Alceon Group Pty Ltd v Rose

Judgment

1. By Statement of Claim filed on 8 July 2013 the plaintiff, Alceon Group Pty Ltd, claims, as against the first defendant, Peter Francis Rose, and the second defendant, Betty Nola Rose ("Mrs Rose"), judgment in the sum of $2,000,000, together with interest thereon from 12 June 2013, and possession of land at Clontarf, NSW.
2. Both defendants have filed Defences to the Statement of Claim and Cross-Claims. It is the issues raised in the Defences and the Cross-Claims (which, in each case, are identical) that identify the real issues in the proceedings.
3. In this proceeding, Mr Rose appeared unrepresented. Mrs Rose was represented by counsel.

A basic outline of relevant facts

1. The claim is based upon two documents (a Deed of Guarantee and Indemnity, and a mortgage over the land at Clontarf) executed by Mr Rose and Mrs Rose in either late July or early August 2011. The documents were executed in the following circumstances.
2. Mr Rose and Mrs Rose are the parents of Christopher Rose. (Since Christopher Rose plays a significant role in the proceedings, it will aid clarity to refer to the first defendant as "Peter Rose".) In November 2002 Christopher Rose incorporated Quadrant Property Services Pty Ltd (later QPS Developments Pty Ltd, to which I will refer as "QPS"). He became a director and secretary of QPS. All the shares in QPS are held by Rose Custodians Pty Ltd ("Rose Custodians"). Rose Custodians does not hold a beneficial interest in the shares; Rose Custodians is a trustee, and holds the shares pursuant to a Deed of Settlement dated 1 November 2002. The Deed of Settlement established the Rose Investment Trust, and names as general beneficiaries of the Trust Christopher Rose, and "the persons related to Christopher Rose" including siblings and parents: that is, Peter Rose and Mrs Rose. In 2011, the directors of Rose Custodians were Peter Rose, and a Stuart Fowler. The discretionary powers of the Trust were to be exercised by the directors.
3. In March 2005 Quadwest Developments Pty Ltd ("Quadwest") was incorporated and registered as an Australian proprietary company. Quadwest was wholly owned by QPS. The sole purpose of Quadwest was to develop a site in Perth. The project was the construction of strata titled residential home units. Christopher Rose became a director and the secretary of Quadwest. Peter Rose was a director of Quadwest from 2 December 2005 to 8 September 2008, and from 15 October 2008 up to and including 2011. He had worked as a builder, and involved himself in the construction side of the project. Christopher Rose took responsibility for the financial affairs of Quadwest.
4. Quadwest initially obtained funding for the project from Bank of Scotland International (Australia) Ltd ("BOSI"), and, later, from other sources. The BOSI loan was to be repaid by August 2010.
5. Construction of the home units commenced in late 2006. By August 2010, when the BOSI loan was due to be repaid, the project was in financial trouble. Although the construction phase was completed in late 2010, and a marketing campaign commenced, sales did not yield sufficient proceeds to enable Quadwest to discharge its debt to BOSI. Thereafter, various steps were taken towards the administration or liquidation of Quadwest. In January 2011, BOSI appointed receivers and managers. At that time, Quadwest's debt to BOSI was in excess of $25 million. In February, a liquidator was appointed; in March, a creditors' meeting voted in favour of Quadwest's entering into a Deed of Company Arrangement ("DOCA"). In May, a DOCA was approved in a creditors' meeting. By the terms of the DOCA, the BOSI loan was required to be paid in full within 7 business days (with provision for an extension of time to 30 business days).
6. Christopher Rose sought alternative sources of finance to pay out the debt to BOSI and proceed with the marketing of the apartments. In March 2011, he consulted Mr Nick Beckett, a finance broker. Mr Beckett introduced him to the plaintiff (hereafter referred to as "Alceon"). Alceon operated as a lending institution. It sourced its funds from investors, to whom it disclosed information about proposed investments. Its material decisions were made by an internal finance committee, after investigation of proposals.
7. A rather protracted course of negotiations followed (to some of which it will be necessary to refer in more detail). It is clear that Alceon perceived Quadwest's proposed arrangement to carry a high risk of default. It catered for these concerns by requiring a very large establishment fee ($737,500 plus GST), as well as a very high interest rate (compared with other rates available at the time).
8. The Alceon investment committee met on 11 July 2011. It concluded that the risk of default by Quadwest was at such a level that it was not prepared to enter into the arrangement unless Quadwest's obligations were supported by personal guarantees and security over real estate (other than the Perth apartments).
9. Eventually, in August 2011, Alceon agreed to provide to Quadwest funds not exceeding $23,000,000, subject to certain terms and conditions. One of the terms and conditions was that the loan be subject to personal guarantees (limited to $2,000,000) to be provided by Christopher Rose, Peter Rose, and Mrs Rose. The personal guarantees of Peter Rose and Mrs Rose were to be secured by a mortgage over the property at Clontarf, which was their home. Peter Rose and Mrs Rose executed a Deed of Guarantee and Indemnity ("the Deed of Guarantee") and mortgage documents over the Clontarf property. I will deal in more detail below with the circumstances in which these documents were executed. Those circumstances are the crux of Mrs Rose's defence to Alceon's claim against her.
10. In due course, Quadwest defaulted on the loan. Alceon now seeks to enforce the personal guarantees given by Peter Rose and Mrs Rose, and its rights under the mortgage.
11. The above is essentially uncontroversial. On the basis of those facts, Alceon is prima facie entitled to the relief it claims.
12. However, Peter Rose and Mrs Rose separately resist the orders sought. By his Defence and Cross-Claim, Peter Rose pleads five positive defences. The first is that, on the correct construction of the Deed of Guarantee given by him, he is not liable for any amount claimed thereunder unless and until Alceon have exhausted the assets of Quadwest and that these assets have not been fully realised. The second defence he pleads is that Alceon had engaged in misleading and deceptive conduct within the meaning of the Competition and Consumer Act 2010 (Cth) and/or the Australian Securities and Investments Commission Act 2001 (Cth) ("the ASIC Act"). The misleading and deceptive conduct was constituted (he alleges) by Alceon representing, in the early stages of the negotiations, that it would not require personal guarantees, and maintaining that position until a point at which Quadwest had forgone exploring alternative sources of funding that may have been more favourable, and that did not require the provision of personal guarantees. The third defence asserted by Peter Rose was that, by making the representations that it would not require personal guarantees, Alceon engaged in unconscionable conduct within the meaning of the Competition and Consumer Act. His fourth defence was that the agreement to provide the Guarantee and Mortgage was an unjust contract within the meaning of the Contracts Review Act 1980 (NSW). Finally, he asserts that Alceon had available to it an alternative security, which it declined to enforce, and that it is unconscionable for Alceon to proceed against him until it had prosecuted its alternative remedy.
13. By her Amended Defence and Cross-Claim Mrs Rose claimed:

