The mortgage did set out quite clearly the basic terms of the loan, namely its term of one month, expiry date, principal sum of $320,000, the lower rate of interest of 48% per annum, the higher rate of interest of 96% per annum, and the fact that the interest was compound and paid in advance in a sum of $12,800. I will deal with the terms of the memorandum later. The forms all said they were signed at Lakemba. Dalla's office is at Lakemba.
21 Kowalczuk's evidence about the signing of the documents is that they were signed at his place of work and that Dalla and Anastasi arrived after a telephone call from Anastasi saying he was coming with Accom's solicitor. Kowalczuk said that the documents were signed on the bonnet of a car, and in his first affidavit said that Dalla asked him nothing about his financial circumstances, did not explain the mortgage documents to him in any real way and did not explain the rate of interest. He persisted with some evidence that he did not know the name of the lender but eventually admitted that he did. He said in a later affidavit that he told Dalla that he could not read very well and that Dalla read the papers out to him; that he did not remember what was said and could not understand it or understand the import of the documents he signed at the time. He was concerned that his employer would notice he was not working which made it difficult to concentrate. He was not given copies of the papers which he signed. Kowalczuk said this all took about ten to fifteen minutes, which on any basis would have been impossible.
22 Dalla's evidence was quite contrary to this. He said he was first approached by Anastasi who said Kowalczuk needed his help as he had approval for a loan which he wanted to settle the next Monday. He said Anastasi took Kowalczuk to meet him at his Lakemba office on 29 July 2005, and that he took out a blank costs agreement and obtained from Kowalczuk information required to fill it in, such as his address. He said that Kowalczuk on being asked what his address was said, "Mars Pty Limited of 37 O'Connor Street, Haberfield" and that when he asked who was the client, Kowalczuk or the company, Kowalczuk said "I am your client the company is mine, it is a one person company, I am the sole director". None of that was really true. He said he regarded Kowalczuk as the client and his invoices were addressed to him. Dalla said Kowalczuk signed the costs agreement and that he then asked where the documents were and was told that they would be probably sent to him on Monday by email. His evidence was that he then said, "I am not Mr Kowalczuk's solicitor for the loan. I am not involved in the loan itself. As per the costs agreement I will give Mr Kowalczuk independent legal advice. I have to see the documents to give that advice", to which Anastasi responded, "Don't worry I have completed the application already. You will receive the documents on Monday." It is obvious this conversation was directed to Anastasi and casts some doubt on the presence of Kowalczuk. In fact he did not receive the documents that Monday but on the following Monday 8 August 2005 by email.
23 Dalla said he arranged for Anastasi and Kowalczuk to attend his office on 8 August but it seems that appointment was cancelled and another was arranged for the next day at 10.50 am when the listed documents were signed.
24 Dalla says that he gave Kowalczuk a full explanation in accordance with the requirements of rule 45 of the Solicitors' Practice Rules. Dalla said his advice concentrated on the form "Acknowledgement of Legal Advice by Borrower" and said that he asked Kowalczuk if he knew the loan was only for a month and Kowalczuk said that it was just bridging finance. He said that his impression of Kowalczuk was that he was a very confident businessman who knew what he was doing. Before the mortgage was signed he asked Kowalczuk if he had read the mortgage documents and that Kowalczuk said, "Yes". It is quite clear I think that he knew that Kowalczuk had not seen the documents. He said that Anastasi took the documents and said that he would deliver them back to Accom. Contrary to what Dunsford said was the practice it is likely that did happen. On settlement the mortgage moneys were paid to the account of Venture Connect as directed. It is not known what happened to them. It is accepted that Kowalczuk got no benefit from them and I think it clear Anastasi's proposed investors never existed.
25 Some interest was paid on this loan. It is not quite clear by whom although it was not paid by Kowalczuk. The mortgage was, at some stage, extended by two months with interest on the extension also payable in advance presumably somehow arranged by Anastasi. Mr Dunsford could not explain how the mortgage came to be extended. In any event it is not disputed that by November 2005 Kowalczuk was in default. Accom began enforcement proceedings by commencing an action for possession and by service of a notice to occupier on the tenant. Although he originally denied it, I find that the statement of claim was served on Kowalczuk. He said that he had little knowledge of problems with the loan and that Anastasi told him after Kowalczuk was informed that the notice to occupier had been served, that everything was all right and that there had just been some delay in organizing refinance through the bank.
