Mrs Baira: claim against the broker
304In considering Mrs Baira's claim against the broker and its principal, Mr Famularo, in the light of the matters discussed above, it is convenient to note first some aspects of the evidence given by Mrs Baira, who was cross-examined at length by counsel for Mr Famularo. The subject matter of the cross-examination ranged across a large number of documents signed by Mrs Baira, the first being a guarantee for a loan of $155,000 signed in January 1992. At that stage Mrs Baira (formerly Mrs Fioravanti) obtained advice from a solicitor recommended by her husband, to assist her daughter Sandra Ianni and her son-in-law, Joe Ianni, purchase a café in Darling Harbour. At that time, both Joe and Sandra Ianni executed a deed, dated 1 May 1992, drafted by Mrs Baira's solicitor, giving her a right of access to the business and its accounts and entitling her to take possession of the business in the event of default by Mr and Mrs Ianni junior. The original loan was provided by the Advance Bank, which provided further financial accommodation in June 1994. Subsequent facilities were provided by the St George Bank, which took over Advance Bank in 1997.
305For the purposes of cross-examination, a bundle of some 59 documents were prepared, extending to more than 300 pages. It concluded with the mortgage in favour of RHG executed on 12 April 2006. In respect of all the documentation up to the 2006 refinancing, Mrs Baira executed documents as a guarantor of the debts of Mr and Mrs Ianni junior and Jencon. Many of the places for signature were headed "Acknowledgement by Guarantor"; some were declarations that she had received independent legal advice. Other documents included letters of offer which she was invited to sign, and did. The flavour of the cross-examination may be gleaned from some examples. The first concerned a document addressed to her son-in-law headed "Offer of Facility" which was signed by Sandra and Joe Ianni as directors of Jencon and as guarantors and counter-signed by Mrs Baira as guarantor on 31 May 2000. (It was document 25 in the bundle and was presented approximately halfway through the cross-examination by counsel for Mr Famularo, which took the better part of a day.) She was shown the letter and said she did not remember seeing the letter. The cross-examination continued:
"Q. So you wouldn't have signed the letter - I withdraw that. You didn't sign any part of the letter, as you recall sitting here in the witness box today?
A. WITNESS: I don't remember.
Q. Well, at page 160 is your signature?
A. WITNESS: Yes.
Q. And that's dated 31 May 2000?
A. WITNESS: Yes. I don't remember signing it, though. It appears to be my signature, but I do not remember when I did it or where.
Q. So this is a bit like the events of 1998, is that the case, that you have got no recollection today of signing the letter?
A. WITNESS: Correct.
Q. You know the implications today, though, of having signed the letter, don't you?
A. WITNESS: Well, yes.
Q. Are you telling the Court that you didn't read anything on this page?
A. WITNESS: No.
Q. Can you give any explanation as to why then you signed the letter or might have signed?
A. WITNESS: I might sign - like I said yesterday, I trusted completely my daughter and my son-in-law.
Q. This has, with respect, taken trust to a whole new level. It's got now to the stage, I suggest to you, of you being prepared to sign anything if they requested you to do so; would you agree with that?
A. WITNESS: No, because if anyone would have come to me and would have said to me that I was signing my life away, of course the answer is no.
Q. You weren't quite signing your life away, you were signing your house away?
A. WITNESS: Well, is the same thing, isn't it."
306The letter of offer was addressed to Joe Ianni as Secretary, Jencon. It referred to "recent discussions" and "our current relationship". It stated that the bank was "pleased to offer the facilities described on the attached details sheets to the borrower". A condition of the facilities was the provision of certain securities, including the guarantee and indemnity of Mrs Baira "limited to the amount of the sale proceeds of" her home, and also included the registered mortgage over her home. These were described as "existing security". Three two page documents attached to the letter (after the page on which the guarantors were required to sign) were headed "Overdraft Facility (New Facility)", "Bank Guarantee/Performance Bond Facility (Existing Facility)" and "Fixed Rate Loan (Existing Facility)". In each case, a credit limit was identified. These were, respectively, $100,000, $30,000 and $382,118.98. She was taken to each document and asked whether she saw what the terms of the letter or the new facility being offered to Jencon were: she said she did not remember seeing it: p 245 (45). She was asked:
"Q. But the numbers are sticking out there like sore thumbs? Do you understand that phrase? The numbers are there on the page, in other words?