• that her agreement to the execution of the Deed of Guarantee and the mortgage was given as a result of an "unconscientious bargain under the general law" (Defence, para 16Q (iv));
• that her execution of the Deed of Guarantee and the mortgage was procured under the undue influence of Peter Rose, and that, because Alceon had entrusted Peter Rose to procure her execution of those documents, Alceon was "fixed with the consequences of the undue influence" (Defence, para 16R (iii));
• that Alceon failed to disclose to her that Quadwest's finances were "in a parlous state", and that the failure to disclose that fact amounted to a misrepresentation that induced her execution of the documents (Defence, para 16S);
• that the Deed of Guarantee and the mortgage were unjust contracts within the meaning of the Contracts Review Act 1980 (NSW), and ought to be declared void or unenforceable (Defence, para 16T);
• that, in entering into the Deed of Guarantee and the mortgage with her, Alceon engaged in conduct in connection with the supply or possible supply of financial services that was unconscionable within the meaning of the ASIC Act (as in force in 2011), and that the Deed of Guarantee and the mortgage ought to be declared void or unenforceable (Defence, para 16U); and
• that the conduct of Alceon was unconscionable (on the principles stated in Yerkey v Jones [1939] HCA 3; 63 CLR 649 and Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395). All of these are dependent upon essentially the same factual matters, to which I will shortly come.

1. Finally, Mrs Rose adopted the bases of the Defence and Cross-Claim put forward by Peter Rose concerning the precondition that Alceon exhaust its remedies against Quadwest before seeking to enforce the Deed of Guarantee, and the alleged misrepresentation as to Alceon's requirement of personal guarantees. (At the hearing, she abandoned these pleas.)

