Australia & New Zealand Banking Group Ltd v Gianchino & Cooper [1998] VSC 52

He alleged that the Bank, by its agent Mr Gianchino, represented to him at his home on the Land before the execution of the mortgage that the mortgage was merely a guarantee in respect of the small increase in loan facilities to be provided by the Bank to Mr Gianchino and that it was merely a formality to enable the Bank to make a small advance to Mr Gianchino. It is said that these representations were false in that the mortgage was an unlimited all moneys mortgage given to secure the indebtedness of Mr Gianchino to the Bank both present and future.

The same representations were made by Mr Gianchino as agent for the Bank fraudulently. The Deceased, it is said, has elected to avoid the mortgage so that it is ineffective.

The Deceased was, by reason of his inability to read English and by his want of independent legal advice, at a special disadvantage of which the Bank was or should have been aware and that it would be unconscionable for the Bank to enforce the security against him.

The mortgage was procured by the undue influence of Mr Gianchino as agent for the Bank by reason of the making of the same representations and by reason of the relationship of trust and dependency of the Deceased upon his son.

The Deceased executed the mortgage under a mistake of fact of which the Bank was or ought to have been aware in that he believed the same representations made by his son as agent of the Bank.

The Deceased executed the mortgage in reliance upon the same representations made by the son as agent for the Bank.

20. In circumstances which will appear, the Bank, before the mortgage was executed, obtained from a solicitor, David John Cooper, a letter dated 20 September 1985 stating that he had given to the Deceased advice regarding the effect of the proposed mortgage on the security of the land. The Bank therefore on 5 March 1993 joined Mr Cooper as second defendant alleging that, if the advice given were inadequate to protect the Bank from these affirmative defences, the Solicitor was in breach of a duty of care owed to the Bank.

23. The Deceased has also sought contribution and indemnity against the Solicitor on the basis that the Solicitor was in breach of a duty to his client, the Deceased, in giving inadequate advice.

26. The proceeding has, for reasons which have not been disclosed, taken an inordinate time to come to trial. The consequence of this has been that the Solicitor has, some time after 1993, died and the defence of the claims against him has passed to his executrix, Aileen Merle Cooper. A second consequence has been that the Deceased has also died on 13 January 1997 and the conduct of his case has passed to his executor, Mr Gianchino. Under the terms of the will of the Deceased the Land is given as one half-share to this son and, as to the balance, to the sons of his other son Angelo Gianchino, at age 21. A result of the death of the Deceased has, therefore, been that his interest in this litigation has passed to his son who is the person who, it is said, made the false representations upon which this case depends. The position of Mr Gianchino is the more delicate in that he conducted his own case.

29. The Deceased was born in Sicily in or about 1914 where he had a minimal education. In 1951 at age 37 he migrated to Australia where he soon obtained employment. Within some months he was employed as a labourer at the Housing Commission factory at Homesglen and he remained in that employ until he was retrenched in 1977 at age 63. His energy and determination were such that he was, 18 months after his arrival, able to bring to this country his wife and his six-year old son John. By this time he had purchased his home, the subject of this litigation, at Trent Street, Burwood and he became registered as proprietor in 1957.

32. His son, John, too, seized his new opportunities. He was educated through secondary school and then studied to become a chartered accountant. In 1979 he joined a firm of chartered accountants and in 1985 he set up practice on his own account under the name John Gianchino & Co. in Yarra Street, South Yarra. He was, in 1985, a sophisticated and informed businessman. At that time his business activities were twofold. Through a company controlled by him, Accent Fundraising Pty Ltd, he imported and sold by wholesale foodstuffs to non-profit-making organisations. The company conducted this business until 1990 when it became a service company providing the premises for Mr Gianchino's other commercial activity, that of chartered accountant. There was, too, a company, Pangala Pty Ltd which was the trustee of the G. and P. Gianchino Family Trust. The trust provided other services for the accountancy practice such as staff and equipment.

35. At the time of the events with which I am concerned in 1985 the Deceased was 71 years old and a widower. He was described in warm terms by the witnesses before me as an intelligent man and a man with a keen interest in classical music. It seems, however, that he never acquired a great proficiency in written or spoken English. He relied upon his sons, especially John, to translate for him. Moreover, in 1985 the old man's health was failing following the death of his wife in December 1978.