26 This mortgage over Berowra was in fact discharged with funds lent by the National Australia Bank of $350,000, the loan moneys going to pay out (although not entirely) the amount due under the mortgage to Accom. The date of the discharge was 15 December 2005. So far as the National Australia Bank loan is concerned it is also quite clear that Kowalczuk believed Anastasi and expected the investors to pay the interest on that loan, although he was advised from time to time that they were not doing so.
27 Even after discharge, which had the effect of relieving Kowalczuk from the burden of the very high default rate of interest payable under the Accom mortgage, Kowalczuk remained liable to National Australia Bank for the mortgage loan of $350,000 having, as I have explained, obtained no benefit from this whatever. It would, of course, have been impossible to earn on the borrowed moneys seven percent more than the 48% interest due on them to Accom, but it might not have been impossible after refinancing was put in place through the bank. Insofar as this transaction is concerned, Kowalczuk claims from Accom $350,000 plus interest.
First Haberfield loan
28 In spite of the difficulties with the Berowra mortgage, which were known to Kowalczuk, although he had accepted the statements by Anastasi that there was some delay with the investors and he would fix it all up, and in spite of the loan of $150,000 which he had made to Anastasi still being outstanding, when Anastasi suggested to Kowalczuk a new scheme, under which money would be borrowed against the Haberfield property, Kowalczuk was prepared to consider the proposal and go along with it. Under this new proposal made in December 2005, Anastasi said that money could be borrowed against Haberfield and invested in a blue chip company or with blue chip investors and he could make "7% on top. We have to do this deal quickly or you are going to have a problem".
29 There was no application form filled in for this Haberfield mortgage. Dunsford says Anastasi, as agent for Mars, called him on 5 December and told him that the Berowra loan would be refinanced through the National Australia Bank, and that Mars needed a short term loan until a loan Anastasi was working on from "First Loan" came through. He told Dunsford there was in a hurry because Kowalczuk had a "big deal going and if he misses out he stands to lose big bucks". I accept that evidence.
30 Dunsford said he told Anastasi that Accom's practice was not to lend on owner occupied properties, but he understood that although the Haberfield property was in the name of Mars that Kowalczuk was living in it. Anastasi told him that the house was divided into two and there was a tenant in the major part of it. This was not really true, because at this stage although Kowalczuk and his wife's relationship was in difficulties they were living in separate parts of the same house. Mrs Kowalczuk was being paid child maintenance by her husband and was using this to pay rent to Mars, thereby enabling her to claim rent assistance. Dunsford also said that a valuation would be required, but in view of the hurry he thought he might look at the property himself and proceed without a valuation, as the loan to value ratio was quite low. Dunsford said that he went to inspect the Haberfield property and his inspection showed that there was a separately occupied flat at the back and it looked like a rental property. I accept that he went there, but I find the balance of this evidence untrue. There was a back door. There was nothing to show any separate residence whatsoever. In addition evidence of Dunsford as to the improvements being made to the property between the date of the mortgage and the present time was, I find, incorrect.
31 Dunsford made a search of Mars and ascertained that Mr Alex Lee was the sole director and shareholder. He was prepared to lend to trusts but not in such circumstances. He said he then telephoned Kowalczuk asking about Mr Lee and said that Kowalczuk said to him, "that's my solicitor, he holds the trust for me" and that it was for asset protection in case he became bankrupt. Dunsford says he then spoke to Anastasi about this and said that he would be prepared to go ahead if Kowalczuk became sole director and shareholder. Anastasi, Kowalczuk and Mr Lee then arranged for the shares to be transferred to Kowalczuk and for Kowalczuk to become sole director of the company. Dunsford said he spoke to Mr Lee to confirm the position with him. After the inspection to which I have referred he said that he thought the property was worth $1.1 million and issued security documents to Dalla.