The evidence

1. A large volume of documentary evidence was tendered. Since most of the negotiations leading to the relevant transactions, and the transactions themselves, were effected by, or recorded in, email communications between various of the participants, little of it is disputed (although, in some respects, the inferences to be drawn are in issue). There is one area of significant factual dispute that is the subject of oral evidence, to which I will come in due course. That area concerns legal advice said to have been given to Mrs Rose prior to her execution of the Deed of Guarantee and the mortgage.
2. The relevant negotiations with Alceon began in March 2011. Mr Damien Cronin, an Executive Director of Alceon, represented Alceon. The solicitors engaged by Alceon were Messrs Kemp Strang. Quadwest (and Christopher Rose) were represented by Mr Beckett (the finance broker engaged by Christopher Rose). Their solicitors were Mr Thomas Lennox and Ms Patricia Tsang, both of Messrs DibbsBarker.
3. On 14 March Mr Beckett advised Christopher Rose that Alceon was favourably disposed to a refinancing arrangement. The correspondence indicates that Christopher Rose was then seeking finance that did not involve the provision of personal guarantees or mortgage of real property. On 16 March Mr Bennett reported to Christopher Rose that he had discussed the proposal with Alceon, and that Alceon had expressed a preference for personal guarantees, but "will include an option (relating to the pricing of the facility) that waives PGs". (There were other areas of negotiation that do not call for examination.)
4. On the same day, Alceon wrote to the directors of Quadwest, providing a "proposal and term sheet", setting out a tentative basis upon which it would consider offering finance. This included an interest rate of 23%. (At the time, the evidence established, the Reserve Bank of Australia rate was in the order of 4.5%, and other institutions were lending for domestic purposes at 7-8%.) By this proposal, Alceon required the loan to be supported by personal guarantees of Christopher Rose and Peter Rose. However, Alceon indicated that it may consider waiving the requirement for personal guarantees in consideration of an additional 1.5% (that is, 24.5%) on the interest rate. An establishment fee of $710,000 was proposed. The proposal was expressed to be subject to final credit approval by Alceon, completion of satisfactory due diligence by Alceon, and a creditors' vote in favour of a DOCA.
5. When notified of the proposed condition as to Director's guarantees, Christopher Rose replied to Mr Beckett: "Prefer to pay a higher rate and no PG."
6. Two further proposals and term sheets were provided on 18 April and 13 July. The interest rate for the bulk of the proposed loan remained at 24.5%, but, on a small component ($2,000,000), it rose to 35%. The establishment fee had, by the July term sheet, risen to $737,500.
7. It is not necessary to go into all of the details of the negotiations. Issues not now material arose, such as a perceived problem concerning the ranking of existing creditors (possible "tacking"). On 23 May a DOCA was executed. This placed some pressure on Quadwest because it required finalisation of the BOSI loan within 7 days (with provision for a possible extension to 30 days). On 7 June Mr Beckett met with Mr Cronin. Mr Beckett reported on the meeting to Christopher Rose, saying, inter alia, that Alceon would: "consider unsupported recourse to Rose Custodians and its directors but needs to understand the value of this recourse."
8. On 9 June Mr Beckett wrote to Christopher Rose, advising that: "Alceon are fixed on some form of hard security to support any recourse on the tacking issue. They have suggested: � Corporate guarantee from Rose Custodians P/L and personal guarantee from Peter Rose (I assume together limited to $1m), callable only under a successful tacking claim against Alceon. The recourse is to be supported by a charge over a tangible asset ie cash, property etc. Alceon suggested a mortgage or caveat over a property in Peter's name. Upon provision of the release from Blackfish [an existing creditor], the charge over the asset would be lifted such that unsupported recourse would only remain in place to secure Alceon against a successful tacking claim …" (underlining in original)
9. On 10 June Mr Beckett wrote to Mr Cronin, saying: "Chris is comfortable with the concept we describe below which reflects our discussion yesterday. � Corporate guarantee from Rose Custodians and/or personal guarantee from Peter Rose limited to $1.00m and callable only in the event of a successful tacking claim against the lender. � Recourse is to be supported by charge over a tangible asset - most likely over property in the form of a mortgage or caveat …" Mr Cronin replied: "Thanks Nick. One change only - the Corp guarantee and Personal Guarantee limited to $2.0m, which drops to $1.0m if the Blackfish release is obtained …"
10. Mr Cronin also advised Mr Beckett that Alceon was seeking additional legal fees to be paid in advance, and to be reimbursed from settlement funds. Christopher Rose was, in turn, informed of these charges by Mr Beckett. Christopher Rose replied expressing considerable annoyance and frustration at what he perceived as the increasing demands made by Alceon.
11. Mr Beckett then corresponded with Mr Cronin, passing on Christopher Rose's proposal that the "physical security" offered would be the Clontarf property which was the home of Peter Rose and Mrs Rose. Mr Cronin replied that this proposal was acceptable, subject to evidence of the value of the personal guarantees and the value of the Clontarf property, and subject to the "physical security" being in the form of a second registered mortgage.
12. At this point another complication occurred by reason of further demands by BOSI. BOSI required payment of $300,000 to be held in a contingent liability fund to cover any liabilities or costs of the receiver after retirement, as well as $100,000 for legal fees. At about the same time, Alceon discovered that the amount required to pay out BOSI was almost $790,000 greater than it had initially thought.
13. The negotiations with Alceon were protracted, and appear, at times, to have become tense. By July, Mr Beckett was expressing concern that Alceon might abandon the negotiations and withdraw from the proposal.
14. On 12 July Mr Beckett reported that Alceon would meet the additional sum required by BOSI, but would require personal guarantees from Peter Rose and Christopher Rose, a corporate guarantee from Rose Custodians, and a second mortgage over the Clontarf property. On 13 July Alceon forwarded a proposal and term sheet to that effect.
15. On 27 July, the solicitors advising Quadwest (DibbsBarker) wrote to Christopher Rose, attaching a list of documents to be signed by the various participants, including Peter Rose and Mrs Rose. The documents included:

• "Consent to Legal Advice", to be executed by all guarantors;
• Declarations by Third Party Mortgagors; and
• Acknowledgment by Guarantors (see below).