38. Not surprisingly, the Deceased was proud of his successful son, John. This son had married in 1973 and lived in a house in Doncaster which he and his wife, Pauline Anne Gianchino, had purchased with the financial assistance of the Commonwealth Trading Bank. In 1985 the amount owing to that Bank was about $15,000. In addition, he had in 1979 borrowed from the Commercial Bank of Australia, upon the security of a mortgage given by his father over the land, about $7,000 for his entry into the partnership and he had an overdraft of $1,000. These facilities were secured by a mortgage granted by the Deceased at his son's request over the Land. This mortgage was not limited and further sums were borrowed by Mr Gianchino upon this security. As at 1985 the accommodation given by this Bank, then called the Westpac Banking Corporation, was a fully drawn advance of $19,000 and an overdraft of $15,000. The total indebtedness of Mr Gianchino and his wife at this time to the two banks had grown to about $49,000 of which $34,000 was secured by the Deceased's mortgage.

41. For some reason Mr Gianchino was, in 1985, dissatisfied with the Westpac Bank and he came to the South Yarra Branch of the ANZ Bank where he dealt with David Gordon O'Reilly, its manager involved in lending up to September 1985. Mr O'Reilly gave evidence by reference to his entries in the Bank diary. He had no independent recollection of these events of 13 years ago. I find that Mr Gianchino asked Mr O'Reilly for accommodation to pay out the Commonwealth Trading Bank mortgage on his home in Doncaster and to provide some working capital for his own purposes. Given the value of the Doncaster property the Bank agreed to lend $56,000 upon the security of a mortgage over that property to be given by Mr Gianchino and his wife. This was done on 17 June 1985 so that about $40,000 was available for their purposes.

44. On 2 July 1985 Mr Gianchino spoke to Mr O'Reilly seeking to establish a letter of credit facility in the sum of $12,900. At this meeting, too, the Bank agreed to accept security over the Deceased's house in Burwood "to support borrowings in the name of John Gianchino who will be seeking to establish the facility in his accounting practice name, John Gianchino & Co., of which he was sole proprietor". My quotation is from the Bank diary. This would require the discharge of the Westpac mortgage and the repayment of the $34,000 borrowed from that Bank. Mr Gianchino said he instructed Mr O'Reilly to proceed with the preparation of what was called "back-up security" to support the facility for the firm. Mr O'Reilly told Mr Gianchino that he required a letter of independent advice from his father's solicitor before he would accept this mortgage.

47. Mr Gianchino told me that after he had spoken to the bank manager in July he went back to his father, told him that he wanted to borrow more money from the Bank and for that purpose he needed additional security. He said that he told his father simply that he and his wife wanted to change banks. He said that the Bank would not, on the basis of their own assets, allow them to have the additional funds and they would like some additional property to use as security. He said that he told his father that the Bank would not take his business as security and that it was necessary for him to have his father's property as security for the loans which they needed to take. He explained to his father what he understood by the word "security" although he told me that he had difficulty in communicating such a technical concept in the Italian language. He told me that he explained to his father in simple non-technical words in the Italian language what was involved in the giving of a security and he said he answered any questions that his father raised, although he was unable to recall what questions may have been asked of him. He told me that he thought his father understood his explanation so far as it went but maintained that he did not believe his father fully understood the full terms and effect of a mortgage. I accept his evidence that after this conversation he assumed that his father understood what he had explained to him and that he had sought to explain in a fair and honest way what it was he was asking his father to commit in support of his own business venture. There is no reason for me to find that the Deceased did not understand what his son told him. I find that he did understood this.

50. It seems that the mortgage was prepared and given to Mr Gianchino some time before 19 September 1985 because on that day he telephoned Mr Cooper, the Solicitor, and made an appointment to see him the following day. Mr Cooper had been in legal practice for nearly nine years at this time and, since June, he carried on practice as a Solicitor in Doncaster Road, Doncaster. Mr Gianchino had known him for some time and had, some 12 months, before retained him in connection with a motor vehicle claim. He had also recommended the Solicitor to certain clients for the preparation of their wills. In addition, the two men had had some discussions generally regarding mutual assistance in their practices. The Solicitor, however, had had no dealings with Mr Gianchino or any other person with whom he was associated regarding his arrangements with the Bank.

53. On 20 September 1985 Mr Gianchino and his father attended the Solicitor's office taking with them the short form of mortgage, unexecuted, which had been prepared by the Bank but with no copy of the common provisions. This document showed that the Deceased would mortgage the Land to the Bank to secure any loan or advances made or to be made by the customer, who was described in the mortgage as "John Gianchino of 19 Gedye Street, Doncaster East in the State of Victoria, carrying on business under the name John Gianchino & Co".

