Wombat Nominees Pty Ltd v Tullio, C.D

[1990] FCA 587

Re: WOMBAT NOMINEES PTY. LTD. and CORALE BLANCHE BICKFORD
And: CHIARA DE TULLIO
No. G17 of 1990
FED No. 587
Mortage - Evidence Act (S.A.)
98 ALR 307

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Mortgage - application by mortgagees for possession because of mortgagor's default - allegation of fraud against mortgagees not made out - role of land broker who prepared mortgage and role of mortgagor's husband who dealt with land broker on mortgagor's behalf considered.

Evidence Act (S.A.) - Section 34C - consideration of circumstances that amount to justification of receipt of a signed statement from a witness on the ground that "it is not reasonably practicable to secure his attendance".

HEARING

ADELAIDE

#DATE 18:10:1990

Counsel for the Applicant: Mr M. Keith

Solicitors for the Applicant: Messrs Corrs

Counsel for the Respondent: Mr I. Robertson

Solicitors for the Respondent: Messrs Piper Alderman

ORDER

The respondent do deliver up on a day to be fixed possession to the applicants of the land comprised in Memorandum of Mortgage Registered Number 6325820 being the whole of the land comprised and described in Certificate of Title Register Book Volume 4244 Folio 95 being the property situate at and known as 13 Victory Crescent, North Haven in the State of South Australia.

Further consideration of this matter stands adjourned

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Brian Stewart Winzor formerly carried on business in the City of Adelaide as a land broker. He fraudulently misappropriated moneys that had been entrusted to him by his clients and other people; as a result, he has pleaded guilty to 23 counts of fraudulent conversion and is presently in custody awaiting sentence. His conduct also led to his bankruptcy; his estate was sequestrated on 23 June 1989. I have made brief mention of the affairs of Mr Winzor because, although he is not a party, his conduct figures prominently in these proceedings. In fact, the allegations that were made about his conduct explain the necessity for the application that is presently before the Court.

1. The applicants are two disassociated parties , Wombat Nominees Pty. Ltd. (the family investment company of Dr. and Mrs. Verco) and Mrs. Corale Blanche Bickford. Their claim is that, as mortgagees, they are entitled to an order for ejectment under the provisions Pt.XVII of the Real Property Act 1886 (S.A.) against the respondent, Mrs. Chiara De Tullio in respect of her possession of her home at 13 Victory Crescent, North Haven. It is their claim that Mrs. De Tullio is a mortgagor in default.

2. In January 1987 and for many years prior thereto, each of the applicants had been clients of the stockbroking firm which now carries on business as Day Cutten Ltd; its predecessors were Cutten Pentelow Pty. Ltd. and, earlier still, Cutten and Harvey.

3. Since about 1980, Cutten and Trowbridge Pty. Ltd. has operated as a separate corporate entity but as an adjunct to the stockbroking business now carried on by Day Cutten Ltd. Mr Trowbridge, who gave evidence on behalf of the applicants, explained that Cutten and Trowbridge Pty. Ltd. was a financial consultant specialising in the leasing of equipment and the lending of monies upon the security of first mortgages. It is implicit from Mr Trowbridge's evidence that most of the funds that were invested on first mortgages came from clients of Day Cutten Ltd. In any event, it was in that capacity that Wombat Nominees and Mrs. Bickford were identified by members of Day Cutten Ltd. to Mr Trowbridge as clients who wished to invest their funds upon the security of a first mortgage. Wombat Nominees Pty. Ltd. had $60,000 available; Mrs. Bickford had $26,000 available. Mr Trowbridge was informed of this some time in January 1987. At about the same time Mr Trowbridge made contact with Mr Winzor (or Mr Winzor made contact with Mr Trowbridge). It was Mr Trowbridge's evidence that Mr Winzor was acting on behalf of Mrs. De Tullio and in that capacity was seeking to borrow $86,000 to enable her to purchase the property at North Haven.

