposes,

all

times,

the Knox

Credit

Unlon

was

unwilling to sign

a discharge of mortgage unless It

received something in the order of $17,000.

And, while

that was

so, It was lust

mposslble for the first

respondent to obtaln a second mortgage for

Its $28.000.

And the matter lust came to an end. In

May, Associates

said it was not further interested in the transactlon.

And the Issues before this court

are, as

against the

first respondent, that

it did, in the terms of para.

10(a) of the statement of claim, give an undertaking and

so induced Mr and Mrs White to sign

the

first lease -

that 1 s the lease in respect of the two

new machines on

November

1982

- on their belng assured that the

respondent had approved the loan and

on the completlon

of mere formalltles the 28.0000 would be forthcoming by

way of loan.

If this allegation

1 s to be any

of any use to Mr and Mrs

White, it must go so far

as to

say

that

representation made by the first respondent and relied

upon by them

was, that the matters

of substance relating

to the proposed transaction had been finalized to the

satisfactlon of the first respondent, and that, upon the

carrylng out

mere formalitles, the loan would

made, It has to go so far as to be a statement indlcatlng to the applicants that, upon the signlng of

the	second mortgage document and the fulfillment of

certain other conditlons which were satisfled, the loan

would be made, and also to go

so far as to indicate that

although the respondents might not be able to reglster

the second mortgage because of some difflculty arising

wlth, In particular, the Knox Credit Union, or

f that

matter any other prior encumbrancer, or for

that matter

the third mortgagee whose consent was required

to enable

the respondent to reglster Its mortgage as a second mortgage, the loan would still be made; that 1 s . as Mr

Kennan at one stage put

I , that it was to be understood

had applicants of the amount

occurred

that he

payment o

the

from

what

of the loan would be made

unconditlonally except for the formal steps, presumably

the signing of the documents.

But It is imposslble to infer this from the letter	of 22
October or its attachments or from anything that was

sald by Mr Buchanan to Mr Shearer, which,

of course, Mr

Shearer would have been entitled to pass on to

Mr and

Mrs White. There is

no evldence that Mr Buchanan ever

said anythlng remotely glving rise to the ldea that,

long as the documents were signed, the money would be

paid, whether or not the second mortgage which was one

the

documents

signed

turned

out

registerable or

not, and could be seen as such, at the

date of settlement.

There 1s no such evidence and

of course it is most

improbable that any such thlng would have been said.

From flrst to last even in

the letter of

12 November

which was also signed by

Mr and Mrs White, It is

perfectly clear stipulating that there	that	the	first	respondent	wa5
be, in fact, a reglstered second

mortgage. That dld not really mean actually registered,

but it certainly meant reglsterable, and one cannot

getting rld of

an exlstlng second mortgage. Therefore

at all times It 1 s perfectly clear that at the date of settlement of the loan, there had to be a reglsterable second mortgage.

So It seems to me perfectly clear that Assoclates, the flrst respondent, at all tlmes was willing enough to

make this loan provlded that

It got its second mortgage.

Associates

thought It was

going

to get

its

second

mortgage because the Knox Credit Union had quoted

amount to pay off its second mortgage

which corresponded

nearly enough to

the amount that it had been told by

Whlte and it was

an amount which was acceptable by them

for the purposes of the transaction. Had it not been

for the change

of mind of Knox Credit Union all would

have been well.

2 1 .

It	was an absolute tragedy that the matter of that

addltional clam by

the

Knox

Credit

Unlon

or the

possibllity of there

being

such

claim

was

not

investigated at an earlier stage.

Mr White is not a

lawyer; but he seems to understand the general processes

of busmess.

I would not think f o r

one moment that he

falled to disclose the

possibility

that Knox Credit

Union would want to rely upon

the document adding the

amount of the

guarantee

its

mortgage

from

any

wrongful motlve.

I think he thought that the legal

case

for release from that addition to the mortgage would be recognized by Knox Credlt Unlon in the end. And indeed,

it might well have been, but

dld not so

turn out.

The first respondent appears to

to have acted

as,

indeed, save for the unfortunate non-disclosure

of the

possibility that Knox Credit Union might claim to be

entitled as part of the amount served

in its mortgage,

to the amount of the son’s loan as guaranteed by

White, everybody in this case has done, ratlonally, reasonably and honestly. They went ahead on the basis of a belief that the Knox Credit Union would discharge

the mortgage for $ 7 , 0 0 0

-odd and that turned out not to

be so.

Whether the Knox Credit Union incurred any legal

liability

changing

their

mlnd

might

another

matter. but it is not before me.

far

Mr Shearer and the second respondent is

concerned, the case made against him is that he as a

2 2 .

representatlve led the Whites to believe that If they

slgned the necessary documents - that 1 s to say carrled

out

the formalitles

that

would

be all

that

was

necessary to get the money. I do not thlnk for

a moment

- and they

were

led to understand that if for some

reason there was trouble and title could not be made on

the second mortgage, they would stlll get

their money on

the loan.

I do not think that anything that

Mr. Shearer

said can be put that way.

So far as

the formalities

were concerned, I think what he was saylng to them

was,

Associates have approved the loan,

you know

the terms on

which they have approved

It.