56. Mr Gianchino translated the advice given by the Solicitor to his father. Of the three men present at this consultation only Mr Gianchino survives. He gave evidence that he translated the solicitor's advice as best he could to his father. Mr Gianchino was fluent in English and was familiar with the dialect of Italian spoken by his father, for this was the language of his childhood and of his home until he married. He said, however, that his vocabulary in this dialect was limited. He agreed that his father appeared to understand what he translated. I accept his evidence on this. I find that he accurately translated the advice given by the Solicitor and that he did not deceive his father.

59. There was little controversy about the advice given by the Solicitor. Before his death Mr Cooper swore answers to interrogatories setting out what he told the Deceased and Mr Gianchino agreed that this advice was in fact given. Indeed, his own account did not differ greatly from the Solicitor's version. Mr Gianchino's account was in these terms:

"Mr Cooper perused the document then stated in English to my father that the guarantee mortgage was an all moneys guarantee mortgage and that my father must maintain the property insured and pay the rates and taxes. Should I default, the Bank may attack his property".

63. In the Solicitor's account in his answers to interrogatories adopted by Mr Gianchino, the "all moneys guarantee mortgage" was referred to by him in these terms:

"I advised [Giuseppe Gianchino] that the mortgage would constitute security over his property for all amounts owing by John Gianchino to the [Bank]".

67. Mr Gianchino told me and I accept that nothing was said to or by the Solicitor at this meeting about any limitation on the liability of himself in terms of the amount or otherwise.

70. This being the case there is no evidence that the representations alleged in paragraph 4 of the defence of the first-named defendant were made by Mr Gianchino as alleged or at all. I find that Mr Gianchino did not represent to his father before the mortgage was executed that it was merely a guarantee in respect of a small increase in loan facilities to be provided by the Bank or that the mortgage was a mere formality. This means that the affirmative defences based upon these representations must fail at the outset. These defences are:-

77. On the same day, 20 September 1985, Mr Gianchino went back to the Bank with the Solicitor's letter confirming that he had given independent advice to the Deceased. By this time Mr O'Reilly had left the South Yarra branch and the transaction was being handled by one Graham Savage. Mr Savage is also now deceased and his entries in the Bank diary were put in evidence. His entry of 20 September 1985 and the Bank internal advance application of that time show that the Land was considered good to secure a loan of $56,000 so that the two securities held by the Bank would support $112,000 advances. The accommodation agreed to be given totalled $121,000, being advances to Accent Fundraising Pty Ltd, in the form of a basic overdraft of $30,000 and a fully drawn advance of $47,000, totalling $77,000; and to John Gianchino & Co. in the form of a basic overdraft of $20,000 and a fully drawn advance of $24,000, totalling $44,000.

80. On 25 September 1985 Mr Gianchino took his father to the Bank to sign the mortgage. Present at the signing were Mr Savage and the Bank's advance clerk, Erica McIntosh. Of the four persons present at the signing Mr John Gianchino was, again, the only witness available. Both Mr Savage and Mr Giuseppe Gianchino are deceased, as I have mentioned. Ms McIntosh was unable to give oral evidence as she is recuperating from spinal surgery. I declined to receive her evidence by affidavit since Mr Gianchino opposed this course. I accept the evidence of Mr Gianchino that no explanation of the documents was given to him or to his father on this occasion. The Deceased nevertheless signed, where indicated, the mortgage over the land and also a guarantee to the Bank of the liability of Accent Fundraising Pty Ltd. Notwithstanding this want of explanation, there is no evidence that the Deceased then failed to understand the essential features of the mortgage or was under any mistake of fact as to it as alleged in the defence. I find that he trusted his son and was content to give him such financial assistance as he requested.

83. The Bank, through Glyn Robert Sadler, a Manager Group Credit Management, who had control of the file, produced a number of documents from the bank's records including an acknowledgement signed by the Deceased, Mr Gianchino and Mrs Gianchino dated 7 October 1985 in which they acknowledged having read the terms and conditions of a fully drawn advance advice dated 27 September 1985. The signatures were not in dispute. The document itself is, however, not helpful for my purposes. In the light of a copy retained by Mr Gianchino it seems clear that the document is not what the Bank copy purports to be. I find that this document was indeed signed by the three signatories, probably at Doncaster or Burwood. They had not, at the time of signing, seen the letter of 27 September which they acknowledged having carefully read and understood. The acknowledgement appears to have been brought into existence not so much to record reality, but merely to satisfy the bank's internal procedures.