4. Mr Trowbridge explained that he first met and transacted business with Mr Winzor in July 1984; two more transactions took place in February and March 1986 and it was his estimate that thereafter in the ten months to January 1987 he would have transacted approximately "a dozen" more transactions with Mr Winzor. These transactions originated in one of two ways but were otherwise common. Either Mr Winzor would contact Mr Trowbridge informing him that he (Mr Winzor) had a client looking to borrow funds upon the security of a first mortgage and inquiring of Mr Trowbridge whether he had any moneys available; alternatively Mr Trowbridge might contact Mr Winzor informing him that he (Mr Trowbridge) had a client or clients with cash available to lend upon the security of a first mortgage and inquiring whether Mr Winzor had a matching borrower. Sometimes a match was made; from Mr Trowbridge's point of view, if he had clients with funds to invest and Mr Winzor did not have a prospective borrower then Mr Trowbridge would look to other land brokers to see whether or not he could place his clients' funds. It was Mr Trowbridge's practice to allow the land broker who had introduced the borrower to prepare the Memorandum of Mortgage and benefit from the fees that were payable by the borrower in respect of its preparation.

5. Mr Trowbridge was not sure whether Mr Winzor contacted him on behalf of Mrs. De Tullio looking for funds or whether he (Mr Trowbridge) originally contacted Mr Winzor seeking to place the funds which were allegedly borrowed by Mrs. De Tullio. In the circumstances of the case, I do not think that it is a matter of concern to determine the order of those events. I have come to that conclusion because there is no doubt that Mr Trowbridge, acting in the interests of the applicants, paid the sum of $86,000 to Mr Winzor on 3 February 1987. A photocopy of the relevant cheque and Mr Winzor's receipt are in evidence. (Exs. A.12 and A.11.4 respectively).

6. A certified copy of Certificate of Title Register Book Volume 4244 Folio 95 was tendered by consent (Ex.A3). It discloses that the property that is the subject of that certificate of title was transferred to Mrs. De Tuillio (sic) by the previous owner, G.V.A. Developments Pty. Ltd., and that the relevant Memorandum of Transfer was produced at the Lands Titles Office for registration on 12 March 1987. The endorsements on the title also show that immediately after the registration of the above mentioned transfer, Memorandum of Mortgage No. 6325820 in favour of Wombat Nominees Pty. Ltd. and Coralie (sic) Blanche Bickford was registered on the title.

7. A certified copy of the above mentioned mortgage was also tendered by consent (Ex.A4). It purports to be signed by the mortgagor (who is shown to be Chiara De Tuillio (sic)), in favour of the applicants as mortgagees in the respective sums of $60,000 and $26,000. It is expressed to be a mortgage which calls upon Mrs. De Tullio, as mortgagor, to pay the principal sum of $86,000 on 3 February 1990. Interest is fixed at 18.5% per annum reducing to 16.5% per annum in the event of interest being paid on the due dates for payment. Interest was said to run from 3 February 1987 and was payable calendar monthly on the 3rd day of each month.

8. By letters dated 4th February 1987 (Exs.A9 and R6) Mr Trowbridge wrote Wombat Nominees Pty. Ltd. and Mrs. Bickford advising them that their respective amounts of money had been invested "by way of a mortgage loan on Tuesday, 3rd February 1987". After describing the residential address and title reference of the property, the letter continued that the interest would be payable "to Cutten Pentelow Pty. Ltd. on the 3rd day of each calendar month throughout the loan". There was then set out a statement of the interest entitlement, the handling charges and the resultant monthly cheque which each applicant would receive. In the case of Wombat Nominees the expected monthly cheque was $805 and in the case of Mrs. Bickford it was $349. Dr. Verco, who gave evidence as part of the applicants' case, stated that his company received, monthly, as from March 1987, $805 and that these payments continued until June 1989 when news of Mr Winzor's defalcations became public knowledge. Mrs. Bickford did not give evidence; Mr Young one of the directors of Day Cutten Ltd, explained in his evidence that she was an elderly lady, that he was the member of the company who had particular care of her affairs and that he had cared for her for approximately 20 years. He satisfied me that Mrs. Bickford looked to him personally and regularly to advise her on all her financial dealings. He said that she never consulted him, by way of complaint, about Mrs. De Tullio's mortgage; I am satisfied that Mrs. Bickford also received the monthly cheque for her share of the interest in terms consistent with Dr. Verco's evidence.

9. In her defence, Mrs. De Tullio admitted that she is the registered proprietor of the property at North Haven and that the mortgage, as described above, is, in fact, registered on her certificate of title. Her first line of defence was that she only received the sum of $60,000 (and not $86,000) and that it was always her intention and belief that the term of the loan would be one year and that the interest rate would be 15.5%. Next she said that, in all respects, Mr Winzor was acting as the agents for the applicants - not, as they say, acting as agent for Mrs. De Tullio.