A. WITNESS: Yes.
Q. Now, the bank on this occasion wanted to get some declarations from you?
A. (Witness nods).
Q. And they required you to go and see either a Justice of the Peace or a solicitor. And you did that on 31 May 2000; do you remember doing that?
A. WITNESS: I remember going to a friend of mine, being a Justice of the Peace, to sign a document which my daughter said that the bank need my signature because some facilities for the shop.
Q. And you've given some evidence in an affidavit about that, and that is Mr Naticcka?
A. WITNESS: He did not me no evidence. Simple, he's witnessed my signature.
...
Q. Why did you think the bank wanted you to go and see Mr Naticcka?
A. WITNESS: I explained to you why. A request from my daughter and my son-in-law.
Q. Well, it's not as simple as that, is it? It's not every day the bank was asking you to go and do something? This was an unusual event?
A. WITNESS: And why the bank didn't asked me to go to them if that was the case.
Q. They wanted you to go and see somebody independent; and you knew that, didn't you?
A. WITNESS: No, I didn't. Because I had never received a letter of any kind that I needed to go and see independent advice. I always depend on my kids. I trust them.
...
HIS HONOUR:
Q. Are you saying, Mrs Baira, that when you signed the declaration, you didn't care whether or not what you were declaring was true or not?
A. WITNESS: I didn't declare anything. I was told to sign this document in front of either solicitor or a JP ....
Q. And you didn't care what was in the document, you just signed it?
A. WITNESS: Yes, did I care. It's not that I don't care, I trust."
307Later, she was asked to go to a document headed "Acknowledgement by Guarantors", which were signed by her and her signature witnessed by her daughter, on the third page of the document, which page did not itself carry a heading. She agreed the signature was hers but could not recall why and how she came to sign the document: p 252 (35)-(50). According to the cross-examiner, the document was signed in 2002, described by the cross-examiner as "eight years ago". If, which is unclear, it was an acknowledgement in respect of a facility offer which constituted the previous 12 pages in the bundles, it was probably signed in December 2002. The cross-examiner proceeded:
"Q. You indicated that you were aware that you signed the offer document, but you don't remember being required by the Bank to sign the acknowledgement document?
A. WITNESS: I don't know what you mean. Like I said before, lots of the documents sending to my place. I did sign as a request from the bank, but I was never aware what I was signing.
Q. There weren't lots, with respect?
A. WITNESS: It was lots through the years. I remember they were sending lots.
Q. They weren't coming every day?
A. WITNESS: Not every day.
Q. They were coming perhaps twice a year, sometimes more often?
A. WITNESS: I don't remember.
Q. And that put you on enquiry, didn't it? Made you think, well, what's going on here - certainly in 1998 - so that you wanted to limit any exposure you had to St George Bank?
A. WITNESS: I don't know what you mean.
Q. Because these letters from the bank were coming, as you say, often, that put you on - that sent a warning to you, didn't it?
A. WITNESS: Not really.
Q. But you didn't know what Joe and Sandra were doing, that you had a liability to the bank?
A. WITNESS: No.
Q. And you wanted to limit that liability?
A. WITNESS: No.
Q. And you were prepared to sacrifice your house?
A. (Witness shakes head).
Q. But you didn't want to have any personal liability after that?
A. (Witness shakes head).
Q. And you probably also didn't think that Joe and Sandra's business would fail, did you?
A. WITNESS: Well, nothing is certain these days. I have no - like I said, no one ever, ever send me any letter to warn me that they were in trouble. I never interfere in their business. I saw they were doing well. That's all I knew."