86. Unfortunately, Mr Gianchino's business activities did not prosper. His borrowings from the Bank increased from $121,000 in September 1985 to $159,000 in 1988; to $179,000 in 1989; to $194,000 in 1990; and to $287,650 in March 1991. Later that year his businesses collapsed. His company went into liquidation; and he and his wife entered into a Part X Deed of Arrangement under which unsecured creditors received about one cent in the dollar.

89. Notice to pay was given to the Deceased on 17 June 1992. In the meantime the Doncaster property of Mr and Mrs Gianchino was sold in January 1992 and the proceeds applied to pay out the J. Gianchino & Co. overdrawn current account and the balance applied in the reduction of the fully drawn account in the same name. The balance then owing on that account was $192,138.65.

92. The bank's proofs in support of its claim for possession and to the debt were not seriously challenged. The Bank witnesses were cross-examined, however, about documents which suggested that the Bank saw the security given by the Deceased to be available for accounts other than John Gianchino & Co. This may have been the effect of the guarantee executed in September 1985, but this is not an issue raised on the pleadings and, in any event, the Bank statements show that the amount said to be due is owing on the John Gianchino & Co. account. This amount is certified pursuant to clause 2(c) of the common provisions to be $581,027.21 as at 17 August plus $224.45 per day. As at this date, the amount certified is therefore $582,298.36. Subject to what I have called the affirmative defences, the Bank is entitled to possession and to that sum.

95. With respect to these affirmative defences, I have found that the representations upon which many of them depend were not made. I am satisfied, too, that Mr Gianchino was never constituted or held out as the agent of the Bank for the purposes of making the representations or for the giving of the advice to the Deceased as to the nature and the effect of the transaction he was entering into. I am satisfied that the Deceased knew and understood the nature and effect of the security he was giving to the bank. He trusted his son. Whether that trust was, as things turned out, abused, I do not say. My concern is with the validity of the security document entered into in September 1985.

98. Mr Gianchino, in a powerful final address, put to me that the Solicitor was not truly independent and that he had not brought to his father's attention the true position. He, the Solicitor, did not point out the fact that the son's account was overdrawn or the dire consequence to him, the Deceased, of the Bank's calling upon the security. A number of things need to be said about this. The Solicitor was in fact independent of the Bank. Although he was introduced to the Deceased by the son, there is nothing in the circumstances in which the advice was given or in the terms of the advice, from which I would infer that he failed to discharge his duty to the Deceased in a proper manner. Furthermore, this is not a case where the precarious nature of Mr Gianchino's finances called for any warning from the Bank. He had a modest overdraft and loan facility in place. He had just established himself in new businesses with every prospect of profit.

101. Finally, there is the letter of the Solicitor to the Bank. Having received a letter of advice in these terms from a solicitor and there being no indication to the contrary, the Bank is entitled to proceed with the transaction on the basis that the advice had been given and the deceased had, in the exercise of his own informed judgment, decided to grant the mortgage as security in accordance with its terms: St George Bank Ltd v. Dunstan (unreported, Hayne, J., 10 November 1994). This is an answer to any defence to the Bank's claims based on undue influence or special disadvantage: National Mutual Trustees Ltd v. Dedrion Pty Ltd (unreported, Hansen, J., 14 August 1997).

104. The affirmative defences of the first-named defendant, therefore, are not made out. There must be judgment for the Bank in the sum of $582,298.36 and for possession of the land. The claims by the Bank and by the first-named defendant against the second-named defendant will be dismissed.

108. I will order that there be judgment against the first-named defendant for possession of the land described in Certificate of Title Volume 4700 folio 814, and being the land situate at and known as 7 Trent Street, Burwood.

111. I will order that there be judgment against the first-named defendant in the sum of $582,298.36.

114. I will order that the costs of the bank, including reserved costs and costs of transcript, that is the costs of that claim or those claims, be paid by the first defendant.

117. On the bank's claim against the second defendant, Cooper, there will be judgment for the second defendant, and that the costs of the second defendant, including reserved costs, be paid by the bank.

120. On the claim against the first-named defendant's claim against the second defendant there will be judgment for the second defendant, with costs, including reserved costs.