10. The evidence in this case has revealed that there has been highly improper conduct perpetrated on innocent people. First, it is quite clear that Mr Trowbridge was supplied with false information. It was falsely stated in an application for finance from Mr Winzor (Ex.A.11.1) that the purchase price of the relevant property was $132,000 and that a deposit of $45,000 had been paid. That application also falsely stated particulars of Mrs. De Tullio's income. Furthermore, Mr Trowbridge said that Mr Winzor supplied a photocopy of selected pages (unsigned) of the supposed contract for the sale and purchase of the property (Ex.A11.2). Again the figure of $132,000 appears; but in that document the deposit is shown as $2,000. The Memorandum of Transfer in favour of Mrs. de Tullio, a certified copy of which was tendered in evidence, (Ex.R13) discloses that the consideration was only $109,000 and there is no doubt on the evidence that this was the correct purchase price.

11. In a consideration of the role played by Mr Winzor in the negotiations that led to Mr Trowbridge supplying him with funds to the extent of $86,000, I consider that the following findings of fact are important:- first, neither Dr. Verco, Mrs. Bickford nor Mr Trowbridge had met or spoken to Mrs. De Tullio prior to the lending of the money; secondly, Mr Trowbridge made contact with Mr Winzor in Mr Winzor's capacity as a land broker who was seeking funds on behalf of Mrs. De Tullio. But this does not, of itself, prove that Mr Winzor was her agent for all purposes. Even if it does establish a relationship of agency it does not, without more, spell out the terms of the agency or the extent of Mr Winzor's authority.

12. Mr Trowbridge said in evidence that in all his transactions with Mr Winzor, Mr Winzor had established the practice of paying to Cutten Pentelow Pty. Ltd. (as the company then was) the monthly interest cheque that was due by the particular borrower. Mr Trowbridge added that it was his practice to call at Mr Winzor's office each month on the due date for the payment of interest to collect Mr Winzor's cheque. If two or more interest payments were coincidentally due on the same day for different lenders, it was Mr Winzor's practice to give Mr Trowbridge separate cheques in respect of each separate loan. I accept all this evidence.

13. I also accept Mr Trowbridge's evidence that it was his company's policy to limit their clients' investments to a loan of approximately two-thirds of the value of the security that was being offered. He said that this policy was well known to Mr Winzor and I have no cause to reject that evidence. This finding is a matter of some significance in the murky circumstances of this case. Having regard to the documents that Mr Winzor supplied to Mr Trowbridge, none of which was signed by Mrs. De Tullio, it is probable that Mr Winzor, without the knowledge of Mrs. De Tullio, falsely stated the purchase price at $132,000 so that Mr Trowbridge would thereby be induced to have his clients lend $86,000. Hence the falsity of the figure of $132,000 might well be regarded as a separate and independent matter that was perpetrated by Mr Winzor without Mrs. De Tullio's knowledge primarily so that he might earn the conveyancing fees that the loan would generate whilst incidentally benefiting Mrs. De Tullio.

14. It is clear from Mr Trowbridge's evidence that he placed a great deal of trust in Mr Winzor. His evidence discloses that it was his practice to attend at Mr Winzor's office with a cheque for the required funds; on such an occasion (which he inappropriately referred to as "settlement") he limited his involvement to an examination of the relevant mortgage; if its contents coincided with his prior discussions with Mr Winzor as to principal loan, rate of and repayment of interest and term, and if it was signed by the mortgagor, he would hand over the funds to Mr Winzor and collect Mr Winzor's receipt. He maintained that he followed this practice when he attended Mr Winzor's office on 3 February 1987. He examined the mortgage: it appeared to be in order: he handed over a cheque for $86,000 and received a receipt for that amount. In fact, the mortgage bears the date 16 February 1987. Mr Trowbridge was unable to explain that discrepancy and it must remain a mystery. Mrs. De Tullio who is aged 33, is married with two young daughters aged 4 and 8. She has worked for her present employer for seventeen years and in 1987 was the supervisor of a typing pool. She and her husband, Mr Mauro Gagliardi separated in 1985 but she said that the separation had been amicable and that she and her daughters continued to see him after the separation. It was her evidence that it was Mr Gagliardi who was instrumental in having her purchase the house at North Haven. Mrs. De Tullio was living with her daughters in cramped conditions in her parents' home and everyone recognised that it would be in the family's best interests if a home could be found for Mrs. De Tullio and the girls.