308She was taken to a document which seemed to be dated 16 March 2004, a proposition she accepted, although that was the date on which Mr Joe Ianni signed it. The document from the bank was dated 18 November 2003. There is no date against the signature of Mrs Baira.
"Q. According to your evidence you have [had?] been living with Mr Baira for about 12 years since then [sic] and your English might have been expected to have improved because you have been speaking English at home?
A. WITNESS: Yes.
Q. I want to suggest to you you could read everything on this page with no difficulty at all?
A. WITNESS: But I did not read it.
Q. So you didn't read the words 'Acknowledgement by guarantor?'
A. WITNESS: No.
Q. Is that what you're saying?
A. WITNESS: Exactly.
Q. That's just not believable, Mrs Baira, I suggest to you?
A. WITNESS: Well I'm sorry. My own explanation: I have been too naive and I trust too much."
309It was also put to her that by 17 May 2005, the St George Bank offered a further bank guarantee of $24,000 to Jencon, at a time when the facilities totalled over $1 million. The facility itself involved a limit of $24,000, as set out on page 1 of the "Facility Offer" addressed to "Dear Joe and Sandra". Mrs Baira was required to sign an acknowledgment of "the terms of this facility agreement" on page 6. She was asked if she read the rest of the letter of offer, to which she said "No": p 265 (8). She agreed that she had signed it but not read it: p 266 (10). The cross-examination continued:
"Q. ...[Y]ou had to be asking yourself and or Sandra what was this about?
A. WITNESS: I did more than once.
Q. Andy they said to you, or Sandra said to you 'it's about your guarantee'; that's right, isn't it?
A. WITNESS: Not, not on those words. She would have said, 'Mum, I don't really know myself. Something that the bank wants you to know'. She was not even aware of what it was, most of the time.
Q. And that informed you that the bank warranted [wanted?] you to know that Gencom [Jencon] was borrowing more money?
A. WITNESS: I never thought it that way.
Q. And that affected you as a guarantor?
A. WITNESS: I never thought it that way.
Q. And had you to know, or the bank wanted you to know, because if Gencom failed or Sandra and Joe failed to make repayments, you were at risk because [you] were the guarantor?
A. WITNESS: I did not know."
310A reading of the transcript of the evidence reveals a number of features. First, Mrs Baira willingly acknowledged her signature on documents even when she could not remember signing them. Secondly, although she denied knowing the identity of some of the persons before whom she appeared to have signed, in other cases she acknowledged that she knew them and had signed before them. Given that the cross-examination covered a period of some 14 years, commencing 19 years before the trial and concluding some five years before the trial, and noting her own acknowledged lack of recollection of some matters, it would appear that some of her expressed denials were probably better understood as denials of recollection. The cross-examiner was in almost all cases content with a denial and did not inquire whether it was possible that a particular event had occurred but that she did not remember it.
311Mrs Baira's evidence was also to be considered in the context of her personal history and circumstances. She was born in April 1944 and was thus 67 at the time of the trial. Her place of birth was identified in her affidavit as "Colabria Reggio, Italy". She left school at the age of 10 and learnt to be a dressmaker. That appears to have been her occupation in Australia from 1969 to 1991, although part-time whilst she was bringing up her children. The Marrickville home, which was unencumbered in 1983 when her husband died, was her only asset and she stated that she had "never owned a business nor borrowed money in my name alone". The only money she had borrowed, she stated, was jointly with her late husband. She denied ever receiving any income from the Jencon business at Darling Harbour. It was not suggested to her in cross-examination that she had received any share of the business, by way of salary or profit.
312It was undoubtedly open to the trial judge to find that she had a greater knowledge about the size and indebtedness of the business and the fact that the full value of her property was at risk than she was willing to acknowledge. However, the primary judge went further in his conclusions. Thus at [55] his Honour stated:
"On 15 September 2005 [Mrs] Baira signed (as guarantor) a new facilities offer from St George increasing the overdraft availability to $350,000. On the first page of the document in bold type is a total limit (appearing below an itemised list) of $1,177,148. Even a casual glance at this figure would catch the eye."