1. By 29 July, substantial agreement had been reached. In an email to Mr Cronin, Christopher Rose said that he would like to "waive the need for an independent certificate of advise [sic]" that Alceon had proposed. Mr Cronin replied: "Our legal advice and obligation as lender is that Peter and Betty have to be advised of the risks associated with their guarantee in this circumstance - we understand that this advice need only be independent of Alceon and Kemps [Alceon's solicitors], so Tom [Lennox] or Patricia [Tsang] would suffice. We believe that this advice need only be brief but is a requirement - sorry, I know this is logistically difficult but needs to be done." Christopher Rose replied that he would make the necessary arrangements with Mr Lennox.
2. It was not in issue that Peter Rose and Mrs Rose then executed a series of documents. These were: 1. The Deed of Guarantee bearing date 3 August 2011, and witnessed by Ms Lana Felice. The effect of the Deed was to guarantee the indebtedness of Quadwest to Alceon. 2. A Mortgage under the Real Property Act 1900 (NSW), also bearing date 3 August 2011, in favour of Alceon, over the Clontarf property, and witnessed by Lana Felice. 3. A Declaration ("the Declaration"), as follows: "DECLARATION BY THIRD PARTY MORTGAGOR, GUARANTOR, SURETY MORTGAGOR OR INDEMNIFIER FOR THE BORROWER I, [Betty Nola Rose] [Peter Francis Rose] of … Peronne Avenue, Clontarf, NSW 2093 (Declarant) DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS: 1. I am the Third Party Mortgagor, Guarantor for the Borrower named in certain loan security documents between Alceon Group Pty Ltd as trustee for the Elevation Mortgage Trust (lender) and Quadwest Developments Pty Ltd (borrower). 2. I have received independent legal advice regarding the loan and security documents referred in paragraph 1. 3. After receiving that advice I have freely and voluntarily signed the following documents: (Specify the documents produced for signature) (a) limited Guarantee and Indemnity (b) Mortgage - Clontarf (c) Ancillary documents AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the contents to be true and by virtue of the Oaths Act 1900 MADE AND SUBSCRIBED by the said Declarant at … Peronne Avenue] the 31 day of July 2011" This Declaration was witnessed by Lana Felice. 1. A Statutory Declaration ("the Statutory Declaration"), also bearing date 31 July 2011. The contents of the Statutory Declaration went to the status of Peter Rose and Mrs Rose as registered proprietors of the Clontarf property, and the status of the property so far as encumbrances, zoning and other matters were concerned. The Statutory Declaration was also witnessed by Lana Felice. 2. A Deed of Priority, the effect of which was to rank the mortgage second in priority to an existing mortgage. 3. A Consent to Legal Advice (undated) also signed by Christopher Rose on his own behalf, and on behalf of QPS, Rose Custodians, and Quadwest. The substance of this document was as follows: "[Each signatory] acknowledges and agrees as follows. 1. Mr Tom Lennox (and DibbsBarker) (my Solicitor) has been requested to advise me regarding certain loan or security documents in favour of Alceon Group Pty Ltd … 2. My Solicitor has informed me, before giving such advice: (a) that where the interests of the parties to the transaction may conflict the solicitor may only act for more than one such party provided he/she has obtained the informed consent in writing of those parties to the solicitor acting for them; (b) such consent being given in the knowledge that there is or may be a conflict between the parties, and as a result: (i) (A) that the solicitor may be disabled from disclosing to each party the full knowledge which he/she possesses as to the transaction; and/or (B) that the solicitor may be disabled from giving advice to one party which is contrary to or conflicts with the interests of the other party or parties; and (ii) that the solicitor will cease to act for all parties if the solicitor would, otherwise, be obliged to act in a manner contrary to the interest of one or more parties; 3. I hereby confirm my consent to my Solicitor advising me together with the abovenamed other parties to the transaction notwithstanding the possible conflict between the interests of the parties to the transaction." The circumstances in which these documents were signed will be dealt with below.

Peter Rose

1. The detail given above, of the course of the negotiations, is primarily relevant to Peter Rose's plea in his Defence that, by changing its position at a late stage with respect to requiring personal guarantees and a mortgage over the Clontarf property, Alceon had engaged in misleading and deceptive conduct.
2. The claim must be rejected. The correspondence shows clearly that there were various matters that came to light during the negotiations. At least one of these - the late claim by BOSI for legal fees and contingencies to be accommodated - came from an external source and at a late stage. Alceon's way of dealing with this was to require the additional security.
3. Further, it was becoming increasingly apparent that the proposed loan was of high risk. It was not unreasonable for Alceon to seek the security it did; its late change of position is reflective, not of misleading and deceptive conduct, but of a recognition of the realities of the proposed transaction.
4. Both Peter Rose's second and third defences must therefore be rejected.
5. So also must his first defence, that, on the proper construction of the agreement, Alceon was obliged to liquidate all assets of Quadwest before having recourse to the personal guarantees and mortgage and that this had not been done. It is unnecessary to deal with the construction issue because the evidence establishes that the assets of Quadwest have been fully realised. There is no alternative source from which to meet Quadwest's debt to Alceon.
6. Peter Rose advanced no evidence or argument in support of his final pleaded defence, that Alceon had available to it an alternative security that it declined to enforce. His fourth defence was pleaded under the Contracts Review Act. I will defer ruling on that defence, and deal with it when I deal with Mrs Rose's similar defence.
7. This being the case, subject to his defence under the Contracts Review Act, Alceon's claim against Peter Rose succeeds.