15. According to Mrs. De Tullio, Mr Gagliardi found the house at North Haven, showed it to her, discussed with her its purchase price of $109,000 and her ability to find the funds that were necessary to make the purchase. Her evidence was to the effect that after calculating the cash that she could raise and the mortgage commitments that she could meet, she arrived at the conclusion that she could afford an "interest-only" mortgage of $60,000 at 14.5% for a year.

16. Her evidence continued that Mr Gagliardi later told her that he had been able to arrange, though Mr Winzor, a loan of $60,000 but that the interest rate might be 1% higher than she had expected. Having decided that she could afford it, Mrs. De Tullio said that she made the decision to proceed with the purchase and the borrowing; she paid a deposit of either $1,000 or $2,000 and raised $20,500 from the sale of the family car and some opals. In addition her parents lent her either $5,000 or $6,000. These figures total as much as $28,500 or, at least, $26,500; to this is to be added the intended borrowing of $60,000. Based on a purchase price of $109,000 (and ignoring stamp duty, registration fees and broker's costs for the preparation of the Memoranda of Transfer and Mortgage) there would still have been a short-fall of between $21,500 and $23,500. When asked how this short-fall had been met, Mrs. De Tullio said that Mr Gagliardi told her that Mr Winzor had arranged for a loan to Mr Gagliardi of $26,000; she maintained that the $26,000 was made available by or on behalf of Mr Gagliardi to her credit to meet the short-fall in the purchase price and the costs that she had to pay. But she was adamant that the additional $26,000 should not have been secured over her house.

17. Mrs. De Tullio claimed, based on what her husband had told her, that at all times she believed that Mr Winzor was acting in the interests of his clients who were the lenders of the money to her. When asked to explain how her signature appeared on a mortgage that secured the repayment of $86,000 at 16.5% for a term of three years she said that she had signed the mortgage documents in blank; she said that Mr Gagliardi had brought them to her at her parents' home, saying that Mr Winzor had told him that they were "blank" because he (Winzor) had not yet determined the identity of the lenders.

18. Mrs. De Tullio tendered her Credit Union records and monthly statements (Exs.R.14 and R.15). They show that her fortnightly (after tax) pay in January 1987 was $428.10; the monthly interests payments in respect of a mortgage for $86,000 at 16.5% was $1,182.50; it stands to reason that a person in Mrs. De Tullio's position would hardly commit herself to such an obligation unless she was either a fool or a knave. Mrs. De Tullio was neither. I accept that she had an honest belief that her estranged husband was giving her financial assistance to enable her to purchase a home for herself and their children, to compensate for the fact that he had not been paying her maintenance for the children. It seems clear to me that he duped her. Mrs. De Tullio had left everything to her husband; she did not meet with or speak to Mr Winzor about the purchase of the property or the mortgage loan. In fact, I accept her evidence that she had no personal contact with Mr Winzor until August 1987 and that she did not find out about the $86,000 mortgage until the following February.

