HEADNOTE
[This headnote is not to be read as part of the judgment]
On 25 February 2011 Mr Nicola Finamore and Ms Weisen Zhou (the present respondents) entered into a Deed with Mr Salvatore Bonanno (the present appellant). Mr Finamore and Ms Zhou were the registered proprietors of a property that was being used as a boarding house.
The operative provisions of the Deed provided, inter alia, that in consideration of Mr Bonanno paying $130,000 to Mr Finamore and Ms Zhou, they would transfer one-third of their interest and title in the property to Mr Bonanno. The Deed also provided that, in the event the property was sold, the parties agreed that Mr Bonanno would receive $130,000 plus one-third of the remaining net proceeds of sale.
Mr Bonanno filed a statement of claim seeking a declaration that the respondents held a one-third share of the property on trust for him. By cross-claim the respondents sought an order setting the whole Deed aside on the ground of its unconscionability.
In his judgment of 1 December 2021, the primary judge rejected the respondents' contention that the entire transaction ought to be set aside as unconscionable but accepted that the provisions of the Deed providing for the transfer of property were unconscionable and therefore invalid as inter alia, the advance of $130,000 had to be repaid to the appellant and there was relevantly no other consideration for their agreement to transfer an interest in the property. In his judgment of 23 May 2022, the primary judge ordered that the appellant pay 60% of the respondents' costs.
The appellant advanced two grounds of appeal. The first challenged the primary judge's finding that the Deed did not entitle the appellant to a one-third interest in the property and the second challenged the primary judge's costs orders.
The Court (Macfarlan JA; Ward P and Basten AJA agreeing) granted leave to appeal and dismissed the appeal with costs: [1], [54]-[55].
As to whether the Deed incorporated an option and whether Mr Bonanno's property right vested immediately
The appellant's complaint about the use of the term "option" cannot be sustained in circumstances where he submitted at first instance that the Deed had an added facility akin to an option. Even if the appellant would have acquired an immediate equitable interest in the property if the Deed were wholly valid, that would not have contradicted the primary judge's conclusion that the Deed in substance gave rise to a mortgage, and a collateral advantage. The acquisition by a mortgagee of a proprietary interest does not prevent a court from considering the substance of the transaction to determine if the interest was acquired by way of security: [34]-[35] .
As to whether the primary judge erred in finding that the Deed was in effect a mortgage
In determining whether an instrument gives rise to a mortgage as distinct from an absolute transfer, regard is to be had to the substance of the transaction and not simply its form. The application of the principles depends on the real intention of the parties: [38].
Kreglinger (G & C) v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25; Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98; [1966] HCA 75 considered.
As to whether the primary judge erred in finding the transfer terms unconscionable and erred in considering an arrangement made prior to entry into the Deed.
The lack of an obligation in the Deed on the appellant to perform repairs, maintenance or management duties did not contradict the primary judge's finding of an oral arrangement, that is of an expectation of the respondents engendered by the appellant. The primary judge's principal reasons for his conclusion, that there was a prior oral arrangement that was not reflected in the Deed, stand without effective challenge from the appellant: [40], [44].
As to whether the primary judge erred in applying Proposition 3 of Lord Parker in Kreglinger (G & C) v New Patagonia Meat and Cold Storage Company Ltd
Per Macfarlan JA (Ward P agreeing):
As the appellant did not successfully challenge Proposition (1) there is no need to consider the correctness of the finding on Proposition (3): [47].
Per Basten AJA:
Lord Parker's three propositions should not be relied upon as if they constituted fixed rules having modern application. The modern doctrine of unconscionability should be the touchstone of invalidity. As a matter of language, Kreglinger is unhelpful as a mortgage under the Real Property Act no longer involves the transfer of title subject to an equity of redemption but the creation of a security: [56]-[57].
Lift Capital Partners Pty Ltd (in liq) v Merrill Lynch International (2009) 73 NSWLR 404; [2009] NSWSC 7; Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194; Epic Feast Ltd v Mawson KLM Holdings Pty Ltd (in liq) (1998) 71 SASR 161; [1998] SASC 6616; Waller v Hargraves Secured Investments Ltd (2012) 245 CLR 311; [2012] HCA 4 considered
G & C Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 distinguished.
As to the costs order
The appellant's success on the issue of back rent and other questions was taken into account and led to a substantial discount in the respondents' entitlement. The outcome was well within the range of reasonable outcomes: [52].