Mrs Betty Rose

1. The central issue in relation to Mrs Rose's Defence and Cross-Claim concerns the circumstances in which she signed the Deed of Guarantee, the mortgage documents, and various other documents.
2. Mrs Rose swore an affidavit and gave oral evidence, to the following effect.
3. She was born in July 1930. She married Peter Rose in December 1953, at the age of 23. Between 1954 and 1962 she and Peter Rose operated a coffee shop, then a restaurant. She undertook the cooking and the management of wait staff. Peter Rose managed the financial side of the businesses. Since 1964, when her first child was born, she has not been in the paid workforce. The family finances were managed by Peter Rose. She has never been an employee, shareholder, or director of Quadwest or QPS, nor of any other company.
4. Mrs Rose acknowledged signing the Guarantee and Indemnity and the mortgage documents. In her affidavit, she gave an account of the circumstances in which she said this came about. That account was as follows. Just prior to signing, she was in the kitchen of the Clontarf property. Peter Rose told her that he had some documents that he wanted her to sign. She said that, to the best of her recollection, Peter Rose put the documents on the table in front of her, opened at the pages for signature, and she signed those pages. Peter Rose then took back the documents. She did not read the documents. Neither Peter Rose nor anybody else told her what the documents were, or explained their nature and effect. At the time she did not know the nature and effect of the documents.
5. At that time, Mrs Rose said, she was 81 years of age and had been married to Peter Rose for 58 years. She trusted Peter Rose and left financial decisions to him. She signed because Peter Rose told her that he wanted her to do so.
6. Mrs Rose said that it was possible that Christopher Rose, and Ms Lana Felice, may have also been present in the house, but that she did not have a clear recollection of that.
7. She did not recall being given any legal advice about the Deed of Guarantee, the mortgage, or any other document. She did not notice that the Declaration and Statutory Declaration were stated to be declarations under the Oaths Act 1900 (NSW).
8. In cross-examination Mrs Rose acknowledged that, in 2011, she knew what a mortgage was, and that "possibly" she had previously signed mortgages over the Clontarf property. She did recall that, in late July or early August 2011, Christopher Rose and Ms Lana Felice had come to her house, and that Christopher Rose had asked her to sign a number of documents.
9. However, she claimed that she had taken little notice of what the documents were, and did not take time to read them. That was in accordance with her usual practice.
10. She said that she had not looked even at the headings of the documents, and that she did not know that what she was signing had anything to do with her home. She thought that it had: "… to do with the business that my husband was in, and it wasn't unusual because for many, many years I'd done the same thing."
11. She said that, notwithstanding that she had never been a director or shareholder of any company, she had, over the years, signed many documents, without knowing more than that they were to do with her husband's businesses.
12. In cross-examination it was put to her that it was Christopher Rose who asked her to sign the documents. She was less definite than she had previously been, and said "I can't really remember", but that "they [that is, Peter Rose and Christopher Rose] worked as a team".
13. She acknowledged that on a previous occasion (2009) she had signed another mortgage over her home. This document, too, was witnessed by Ms Felice.
14. Mrs Rose was asked about the Declaration and Statutory Declaration. Again, she said that she had not been bothered (her word) to know what she was signing, she simply signed where she was told to sign. She said that she had no recollection of a telephone call with Mr Tom Lennox, and did not recall a speaker phone in her home.
15. Mr Thomas Lennox swore an affidavit in support of Alceon, and gave oral evidence. Mr Lennox is a solicitor specialising in banking and finance, and, in 2011, was a partner in the law firm practising as DibbsBarker. In that capacity, he advised Quadwest on the prospective loan from Alceon. He said that, on 27 July, Ms Tsang sent an email to Christopher Rose attaching various documents which included the Declaration, the Acknowledgment by Guarantors and the Consent to Legal Advice. Drafts of these documents had been provided to DibbsBarker by Alceon's solicitors.
16. He said that, in late July, he had a telephone conversation with Christopher Rose, Peter Rose and Mrs Rose, during which he said: "If Quadwest does not comply with its obligations, Alceon may under the guarantee issue a demand to you up to an amount of $2 million. If this is not paid then Alceon may exercise the rights as a mortgagee against the mortgaged property (namely the family home). These rights include the ability to sell the property." He said that both Peter Rose and Mrs Rose said that they understood. He said that the conversation lasted about 10 minutes.
17. In cross-examination Mr Lennox agreed that he had not made a contemporaneous file note of the conversation, and had given his evidence from memory, more than 3½ years after the events in question. He acknowledged that he had never met Mrs Rose, or engaged in any form of communication with her. He knew that she was "elderly".
18. In an affidavit sworn in reply to that of Mr Lennox, Peter Rose, like Mrs Rose, professed to have no recollection of the occasion on which he signed the documents, and no recollection of a telephone call from Mr Lennox. To the best of his recollection, he said, he had never had a telephone conversation with Mr Lennox during which Mrs Rose was present.
19. Christopher Rose affirmed an affidavit in reply to that of Mr Lennox. He recalled being at the Clontarf property on Monday, 1 August. Mrs Rose was in the kitchen preparing a meal. Mr Lennox telephoned Christopher Rose, on his mobile phone. Mr Lennox asked if he was at home with his parents, to which he replied in the affirmative. Mr Lennox told him that Alceon had insisted on an all-moneys personal guarantee from "various Rose entities" including Christopher Rose, Peter Rose and Mrs Rose, capped at $2,000,000; he said: "If Quadwest defaults, Alceon has a potential claim under those guarantees."
20. Christopher Rose told Mr Lennox that he understood. He did not recall, but did not deny, that Mr Lennox had spoken the words to which he attested. However, he said that Mrs Rose was not in the room where his conversation with Mr Lennox took place, and had been in the kitchen throughout that conversation.