19. One matter that calls for comment is Mr Winzor's letter to Mrs. De Tullio dated 9 March 1987 (Ex.R.16). Although it referred to the interest rate as 15.5%, the letter made no mention of the principal sum of the mortgage and it wrongly claimed that the monthly payments that were due by Mrs. De Tullio were $645.83. That figure would be appropriate for a loan of $50,000 at 15.5%. Monthly interest payments on $60,000 at 15.5% would have been $775. I find it difficult to accept Mrs. De Tullio's claim that she did not realise that the amount of the monthly interest payments was incorrect. She had earlier said in evidence that the question of her ability to finance the purchase of the house and her ability to service a loan had led her to the conclusion that she could only afford $60,000 at 14.5%. That would have accounted for $725 per calendar month when her fortnightly pay was only $428.10. She had accepted the increase in the rate of interest of 1% thereby increasing the monthly payments to $775. In her circumstances, one would expect her to have known that her wages would leave very little for food and the basic necessities of life. Yet she claimed that the figure of $645.83 did not come as a surprise to her. I regard her evidence on this subject as quite unsatisfactory. I cannot understand how, on the one hand, she was so specific about the amount of the loan ($60,000) and the rate of interest (initially 14.5% and then 15.5%) and then, on the other hand, claim that she did not make any attempt to calculate exactly how much she would be required to pay each month. A person in her tenuous financial situation would not have, as she claimed, merely assessed that she could pay about $650 per calendar month without doing any calculations. The records with her Credit Union, which she personally maintained, showed meticulously neat and precise entries of deposits and withdrawals; they reflect Mrs. De Tullio's true character - precise attention to detail. Even though I have an adverse view about this aspect of Mrs. De Tullio's evidence, I nevertheless feel that it should be restricted to her willingness to benefit from calendar monthly payments of interest of amounts that were less than she expected to have to pay. Perhaps she thought Mr Winzor had made a mistake and she was willing to avail herself of it. She said that her husband had promised her financial help; perhaps she thought the lower than expected payment was a result of his help. I do not believe that this unsatisfactory passage of her evidence should lead to a finding that she knew, at all times, that she was borrowing $86,000.

1. But the fact remains that Mrs. De Tullio benefited to the extent of $86,000. The applicants' case is that the benefit was in the form of their loan of this sum; Mrs. De Tullio's evidence shows that she accepts that she received a loan of $60,000 and that she claims a belief that her husband received a loan of $26,000 which he made available for her benefit.

2. Tragically for Mrs. De Tullio, I have no hesitation in concluding that her own evidence reveals that she was the victim of her husband's duplicity. She left everything to him - that was her evidence. It is not known what passed between Mr Gagliardi and Mr Winzor - neither of them gave evidence. But the fact remains that Mr Gagliardi must be treated as the agent for Mrs. De Tullio's borrowing to effect the purchase of her house. His sins can not be visited on the innocent applicants.

3. Mr Robertson, counsel for Mrs. De Tullio argued that the appointment of Mr Winzor by Mr Trowbridge to prepare the Memorandum of Mortgage made Mr Winzor the sub-agent of the applicants. Even if this is correct, I do not see that it is of any help to Mrs. De Tullio. Let it be assumed that Mrs. De Tullio told her agent, her husband, that she wished to borrow $60,000. That assumption would be consistent with her evidence but it is of no help in determining what her agent might have said to Mr Winzor. On the other hand there is clear evidence that the applicants, through Mr Trowbridge advanced $86,000, that Mr Winzor received $86,000, that he prepared a mortgage securing the repayment of $86,000 and that he prepared a settlement statement in Mrs. De Tullio's name showing a first mortgage advance of $86,000. A copy of the settlement statement was tendered (Ex.A5.2). The Official Trustee had found it in one of Mr Winzor's files. It showed the purchase price at $109,000. Mrs. De Tullio claimed that she never saw this document until long after Mr Winzor's bankruptcy. That may be true but it does not help Mrs. De Tullio.

4. Unfortunately, her tragedy is compounded by the fact that during 1988, she made payments to Mr Winzor in reduction of the principal debt. One of these, for which she had a receipt, was $10,000. Significantly, the receipt was from a standard book of receipts that can be purchased from any stationer. Mr Winzor had his own printed receipts of which Ex.11.4 was an example. None of Mrs. De Tullio's repayments of principal found their way to the applicants.

5. The conclusion that I have reached is that Mr Winzor was not the agent of the applicants either for the purpose of making any loan to Mrs. De Tullio or for receiving any money from Mrs. De Tullio. Her only knowledge of Mr Winzor came from her husband and she made all payments to Mr Winzor because his letter to her of 9 March 1987 (Ex.R.16) induced her to do so:-
   

"Interest at 15.5% is $645.83 and can be paid direct to the above address or (sic) by periodical payments."