313It is true that the figure is there and that, to a person who was shown or had read the first page of the document, it was clearly visible. The relevance of that depends on a rejection of Mrs Baira's evidence that she signed where she was directed to and did not read or see the first page. As noted above, her signature appeared on only one page, namely page 8. Further, it appeared under an acknowledgment in the following terms:
"The terms of this facility agreement are acknowledged by each guarantor".
314The offer contained on the first page of the document was an increase of $120,000 on an existing overdraft facility. The "existing facilities" were separately identified under six separate and individual headings. It is by no means clear that Mrs Baira's guarantee extended to each of the relevant facilities. Mrs Baira was not asked in cross-examination anything about her understanding of those elements of the letter. Had she been, one might have expected her also to be asked about the letter from the bank of 30 September 2005 which showed a total facility limit of $536,000. She might also have been asked, before such an inference was drawn against her, as to whether she was ever shown the bank's letter of 3 September 2004 which listed four facilities totalling $116,000, noting that each facility was secured by a number of documents, including Mrs Baira's "unlimited guarantee and indemnity", supported by the mortgage over her property, which was "[t]o be released from these borrowings". If, in truth, Mrs Baira had understood the structure and extent of her liabilities to St George Bank in 2005, it would have been remarkable.
315The trial judge also appears to have accepted the evidence of Mr Forster, a solicitor who was said to have explained the nature of a guarantee to Mrs Baira on 12 October 2005, although when asked to describe her was unable to do so. His Honour rejected the proposition that he had seen a different woman on 12 October 2005. However, the force of the cross-examination was not to that effect, nor was that suggested. Rather, it cast doubt upon Mr Forster's actual memory of what he had said on the occasion and what she had said to him. Importantly, his Honour accepted Mr Forster's evidence that Mrs Baira had told him that she was "familiar with the business of the borrower (presumably Fioranis) and had confidence in its success": at [57]. That, his Honour said, "resonates of [sic] [Mrs] Baira's testimony that she had told Mr Calvitto [on an entirely separate occasion] that Joe and Sandra were doing well": at [57]. That may have described her belief, but it was the basis of that belief which needed to be explored. More generally, his Honour summed up his findings with respect to Mrs Baira in the following paragraphs:
"[60] For a particular reason to which I now turn, I find that [Mrs] Baira's testimony is unworthy of credit. That particularity is not to set aside the adverse effect on [Mrs] Baira's credit of the contradiction between her behaviour and her execution of documentation against her unlikely proposition that for years and years she signed many documents in blithesome ignorance of what she was doing.
[61] The loan to [Mrs] Baira from RHG Mortgage was brokered by [Mr] Famularo. He had a meeting with her on 2 December 2005. [Mrs] Baira not only denied that meeting but denied she had ever met [Mr] Famularo. This denial was a falsity and I would assess it as a brazen attempt to avoid the consequences of her own actions.
[62] [Mr] Famularo's diary has a coordinate entry for the appointment but more significantly there are pages of hand written notes of the meeting which are entirely consistent with his version of the meeting. If, as [Mrs] Baira now asserts, there was no such meeting, it is implied that [Mr] Famularo has invented the content of it as recorded in the notes. I note in passing that no allegation of fraud of any kind appears in the pleadings. The notes contain personal detail about [Mrs] Baira including driver's licence, Medicare and passport numbers together with expiry details. [Mr] Famularo noted that he asked for tax returns but was told that these were 'not available'. He noted a comment emanating from [Mrs] Baira during the interview referring to 'cash business'."
316This reasoning is unsatisfactory. It appears to involve the following propositions:
(1) Mr Famularo is to be believed when he stated that he had had a meeting with Mrs Baira on 2 December 2005.
(2) It follows that Mrs Baira's denial of the meeting was a falsity.
(3) Not only was it a falsity, but "a brazen attempt" to avoid the consequences of her own actions.
(4) Her testimony generally was therefore unworthy of credit.