All the formalities will

have to be carrled through.

You have plenty of equity

in your house and therefore

I think and

so advlse you

that you are safe to enter into the lease today.

The questlon

1 s when Mr Shearer In substance sald that

was maklng representatlons in the terms that

mentioned,

or if

he was not

domg that, as I do not

think he

was,

he was guilty of negllgence in his

capacity as

a financial adviser. In the capacity

of a

financlal

adviser

was

his

duty

act

the

interests

of- Mr

and Mrs

White and to give them such

advice as

competent financlal adviser would give

taking reasonable care on then behalf. It was his duty to throw his mind forward to the possibilities arising

facts Associated Finance had done its arithmetlc, that

knew

them.

knew

that

out

the

it had

pushed the loan up

from

$24 ,000 to $28,000

so that it

23.

would be able to get rld of the prior encumbrances. In the absence of somethlng qulte unforeseen, or Indeed so

far as he was concerned unforeseeable,

It was, I think,

reasonable

for him to assume that there was no doubt

about

the

deal

golng

through.

knew

the flrst

respondent, he had done business with them before on

prevlous occasions and

all

was

satlsfactory.

clear that on

thls occasion also it would have been

qulte satisfactory had

It not been for the refusal of

Knox Credit Union to discharge

the second mortgage upon

recelpt of the sum of $7,000-odd which had been quoted.

There was, of course, an unforeseen factor lylng around,

but It

was hardly one that could have been foreseen by

Shearer, namely

sltuation arising out of the

slgning by

White of the document which gave Knox

Credit Unlon its claim - plauslble or otherwise - was a very unusual sltuation.

He had been told by

Mr Whlte what the amount due to Knox

Credit Union on the mortgage was. He had been given no warnlng that there mlght be an additional claim. In the

circumstances although Mr Shearer, I

think, mlght have

busied

hlmself

than

just

make

sure

that

everythlng was alright

even if he had rung up Knox

Credit Union at that stage, the probabilitles are that he would have been told that the amount to payout the

Knox Credit Unlon mortgage was round about

$7,000.

24.

But he took

Mr White's word about that and

I do not see

how he can be blamed for doing that.

The standard of

care,

of course, is not to do everything that mlght

posslbly by hindsight have warded

o f t

an accldent.

care clrcumstances which are before one.

reasonable

m the

take

such

And all things considered, although it could be argued,

and was argued qulte well and properly, that

Mr Shearer

took a

risk which a

reasonable adviser would not have

taken, I

am not satlsfied that

in the circumstances of

this case he failed to act wlthout reasonable care and

skill in the situatlon in which he was. In expressing

his vlew to Mr and Mrs White that the loan was only a

matter of formality (and of course if the $7,000 figure

given by Knox was correct it was only a matter of the

formalities) he was to be understood to be speaklng of

the extent of security in the property avallable

for the

purposes of the loan to the first respondent, the fact that the first respondent had approved the loan and Mr

and Mrs

White were willing and to his belief able to

give the second mortgage in the circumstances. Except

that he failed to conslder that the posslbility of there

being

some

unusual contrary to the instructlons that he had from his

and

extraordinary

circumstance,

own

client, his judgment of the situation was correct.

Again,

the representation relied on by the applicants

must, if it is to avail them, go

so far as to be a

25.

statement express or Implied, that even if the discharge

of second mortgage to Knox Credit Unlon could not be

secured

for

a payment

$7,000-odd,

the

first

respondent would still pay over the amount of

the loan

which it had approved. Nothing like this was said. to proceed on the basls that Mr Whlte was able to glve the second mortgage on payment to Knox Credit Union of

an amount in the vlclnity of

$7,000.

And of course Mr

and Mrs Whlte by slgning their acceptance of the terms

of loan approval dated 12 November 1982 confirmed that

they understood that the securlty for the loan was to be

a reglstered second mortgage.

On everything that

Mr Shearer knew, his Instinct and his

judgment on 3 November 1982 that the deal was as good as

finalized and that settlement of the loan would follow

the slgning of the necessary documents was sound. The

parties were agreed and the arithmetic had been done and

the securlty was there. Accordingly,

I think the clam

agalnst Mr Shearer must also fall on the ground that he

did not make a representation to

and Mrs White that

there was nothlng to be done except slgn documents.

dld not make

a representation that the condition that

there must be a good mortgage -

a good second mortgage

at settlement was walved or released.

The documents to

be slgned had to be effectlve to carry out the agreed

transactlon.

Mr and Mrs White knew this at all times.

Accordingly, thls is

a very unfortunate case but one In

respect of whlch

I think nobody acted badly. The result

1s that the

clam must be dismlssed, wlth the usual

consequences:

the

case

against

each

respondent

dlsmissed with costs, including reserved costs.

I grant a stay of three months on the payment of costs

but I give leave to any respondent to apply to lift the

stay.

I certify

that

this

and

the

preceding twenty five

(25) pages

are a true copy of

the Reasons

for

Judgment

herem of hls

Honour Mr. Justice Smithers.

Associate

Dated: 15 October 1985

[1985] FCA 528

18 Sep 1985