1. The fact that the applicants retained (or instructed) Mr Winzor to prepare the Memorandum of Mortgage was not sufficient to constitute him their agent except for that express exercise. Not knowing what Mr Gagliardi might have said to Mr Winzor I can not assume that Mr Winzor engaged in any fraudulent activity in the preparation of the mortgage. Indeed what I have heard of Mr Gagliardi even suggests that it might have been Mr Gagliardi, as distinct from Mr Winzor, who deceived Mrs. De Tullio about the extent of her liability under the mortgage. It was, of course, most improper for Mr Winzor to ask Mr Gagliardi to have Mrs. De Tullio sign the mortgage in blank but that impropriety cannot lead, without more, to the conclusion that Mr Winzor was involved in the deception. His reputation has preceded him; in fact his name is a household word in South Australia. Misleading Mr Trowbridge and not accounting for Mrs. De Tullio's repayments of principal give some indication of Mr Winzor's character; but one must avoid jumping to conclusions. It is essential to determine the issues based on the evidence in the trial.

2. It is necessary that I say something about Mr Gagliardi's absence. In her evidence-in-chief Mrs. De Tullio said that he was in Italy and that he was not "in a position" to come back for the trial. Relying on his absence overseas, Mr Robertson sought to tender Mr Gagliardi's signed statement pursuant to s.34c of the Evidence Act 1929 (S.A.). That section so far as is material provides:-
   

"34c. (1) In any civil proceedings where direct oral evidence of a fact would be admissible, any statement made by a person in a document and tending to establish that fact shall, on production of the original document, be admissible as evidence of that fact if the following conditions are satisfied, that is to say-

(i) if the maker of the statement either -

(a) had personal knowledge of the matters dealt with by the statement; or

(b) ...

(ii) if the maker of the statement is called as a witness in the proceedings:

Provided that the condition that the maker of the statement shall be called as a witness need not be satisfied if he is dead, or unfit by reason of his bodily or mental condition to attend as a witness, or if he is beyond the seas and it is not reasonably practicable to secure his attendance, or if all reasonable efforts to find him have been made without success.

(2) ...

(3) Nothing in this section shall render admissible as evidence any statement made by a person interested at a time when proceedings were pending or anticipated involving a dispute as to any fact which the statement might tend to establish.

(4) ...

(5) ..."

1. I rejected the tender on the ground that there was no information before the Court that would justify a conclusion that it was "not reasonably practicable to secure his attendance". I then received an application that the trial be adjourned so that inquiries could be made to ascertain whether Mr Gagliardi might return to give evidence. Mrs. De Tullio gave further evidence in support of this application. From her evidence it transpired that, having been convicted for some unspecified offence and sentenced to imprisonment, her husband had been released on parole; in breach of his parole conditions he had left the country. According to Mrs. De Tullio he has told her that if he returns to Australia he will be arrested and sent back to prison to serve out the unexpired term of his sentence.

2. In those circumstances it seemed to me to be a futile exercise to grant the adjournment. I therefore refused the application. Mr Robertson thereupon renewed his application to tender Mr Gagliardi's statement. Against the objection of Mr Keith, counsel for the applicants, I received the statement. Mr Keith argued that the legislation would never have intended to afford a benefit to an absconding parolee; but in my view that denies the true purpose of the legislation. It looks not to the character of the proposed witness but to the circumstances of the litigant who seeks to call in aid the provisions of the section. If the proposed witness is not likely to attend Court, for whatever reason, then the litigant may be aided by the provisions of the section. Hence it might be that the intended witness cannot be found, is in jail or simply refuses to co-operate. If the litigant satisfies the Court that the litigant is blameless and it is not otherwise reasonably practicable to secure the witness' attendance, then the statement can be received. I was more concerned about the provisions of sub-s. 34c(3). Arguably, the conduct of Mr Gagliardi, as deposed to by Mrs. De Tullio, might have amounted to him having an "interest" with respect to a "fact which the statement might tend to establish". Having reflected on the matter, I have concluded that Mr Gagliardi will neither benefit nor suffer from any facts that are "established" in the outcome of these proceedings to the extent to which they were facts that were addressed in his statement. Specifically, his statement does not cover the conversations that he had with Mr Winzor about the amount of the loan that his wife was seeking; hence he has no "interest" as that word is used in the sub-section. He has, of course, figured prominently in Mrs. De Tullio's evidence, and the findings that I have made may have some ultimate affect upon him. But on balance I do not feel that my discretionary powers should be fettered.

3. I received the statement de bene esse but I now rule it admissible and receive it as Ex.R.21.

4. In several respects Mr Gagliardi's statement supports Mrs. De Tullio's evidence in uncontentious areas. But in matters of importance it is silent. In particular, it totally fails to address any factual matters which might point to Mr Winzor being the agent of the applicants.