32 Kowalczuk said that a short time after Anastasi approached him about the new venture, Anastasi said to meet him at Brighton-le-Sands on a Saturday as it was necessary to sign loan papers with Dalla. They went to a beach area at Monterey and Dalla arrived with the loan papers and again said that he would read them to Kowalczuk. At first Dalla said Kowalczuk and Anastasi arrived with the loan papers, but later accepted he got them from his office. Security documents and other documents to support the loan were signed on 10 December 2005 at Monterey and I will explain the documents in greater detail shortly. Apart from the mortgage, which is dated 12 December, the other documents were dated 10 December the typed placed of signature of Lakemba was crossed out by Dalla and Monterey written in. This time the mortgage was for a period of two months with an interest rate of 60% per annum and a default rate of 120%. The principal was $807,000 and the due date 12 February 2006. Once again the interest for the two months was paid in advance and deducted from the principal sum. Dunsford justified the higher rate of interest on the ground the matter was very urgent and there was no time to obtain a valuation. Kowalczuk said that at Monterey it was windy and although Dalla started to read the papers, he told Kowalczuk, "It's more or less the same shit as last time". He said Dalla read out some parts of documents and flicked over other parts. In the end Dalla said, "Just sign here". He said that he never read the papers, that he was never given a copy and he was given no advice about his liability as guarantor. He said that Dalla said that it took only 15 minutes but he would put it down as 40 minutes. He said that after this happened Dalla came up to him and said, "You're on your own now", which Dalla denied. Dalla said that Anastasi took the security documents and said he would take them back to Accom.
33 This is all quite contrary to the evidence of Dalla. Dalla said that he had insisted to Kowalczuk that he explain the documents as he had the earlier ones. He said he explained the company was the borrower but that Kowalczuk was a guarantor and that he went through the documents one by one as before and said, "Don't think that you are covering yourself signing for the company because you are the guarantor. You have to realize that the lender can start by suing you rather than suing the company. Your can make no objections. You cannot say 'No, this is going to the company', because you are the guarantor. It is in brief exactly like the last one. It doesn't matter if you say the loan is from your wife, Mars or your uncle. If you don't pay the lender can take the property", to which Kowalczuk said, "OK, I will sign it. It's OK I understand it, I've been through it." The documents as printed stated they were signed at Lakemba. This was deleted and Monterey handwritten in by Dalla.
34 Although the mortgage is dated 12 December 2005 it appears that the principal was not advanced until 15 December 2005, Dunsford apparently registering the mortgage before advancing the principal sum. Kowalczuk had sent a fax to Accom dated 14 December 2005 giving details of his bank account into which the moneys were to be paid. He also signed a document dated 14 December 2005 confirming the loan payments made by Accom and stating the loan would be repaid "by way of refinance with First Home Loans Australia". Anastasi told Kowalczuk that the moneys would be in Kowalczuk's bank, namely the ANZ Bank, on 15 December 2005. They went together to the bank and Anastasi stayed outside while Kowalczuk obtained a bank cheque for $750,000 made payable, at the request of Anastasi, to St George Bank Limited. Kowalczuk then gave the cheque to Anastasi. It was these moneys which Kowalczuk thought were somehow or other to be lent to the blue chip investment company or blue chip investors, combined in some way with the moneys borrowed on Berowra. However, these moneys in fact were used, at least in part, to pay off a mortgage loan of a Susan Houghton to Accom which had been arranged previously by Anastasi.
Second Haberfield Loan
35 The documents for the second Haberfield loan were signed on 17 December 2005. According to Dalla, Anastasi told him that there was a shortfall on the first loan over Berowra and another $10,000 loan was needed on a second mortgage. As this loan was to cover a shortfall, no money changed hands. Why it could not have been done by variation, I do not understand. In any event according to Dalla, Anastasi picked him up and drove him to Kowalczuk's workplace in Alexandria where he said that he went through his routine advice again and the document was signed on the bonnet of a car. Kowalczuk accepts now that he did sign these documents, but says that he did not sign them in the presence of Dalla. The loan is for $10,300 for a period of one month at a lower rate of interest of 60% and a higher rate of 120%. The one month's interest was payable in advance and formed part of the principal sum as did a documentation fee of the amount of $1,100. That amount might seem astonishing but the documentation fee for the first Haberfield loan was $6,456.00. These documents all have typed on them that they were to be signed at Lakemba, but this has been crossed out and the word "Alexandria" inserted. This is in the handwriting of Dalla. Dalla's evidence on what he did at Alexandria amounted to going through the same procedure as before with the first Haberfield loan, which was to follow slavishly what he thought to be the requirements of r45.