Findings of fact

1. The area of factual dispute is very narrow, and relates to the circumstances in which Mr Lennox purported to advise Mrs Rose. The following are the findings of fact upon which I base my decision.
2. Mrs Rose was what might be described by some as a "traditional" wife and homemaker. She had, as a matter of course, left all financial decision making to her husband, Peter Rose. She signed documents as he requested, without any enquiry as to their nature or effect. This had been the position throughout 58 years of marriage. She was 81 years of age at the time she signed the relevant documents.
3. I am not persuaded that Mrs Rose was entirely ignorant (as she claimed) of the nature of the documents. In particular, I am of the view that she did know what a mortgage was, and that she was signing a mortgage over her home. The evidence showed that she had signed mortgage documents on a number of previous occasions. She understood that the effect of a mortgage was that, if default occurred in the transaction secured by the mortgage, execution could be levied against the property.
4. However, while I am satisfied that she knew these things in theory, I am equally satisfied that she had no appreciation of the magnitude of the risk of default, and thus the risk that Alceon would exercise its rights under the mortgage. I am satisfied that, while Peter Rose and Christopher Rose fully knew that Quadwest's financial position was desperate, they did not convey that information to Mrs Rose.
5. I am satisfied that Mrs Rose stood to gain no personal material benefit from the transaction. In that sense, she was a "volunteer" (see [80] below). I am satisfied that she trusted both Peter Rose and Christopher Rose with respect to financial matters.
6. On behalf of Mrs Rose, I was invited to find that the telephone call in which Mr Lennox claimed to have given advice to Mrs Rose did not take place: that can only mean that Mr Lennox fabricated his evidence. That he made no file note of the conversation was cited in support of this contention.
7. On balance, I am satisfied that Mr Lennox spoke by telephone to Peter Rose, Christopher Rose, and Mrs Rose in substantially the terms he claimed he did. I come to that view for several reasons. First, neither Peter Rose nor Mrs Rose explicitly denied having had the telephone conversation. Both said that they could not recall. Second, the advice given by Mr Lennox, as asserted by him, was deficient to such an extent that it is unlikely that his evidence was fabricated. Fabricated evidence would be expected to have gone further in protecting him against allegations of breach of duty. Third, Mr Lennox was actively involved in supporting Quadwest in its bid to secure the loan from Alceon. Alceon required, as a pre-condition of proceeding, that Peter Rose and Mrs Rose receive legal advice. The telephone call was a formality to meet the bare requirements of Alceon.
8. Mr Lennox, on his own account, made no attempt to explain to Mrs Rose the other documents that, he knew, she was about to be asked to sign and that had been provided to her by his firm. I am satisfied that those other documents signed by Mrs Rose - the Consent to Legal Advice (from a partisan solicitor), and the Declaration (that she had received independent legal advice, and that, having received that advice, she freely and voluntarily signed the documents) were never explained to her, and were not read by her.
9. Although I do not find mala fides on the part of either Peter Rose or Christopher Rose, I am satisfied that they were intent on finalising the arrangement with Alceon, and had no thought of explaining to Mrs Rose the nature and effect of the documents, or of consulting her as to whether she understood what she was signing, the transaction she was entering, or the possible consequences thereof. The decision to offer the Clontarf property as security for the Alceon loan was made entirely between Peter Rose and Christopher Rose. Mrs Rose signed the documents because one or other of them asked her to do so, and she did as she always had.
10. That brings me to one factual issue. There was some conflict in the evidence as to which of Peter Rose and Christopher Rose it was who directly asked Mrs Rose to sign the documents, and which of them it was who physically presented the documents to her. My conclusion is that it is most likely that it was Peter Rose who did so, but in the presence of Christopher Rose. For reasons which will emerge below, it is of little moment which of the two actually put the documents in Mrs Rose's hands. Peter Rose and Christopher Rose were operating as a team, and Mrs Rose acted in compliance with their joint wishes. But I have no doubt that it was because she understood that Peter Rose wished her to do so that she in fact signed the documents.
11. It is now necessary to make findings concerning Mr Lennox's role in giving advice to Mrs Rose. That is necessary in order to evaluate the defences raised by Mrs Rose against Alceon. In doing so, I bear firmly in mind - and the reader should bear firmly in mind - that Mr Lennox is not a party to these proceedings. Although he has given evidence and been cross-examined, his role in the proceedings was simply to answer the questions that were put to him. He has not had the opportunity to be heard in respect of any findings of fact concerning the manner in which he discharged his function in advising Mrs Rose.
12. The requirement by Alceon that Peter Rose and Mrs Rose receive independent advice was based upon the decision of the High Court in Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395, the application of which I consider below. Alceon's requirement was purely to protect itself. Mr Lennox's obligation was to explain "the purport and effect" of the transaction into which Mrs Rose was asked to enter.
13. The advice given by Mr Lennox was, in my opinion, wholly inadequate. He did not act as an independent solicitor; he was the solicitor for Quadwest, and was actively involved in the attempts by Quadwest and Christopher Rose to secure the loan from Alceon. He made no attempt to explain clearly to Mrs Rose the purport or effect of the Guarantee and Mortgage she was asked to sign. His explanation of the effect of a mortgage was cursory, superficial, perfunctory and incomplete, at best. Moreover, he made no attempt to explain to Mrs Rose the content of the Consent to Legal Advice that she was asked to sign.
14. The issues raised by the Consent to Legal Advice had a degree of complexity, the gist of which is that Mr Lennox was, by his relationship with Quadwest and Christopher Rose, hampered in giving Mrs Rose independent, or even complete, legal advice. I am satisfied, on the evidence before me, that Mr Lennox's advice to Mrs Rose failed even to approximate the minimum requirements. However, as will be seen below, the question is whether Alceon is to be fixed with the consequences of that inadequacy.