5. For the purposes of these reasons it is sufficient to record these findings:- I am satisfied that Mr Winzor was not the agent of the applicants for the purpose of them lending to Mrs. De Tullio any sum of money; I am further satisfied that Mrs. De Tullio received the benefit of the applicants' loan of $86,000 even though she might have thought that $26,000 came to her via her husband whether as a gift or a loan or a payment of maintenance. If she had a belief that she was only borrowing $60,000 at 15.5% for one year it was because of what her husband - her agent - told her. There is no evidence sufficient to suggest that this false information emanated from Mr Winzor or that he was, in any way, a party to that particular falsity. Finally, I am satisfied that at all times when Mr Winzor received money from Mrs. De Tullio, he either did so as an independent party or as her agent - he was not the agent of the applicants.

6. In Mrs. De Tullio's interests, it was argued that she was the victim of fraudulent conduct that entitled her to the protection afforded by s.69I of the Real Property Act, 1886 (S.A.). What then is the fraud that has allegedly been committed in this case? According to Mrs. De Tullio the answer to that question is that she was induced to execute a Memorandum of Mortgage in favour of the applicants securing the repayment of the principal sum of $86,000 in three years time with interest at 16.5% payable monthly. But her belief was that the documents that she executed would secure a mortgage for the principal sum of $60,000 at 15.5% repayable in one year. If it be assumed that Mrs. De Tullio was the victim of a fraud, it still remains necessary to determine whether or not she is entitled to any relief as a consequence of that fraud for "fraud... must be proved in order to invalidate the title" of the applicants (Assets Co. Ltd. v Mere Roihi (1905) A.C. 176 at p 2100. At the same page, the Privy Council, in its advice, went on to emphasise that the person who is in Mrs. De Tullio's position cannot hope to succeed unless knowledge of the fraud "is brought home" to the applicants or their agent.

7. In Schultz v Corwill Properties Pty. Ltd. (1969) 2 N.S.W.R. 576 Street J. (as he then was) explained the meaning of the term "brought home" at p 582 in these terms:-
   "The first is one in which the fraud is actually
   committed by ('brought home to') the person whose title
   is impeached or his agent."
   Although I have come to the conclusion that there is no evidence to prove that Mr Winzor engaged in fraudulent conduct in the preparation of the relevant Memorandum of Mortgage it cannot be overlooked that each subsequent interest payment that Mrs. De Tullio made to Mr Winzor was substantially less than the $1,182.50 per calendar month that was required under the mortgage. This fact coupled with Mr Trowbridge's evidence that he regularly received, on a monthly basis from Mr Winzor, the correct monthly payment of $1,182.50 is sufficient to establish that Mr Winzor, subsequent to the execution of the mortgage, must have been aware - at the least - that Mrs. De Tullio was paying to him a lesser amount than the amount that he was required to remit on to Mr Trowbridge. Once again, the absence of Mr Galliardi makes it difficult to draw a firm conclusion. Speculation allows for the possibility that Mr Galliardi was or should have been paying to Mr Winzor the short-fall to make up the difference between Mrs. De Tullio's payments and the payments to Mr Trowbridge; then again speculation allows for the possibility that my previous findings were incorrect and that Mr Winzor well knew of all that had happened and was, in fact, a party to the fraud on Mrs. De Tullio. But if my earlier finding is incorrect - if indeed Mr Winzor was a party to the fraud that was committed on Mrs. De Tullio - Mrs. De Tullio is still left with the insurmountable hurdle of proving that, in so acting, Mr Winzor was acting as the agent of the applicants Wombat Nominees Pty. Ltd. and Mrs. Bickford. I repeat my earlier finding that the evidence is insufficient to make such a finding.

8. This case has been resolved on its own facts; it is important to bear in mind that those facts were made the more unusual by the involvement of Mr Gagliardi. I am concerned to emphasise this because the financial collapse of Mr Winzor is said to have caused loss and suffering to numerous people. This however is the first occasion upon which this Court has been called upon to resolve issues between innocent people. I do not regard any of my findings as necessarily constituting a resolution of other transactions in which Mr Winzor may have been involved.

9. For the reasons that are set out above, I have concluded that the claims that were advanced by Mrs. De Tullio, to the effect that the mortgage was void or alternatively voidable, are without foundations. In my opinion the applicants are entitled to the benefit of the mortgage.