(5) That conclusion confirmed the adverse effect of "the contradiction between her behaviour and execution of documentation" and her allegation of "blithesome [sic] ignorance of what she was doing".
317The first step in the reasoning required an analysis of Mr Famularo's evidence which had not yet been undertaken. Further, the analysis placed significant weight on his diary note of the meeting which could have been challenged without any allegation of fraud. As already noted, so far as the pleading was concerned, it stated that he acted without authority. The reason why the contents of the note were largely neutral in assessing that issue is that the information contained would readily have been obtained by Mrs Baira's daughter or son-in-law from her, a possibility which was not explored by the evidence on either side. Secondly, the denial of the meeting, if untrue, caused Mrs Baira some difficulties because she was unable to explain, except as a consequence of her absence, where Mr Famularo obtained the false information contained in the loan application. The inference to be drawn from the file note was that Mrs Baira provided false information in support of her loan application. That was not put to her, nor did the trial judge make any finding as to whether she did or not. In the absence of relevant cross-examination and acceptance or rejection of her evidence on that point, a critical aspect of the fact-finding was omitted.
318It is possible that Mrs Baira made a bad impression in the witness box. Perhaps it is to be inferred that she did, although the trial judge appears to have accepted there might be different explanations for the way in which she gave her evidence, although he was not inclined to credit her with the more favourable interpretation, thus his Honour stated at [51]:
"In about May 2005, St George Bank was again offering further facility and once again [Mrs] Baira signed an acknowledgement as guarantor. Her signature was witnessed by a Cathy Macri who [Mrs] Baira denied knowing. Apparently she may have been an employee of the accountant, Mr Lo Surdo, another person [Mrs] Baira claims never to have met. If [Mrs] Baira is to be believed, Ms Macri is yet another stranger to her prepared to act at the very least improperly in relation to documentation signed by her. It was not [Mrs] Baira's contention that she went to Mr Lo Surdo's office and signed a document but was unaware of the name of the person who witnessed her signature. She simply denied knowledge of Ms Macri."
319The trial judge rejected Mrs Baira's evidence wherever it was "inconsistent with what appears in the documentation": at [64]. A possible exception was allowed in respect of two letters which "in any event were not operative in consummating the transaction". The significance of those exceptions for Mrs Baira's credit and the significance of that large part of her evidence which the trial judge must have accepted, were not explored.
320It remains to consider the significant weight given by the trial judge to the contents of Mr Famularo's handwritten notes. The heading of the note is "Baira/Ianni". The second line is as follows:
"2/12/05 Meeting Baira re SGB refinance."
321As a statement of what was recounted at the meeting, the contents of the note are inherently implausible. The contents have been set out in full by Tobias AJA at [421]. The first 10 lines could have been obtained from Mr Joe Ianni, but the detail is most improbably sourced from Mrs Baira. The next three lines read:
"- wants to separate Business Affairs - Joe & Sandra expanding into childcare & overseas property investments & she is not comfortable."
322Having read Mrs Baira's affidavits and evidence, there is no suggestion of any such thought process therein: nothing was put to her along these lines. The suggestion that these remarks came from her, without being put to her in cross-examination, should not have been accepted. After reference to her remarriage, the note continued:
"- Does not wish her new husband to be aware of this refinance as he has own children & not business minded."
323The proposition contained in this statement is somewhat inconsistent with the fact that she was seeking to protect her home and equity. Why her husband would not have been pleased with that idea is unclear.
324The next line stated that "Joe lanni to Provide Statements Re SGB Loan $1,350". Even the meaning of this statement is obscure and most unlikely to have come from Mrs Baira. The next line states that the "Max loan on Marrickville to be $650K. in N. OF 'ROSA BAIRA'". This would be at least a curious way for her to give instructions. There followed the details as to her furniture, motor vehicle and bank account which were concededly false. Her personal details were correct and obtained from a driving licence, Medicare card and passport. The statements with respect to employment were palpably false. Again, it is highly improbable bearing in mind the contents of her affidavit and her evidence in Court that she would have said any such things. The statement "Income $140 - 150K per A. without much effort" is again an improbable statement for her to make. Generally her evidence revealed a degree of trust, combined with ignorance of the Jencon business (whether "blithesome" or otherwise) but the suggestion that she would create palpable falsehoods in order to obtain some indirect benefit for the business by removing her home from the security for it, at a cost of $650,000, is so strange as not to be acceptable without explanation. None was forthcoming.