The relevant law

1. In final submissions, senior counsel for Mrs Rose advanced argument on four separate (but, to some extent, overlapping) bases. These were:

• that the agreement was unconscionable, as explained in Yerkey v Jones [1939] HCA 3; 63 CLR 649, and restated in Garcia;
• that Mrs Rose's agreement was the result of undue influence, again as explained in Yerkey v Jones and endorsed in Garcia;
• that the agreement was an unjust contract within the meaning of the Contracts Review Act 1980 (NSW);
• that, vis-a-vis Alceon, Mrs Rose was in a position of special disadvantage, on the principles stated in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447.

1. In my view, this case can be resolved by resort to the analysis by the High Court in Garcia; a secondary basis for reaching the conclusion to which I have come is the Contracts Review Act. It is not necessary to go further and analyse the decision in Yerkey v Jones. Nor is there any evidence on which to base a finding that Mrs Rose was at a special disadvantage of the kind envisaged in Amadio.
2. In Garcia, the High Court stated certain circumstances in which a guarantee such as that signed by Mrs Rose would not be enforced because it would be unconscionable to do so. Those circumstances were stated in [31] of the joint reasons of Gaudron, McHugh, Gummow and Hayne JJ. Relying on Yerkey v Jones, their Honours held that, to enforce such an agreement would be unconscionable: "… if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her."
3. The decision in Garcia is not, as it is sometimes seen, confined to matrimonial relationships. At [22] their Honours expressly contemplated the application of the principles in relationships other than matrimonial. The relationships there contemplated were de facto marriage relationships, and same sex relationships. But the underlying factor is the trust and confidence reposed by one party to the relationship in the other, where that trust and confidence is, or ought to be, apparent to the proposed lender. The principle is wide enough to encompass a relationship where such trust and confidence may be perceived. For example, at [33] their Honours referred to: "… the trust and confidence between surety and debtor …" and, at [104] Callinan J also contemplated the application of the principle to other relationships.