10. The respondent raised in her pleadings a further issue of estoppel; but this claim has its genesis in the regularity of Mrs. De Tullio's payments to Mr Winzor in accordance with the terms of his letter to her of 9 March 1987 (Ex.R16). For such a claim to have any chance of succeeding it would be first necessary to find that Mr Winzor had received her payments in his capacity as the applicants' agent. As I have concluded that no such finding is open on the evidence it is not necessary to give further consideration to this argument. There was a further claim of mistake and rectification. Mr Robertson did not address those matters separately for he conceded that they could only be made out if Mr Winzor was found to be the applicants' agent.

11. The final matter that must be considered is the question of the validity of the Notice of Default dated 2 January 1990 that was served of Mrs. De Tullio. After correctly reciting particulars of the property, the mortgage and the identity of the applicants, the notice stated:-
    "And whereas you have breached a covenant and condition
    of the mortgage by reason that you have defaulted in
    the payment of the moneys secured by the mortgage..."
    

12. The Notice then called upon Mrs. De Tullio to remedy the breach "within a period of one month" after the service of the notice and warned of the applicants intention "to exercise and enforce their rights" including their power of sale, in the event of a failure to remedy the breach. The reference in the Notice to the default "in the payment of the moneys secured" can only mean a reference to interest payments. I say that because the principal sum of $86,000 was not due to be repaid for another month - 3 February 1990. Clause 18 of the Memorandum of Mortgage, dealing with the powers of the mortgagees, is in terms identical to those considered by Perry J. in Lamshed v Plakakis (1988) 47 S.A.S.R. 316. Mr Robertson sought to gain comfort from that decision in support of his claim that the notice that was served on Mrs. De Tullio was defective. Clause 18, so far as is material provides as follows:-
    

"18. If default shall be made by the Mortgagor in the payment of the moneys hereby secured or any part thereof or in the payment of any interest payable hereunder or any part thereof or in the observance or performance of any of the covenants herein contained express or implied and if such default be continued for seven days the whole of the moneys hereby secured and interest thereon (if any) shall (subject to Section 55a of the Law of Property Act 1936-1980 if the same applies to this mortgage) immediately thereupon become due and recoverable and

(a) the Mortgagee may enter into and take possession of the said land...

(b)..."

1. Unlike the present case, in which the Notice merely called on the mortgagor "to remedy your aforesaid breach", the notice in Lamshed v Plakakis required payment of "the monies now (due) and owing on such mortgage". Because of the provisions of clause 18 and its "accelerator" effect, the monies that became due and owing in Lamshed v Plakakis, as a consequence of the default, was the principal loan as well as all arrears of interest. But in the case at bar, the applicants did not seek to avail themselves of this "accelerator" benefit. They were content to have Mrs. De Tullio remedy her breach; as I have said, that could only refer (in January 1990) to arrears of interest. Perry J. considered that the Notice in Lamshed v Plakakis was defective because of the provisions of sub-s. 55a(2) of the Law of Property Act 1936 (S.A.):-
   

"(2) Where a mortgage to which this section applies contains a provision by virtue of which a liability to repay moneys under the mortgage falls due in the event of a breach of a covenant or condition of the mortgage at an earlier date than if there were no such breach, that provision shall be inoperative unless a notice has been served upon the mortgagor in conformity with the provisions of subsection (1) of this section and where requirements are made of the mortgagor in the notice, he has failed to comply with those requirements."

His Honour said at pp 321-322:

"But it seems to me that it is desirable if not essential for such a notice under s.55a to stipulate clearly that it is the amount of the arrears of interest only and not principal moneys, the liability for repayment of which may have been accelerated by a default in payment of interest, which are required to be paid within one month or other period after service. So long as the notice makes the position quite clear in that respect, it would not be objectionable for the notice to go on to say that in the event that the arrears of interest are not paid within the stipulated period, the whole of the principal sum would then become due and payable in addition to the interest."

1. The absence of a claim for the accelerated payment of the principal loan distinguishes this case from the decision in Lamshed v Plakakis (supra).

2. For these reasons the applicants are entitled to an order for possession. I will hear the parties on the question of the time that should be given to Mrs. De Tullio to make arrangements to vacate the property and on consequential matters.