36 The moneys due under the Haberfield mortgages were not repaid on the due dates so those mortgages went into default, immediately attracting a rate of interest of 120%. Accom took proceedings for possession and for judgment for the amounts due under the mortgages. It obtained a judgment by default. An application to set aside that default judgment was refused by Assistant Registrar Howe. It seems from the judgment of Brereton J, giving leave to file the cross-claim, that an application was made for a review of that decision which has never proceeded. In any event possession was obtained of Haberfield and the property has been sold. The sale price was not sufficient to pay out the principal sums of $807,000 and $10,300 together with interest due up to the date of sale. As I have said it was for that reason that the present proceedings are taken against Kowalczuk to attempt to satisfy the shortfall out of the Berowra property.
Mortgage and Memorandum
37 It is now necessary to deal with the form of the mortgage document. The mortgage itself in each case consists of only three pages. Apart from the mortgage clause on page one, the terms are contained in the annexure, which is on page 2, and the memorandum, to which I will come. The annexure in respect of the first Haberfield loan states it is for a term of two months with a principal sum of $807,000, the lower rate of interest is 60%, the higher rate of interest is 120%, the interest type is compound, the instalments are prepaid monthly in advance, the borrower is Mars Pty Limited, the guarantor is Edward John Kowalczuk, and the damages for late repayment are as follows: "if the loan is repaid late an additional fee equal to one month's interest at the lower rate will be payable in addition to daily interest at the higher rate until the loan is repaid". The same memorandum was used for all three mortgages. This memorandum AB283719N, extends over 28 pages. It is a difficult document which incorporates a number of agreements being the mortgage, the loan, the guarantee and the charge with some common provisions applying to all four agreements. The document is long, repetitive and confusing and I would have thought it would take a solicitor at least an hour to comprehend it, unless he or she had seen it before. It is fair to say that the memorandum and the mortgage itself include many onerous provisions, including (a) the extraordinarily high rates of interest, both lower and default; (b) the fact the rates are compound; (c) the provision that if the loan is not repaid on the due date then not only will interest at the higher rate be payable, but there will be an additional fee for late payment equal to one month's interest at the lower rate; and, (d) what on their face appear to be very high legal fees agreed in advance between Accom and its lawyers. For instance those fees can, at the option of the lender's solicitor, include a fee of $2,000 for drafting a statement of claim and affidavit verifying it, this for a document which is more or less standard in possession matters, a fee of $2,300 for drafting a notice of motion and affidavit in support of default judgment, a fee of $950 for appointing a real estate agent and a fee of $1,200 for supervising a marketing campaign. Neither of the last two could possibly be said to be legal work. There is also a clause providing that if there is a default then the mortgagor prior to discharge can be required either to provide the lender with a release from any claim or dispute as to the amount due and in default of release then the mortgagee can retain $24,000 or two percent of the principal as security for the costs of any later dispute.
38 The clause under which Accom seeks relief against Kowalczuk is Clause 68 of the memorandum, which is part of the common provisions under the heading of "Additional security". In other words it is not in the guarantee section. The clause is as follows:
68. The DEBTORS do hereby mortgage to the LENDER all their estate title & interest in any real property they currently own or partly own as surety for the DEBT ("OTHER SECURITY"). The terms of the mortgage over the OTHER SECURITY will be the same as those laid out in the MORTGAGE. The LENDER undertakes not to protect its priority in relation to the OTHER SECURITY by registering a caveat or mortgage over the title of the OTHER SECURITY unless any of the DEBTORS default under any of the AGREEMENTS. Regardless of whether a default is rectified the LENDER will not be obliged to remove any caveats placed on the title of the OTHER SECURITY until the MORTGAGE is discharged. The DEBTORS are free to deal with the OTHER SECURITY without regard to the LENDER so long as they do not default under any of the AGREEMENTS. In the event of a default under any of the AGREEMENTS the LENDER will have the right to take possession of the OTHER SECURITY and exercise power of sale and/or foreclosure to recover the DEBT and the DEBTORS will yield and surrender possession of the OTHER SECURITY to the LENDER.