325The note states that Mr Famularo advised Mrs Baira to obtain further legal and financial advice and "she said she would speak with either Deborah Brown of Phillips Fox or Mr Lou Serio of Five Dock". There was no skerrick of evidence that Mrs Baira had ever heard of Ms Brown of Phillips Fox. She was, however, a solicitor with whom Mr Joe Ianni had had dealings.
326The statement that her other son "is also employed By the Fioriani Businesses at D. Harbour" was also untrue. He was a mechanic.
327There were aspects of the cross-examination of Mr Famularo which were undoubtedly deficient, from the perspective of the case being run by the borrowers. However, there was a respect in which the cross-examination of Mrs Baira and Mr Ianni senior was also deficient. The trial judge referred to the fact that both made "similar denials" of having met Mr Famularo, but stated that such denials did "not add strength to the contention of either": at [107]. He also referred to "the sheer incredibility of [Mrs] Baira's assertion".
328There are three reasons for rejecting that analysis. First, as noted above, it might well be thought that the suggestion that some of the information contained in the diary note came from Mrs Baira herself was implausible. Secondly, the moving party behind the series of transactions involving Mrs Baira and Mr and Mrs Ianni senior was almost certainly Mr Joe Ianni and, probably to a lesser extent, his wife. Thus, there is an alternative explanation as to the source of the information contained in the diary note, other than concoction by Mr Famularo acting alone. Thirdly, and significantly for present purposes, it would surely provide significant corroboration of Mrs Baira's claim not to have met Mr Famularo if, as part of the same series of transactions, Mr and Mrs Ianni senior independently gave the same evidence in relation to their borrowing. Of course, the element of corroboration would dissipate if it were shown that the independent sources had in fact confabulated. However, not only was there no finding to that effect, the suggestion was not put to either party in cross-examination.
329There is no doubt that the trial judge formed a poor impression of Mrs Baira's credibility. Nevertheless, for the reasons given above, the assessment of credibility was flawed. The claim against Mr Famularo depended critically upon acceptance of Mrs Baira's claims in respect of the events of 2005-2006. (Her evidence as to earlier periods is less relevant, although it was, of course, capable of demonstrating her level of understanding of the "family business" and her willingness in 2006 to take on a primary liability, secured by her home, to RHG.)
330The most generous inference is that the meeting took place but that not all the material recorded in the note was supplied at the meeting. That, however, was not the finding made by the trial judge. Rather, his finding was that the "pages of hand written notes of the meeting ... are entirely consistent with his version of the meeting": at [62]. His version is not discussed in the judgment, nor are the improbabilities referred to above addressed.
331As noted above, it was not possible to deal with Mr Famularo's credibility without addressing the very real objective issues raised by the "mysterious documents". On one view, there were only two people likely to have created the fake contract. They were Mr Joe Ianni and Mr Famularo. No finding was made in that regard. Mr Joe Ianni denied producing the fake document, and might well have been disbelieved. More importantly, Mr Famularo's denials that he had appreciated that the address was the same as that on the contract for which he had just obtained finance through NAB for Joe and Sandra Ianni had an air of ingenuousness which was not consistent with his other evidence. Without explanation, the findings are unpersuasive. It follows that orders 5, 6, 7 and 8, relating to Mrs Baira's cross-claim against Mr Famularo and his company, Australian Mortgage and Business Finance Solutions Pty Ltd, should be set aside. Because it is not possible for this Court to resolve the issues of credibility, the first amended cross-claim must be the subject of a retrial.