Conclusions

1. I have already held that Mrs Rose did not understand the transaction into which she was entering. I have already held that she entered the transaction as a volunteer - that is, a person who stood to gain no benefit from the arrangement with Alceon. I have already held that she reposed trust and confidence in Peter Rose, and that that trust and confidence extended to Christopher Rose. In my opinion Alceon not only is taken to have understood that fact; the evidence shows that it did in fact have that understanding. That conclusion follows from the very fact that Alceon sought to protect itself by having advice given to Mrs Rose; and it is common ground that Alceon did not itself take steps to explain the transaction to Mrs Rose.
2. The central question is whether Alceon reasonably believed that the transaction had been adequately explained to her by "a competent, independent and disinterested stranger". I am satisfied that Alceon reasonably believed that Mr Lennox was a competent solicitor. However, it not only had no reason to believe that he was either independent (of Quadwest) or disinterested; it was well aware that he was neither. Having regard to his involvement in negotiating the loan, Alceon (through Mr Cronin) was well aware that he was not disinterested. Mr Lennox's first duty was to his client - Quadwest - whose interest was in securing the loan. That placed him in a position of impossible conflict of interest. Alceon made it clear that the loan would be forthcoming only if Peter Rose and Mrs Rose provided the Guarantee and Mortgage. It can now clearly be seen that this was an improvident loan, taken by Quadwest in a frantic bid to salvage something from the desperate situation in which it found itself. Both Peter Rose and Christopher Rose were well aware of Quadwest's dire financial situation. More importantly, for present purposes, so also were Mr Cronin and Mr Lennox. It is all very well to say that this picture can now be seen. The question is whether, it could, or should, in July or August 2011 when the documents were signed, have been seen. It plainly could. Both Mr Cronin and Mr Lennox were heavily involved in the intricate negotiations that culminated in the arrangement and were fully aware that the reason for the very high establishment fee, and the very high interest rate, was that the loan posed an extremely high risk to Alceon. They also knew that that high risk was the reason that Alceon eventually insisted on the Guarantee and Mortgage. It is also plain that none of this was known to Mrs Rose; it was plain to Mr Lennox that it was not known to Mrs Rose. Mr Cronin actively encouraged Mr Lennox to do less than his duty to advise Mrs Rose as required.
3. It was not necessarily correct for Mr Cronin to say (as he did to Christopher Rose) that the advice to Mrs Rose "need only be brief". What was required was advice that Mrs Rose could comprehend. The person giving the advice was obliged to take steps to ensure that she understood the advice. Of course, in undertaking the function of advising Mrs Rose, it was Mr Lennox's responsibility to ensure that she had the necessary comprehension. The documents sent to Mrs Rose by Mr Lennox's firm identified him as Mrs Rose's solicitor. He ought not to have been influenced by Mr Cronin's view of what was sufficient to constitute the advice contemplated in Garcia. But Mr Cronin's express statement that "the advice need only be brief", and independent only of Alceon (and not Quadwest) shows that he had no reason to believe that advice of the requisite standard was given.
4. And it was Alceon (through Mr Cronin) who actively encouraged Christopher Rose to procure Mr Lennox to give the advice to Mrs Rose, fully aware that Mr Lennox was the solicitor for Quadwest, knew its dire financial position, knew the financially severe terms of the arrangement Alceon was offering, and must, therefore, have been cognisant of the very high degree of risk associated with arrangement.
5. In doing so, Alceon entirely undermined the protection it had sought to provide for itself.
6. Moreover, Mr Lennox was well aware that the content of the Consent to Legal Advice signed by Mrs Rose was, simply, false. He had not given her the advice that she asserted, by signing that document, she had been given.
7. An attempt was made on behalf of Alceon to justify Mr Lennox's conduct by reference to Rules promulgated by the Law Society of NSW. Curiously, it might be thought, the Law Society has promulgated Rules that expressly contemplate solicitors acting in a situation of conflict precisely of the kind in which Mr Lennox found himself.
8. Law Society Rules cannot and do not permit avoidance of the principles of law stated by the High Court. Those principles require that a third person guarantor (at least a third person guarantor in the position of Mrs Rose) be given "competent, independent and objective" advice as to the purport and effect of the transaction into which she was entering. For the reasons already given, Mrs Rose was not given advice that came within that description. To the extent that the Rules conflict with Garcia, it is the Rules which must give way.
9. In any event, it is not within the contemplation of the Law Society Rules that a solicitor will facilitate presentation to a proposed finance provider of a document containing patently false statements, such as the statement that Mrs Rose had been given legal advice about the conflict of interest in Mr Lennox's position.
10. I am satisfied that the test stated in Garcia has been met. It would be unconscionable to enforce the transaction against Mrs Rose.

Contracts Review Act

1. Section 7 of the Contracts Review Act provides as follows: "7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) … (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) …"
2. "Unjust" is defined to include "unconscionable, harsh or oppressive …".
3. Section 9 specifies the matters to be considered by the court in determining whether a contract or provision thereof is unjust in the circumstances. Relevantly, s 9 provides as follows: "9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract. (3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made. (4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made. (5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made."
4. Since I have already found that it would be unconscionable to enforce the contract against Mrs Rose, it must follow that the contract was, so far as Mrs Rose was concerned, unjust for the purposes of the Contracts Review Act. I have already dealt with many of the circumstances identified in sub-s (2). So far as Mrs Rose is concerned, the provisions of the contract were not the subject of negotiation, and it was not reasonably practicable for her to negotiate for the alteration of the terms of the contract. I have also already dealt with the absence of independent legal advice provided to Mrs Rose, and the inadequacy of the explanation of the contract to her.
5. It is unnecessary to take further time on this issue. It is plain that the findings I have already made have the consequence that the contract was unjust, and that it ought not to be enforced.
6. The consequence of this is that, so far as Mrs Rose is concerned, Alceon's claim fails. That brings me to the final issue: Peter Rose's defence under the Contracts Review Act. I am unable to conclude that, so far as he was concerned, the contract was unjust. Peter Rose was an experienced businessman; he was involved in the Quadwest project; he was aware of the financial position of Quadwest; and he was aware of the potential consequences of the Guarantee and Mortgage. He exercised a considered judgment in agreeing to act to save Quadwest. His defence under the Contracts Review Act fails.
7. It will be necessary for the parties to bring in short minutes of order to reflect these conclusions.

Amendments 07 July 2015 - sentence deleted from catchwords DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 July 2015