Buccoliero v Commonwealth Bank of Australia

Judgment 1CAMPBELL JA : I agree with Young JA. 2YOUNG JA : This is an appeal from a decision of RA Hulme J in the Common Law Division of this Court dismissing a cross claim by the appellant to set aside a mortgage granted to the respondent (see Commonwealth Bank of Australia v Munro [2011] NSWSC 128). The cross claim was filed in response to a claim by the respondent for possession of a property co-owned by the appellant at Miranda and judgment against her for $472,545.39, being the amount owing under the mortgage. 3As a result of the dismissal of the cross claim, the Bank was held to be entitled to possession of the Miranda property. The Court has been told that it took possession and the appellant no longer resides there. 4The basal background facts are that the appellant became registered as a half owner of the Miranda property with her sister on the death of her father. 5The Miranda property was the appellant's residence. She wished to purchase her sister's interest and to do so borrowed $250,000 under what was referred to below as the RAMS mortgage. 6The appellant is a mentally disabled person living on a pension. She was never in a position to meet her liabilities under the RAMS mortgage and, in due course, RAMS commenced pre litigation threats to deal with the appellant's default. 7The appellant with the aid of a Mr Munro, who was a co defendant with her before the primary judge, then borrowed from the respondent to pay out RAMS and also to obtain a sum of $54,000 for Mr Munro. 8The primary judge summarised what occurred at [ 6] and following of his reasons. He noted that, at the date of the hearing, the appellant and Mr Munro were the registered proprietors of the Miranda property. On 14 November 2007 they entered into a loan agreement with the Bank. The agreement comprised a "Consumer Credit Contract Schedule" and "Usual Terms and Conditions for Consumer Mortgage Lending". The principal sum to be advanced was $440,000. It was to be secured by way of a mortgage on the Miranda property. The mortgage document incorporated terms of a memorandum which had been registered pursuant to s 80A of the Real Property Act 1900. 9Settlement took place on 7 December 2007. Aside from the payment of incidental legal expenses, $383,773.47 was paid to RAMS to discharge the appellant's existing mortgage on the Miranda property and $54,317.87 was paid to Mr Munro. 10The discharge of the mortgage to RAMS, the mortgage to the Bank and a transfer by the appellant of a half interest in the property to Mr Munro were registered on 18 December 2007. 11The first monthly repayment was made on 7 January 2008 but it was dishonoured. Most of the subsequent repayments were also dishonoured. No repayments were made after 8 August 2008. 12Written demands pursuant to s 80 of the Consumer Credit (New South Wales) Code were sent to both the appellant and Mr Munro on 31 October 2008 requiring them to rectify the default. There was no compliance. Notices pursuant to s 57(2)(b) of the Real Property Act were sent on 3 November 2008. The default was not remedied. Further demands for the accumulated amount owing under the loan were sent on 12 January 2009 but there was still no compliance. The statement of claim was filed on 10 April 2009. The amount claimed to be outstanding at that time was in the vicinity of $470,000. By October 2010 it had risen to some $527,000. 13The appellant's pleadings stated her basic case. So far as is still relevant, she said that she is and was at all material times, being between 1 December 2006 and present, on a disability pension, suffering from a mental illness, inexperienced in financial matters, of a lower than average intellect and unable to understand in any real way financial documents. 14She pleaded that on or about 9 November 2007, the respondent Bank engaged Mr Munro and/or Tony Ottavio to act as its agents for the purposes of obtaining the appellant's signature on the loan documentation and the mortgage the subject of the proceedings. At that time, the appellant, at the request of Mr Munro and Tony Ottavio and in circumstances where the appellant did not bring informed consent, did not understand the purpose or effect of the documents and acted as a result of Mr Munro's influence over her, signed the said mortgage document. 15The pleading continued by alleging that the appellant was a volunteer and did not benefit from the advancement of any funds by the respondent Bank or, alternatively, in the event that the transfer of the property from the appellant to Mr Munro is set aside, the appellant did not benefit from the advancement of any funds by the respondent in excess of $200,000.00. 16The appellant then alleged that the respondent Bank did not explain the documents to the appellant or ensure that she obtained independent legal and/or financial advice in respect of the transaction. 17It was on the basis of those alleged facts that the appellant sought that the mortgage should be set aside pursuant to s 7 of the Contracts Review Act 1980. Further, and/or in the alternative, it was pleaded that these facts create an unconscionable transaction for the purposes of s 51AA and/or s 51AB of the Trade Practices Act 1974 (Cth) and/or s 12CA and/or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). It was also pleaded that the mortgage should be set aside pursuant to s 87 of the Trade Practices Act and/or s 12GM of the Australian Securities and Investments Commission Act . Also, further, or in the alternative (which it really must be), it was pleaded that the mortgage should be set aside on the basis of non est factum . 18Mr Ottavio is an officer of the respondent Bank and the manager of its "Mortgage Innovation Centre" at Bexley. 19In her cross claim, the appellant also sued Mr Munro to set aside the transfer to him of part of the Miranda property. The primary judge dismissed this claim. 20Mr Munro took no part in the proceedings below. Orders for possession and for money payable were made against him. 21The case took three days before the primary judge. He heard evidence from the appellant, Mr Ottavio, Mr Kelava (an employee of the Mortgage Innovation Centre) as well as expert evidence from Drs Seidler, McMahon and Allnutt. 22The primary judge accepted at [196] that in late 2007, the appellant was suffering from schizophrenia, though there was no evidence that she was exhibiting symptoms of any great severity. 23Three medical witnesses signed a joint statement after a Joint Expert Conference and also gave concurrent evidence at the trial. They were Dr Katie Seidler, a clinical and forensic psychologist called by the appellant, Dr John McMahon, clinical psychologist and Dr Stephen Allnutt, forensic psychiatrist both called by the respondent. 24The primary judge summarised his findings on the medical evidence at [200] and following of his judgment: 200 The doctors were in agreement that Ms Buccoliero's intelligence was "lower than average". Dr McMahon's testing indicated that her intellect was at the 12 th percentile, placing her "at worst" in the below average range of general intelligence. He assessed her capacity to understand the information provided by Mr Ottavio on 14 November 2007 (on his version), and to understand the documents she executed on that occasion, as being between the 14 th and 37 th percentile, or " in all likelihood ... in the upper end of the below average range or lower end of the average range ". 201 Having regard to her intellectual capacity, there was agreement among the doctors that, without any information as to the purpose of the meeting with Mr Ottavio and without any explanation of the nature and purpose of the documents, Ms Buccoliero likely would not have adequately understood them. However, on the premise that there had been an adequate explanation, the doctors expressed the following opinions: Dr Seidler: "On the proviso that Ms Buccoliero was provided adequate information pertaining to the purpose, nature and information contained in the loan documents, her capacity to understand would be in the "below average range" commensurate with her below average intelligence, and this would likely have been to an adequate degree." Dr Allnutt: "With adequate orientation to the information, nature and purpose of the documents it is likely that she would have understood to an adequate degree; that is, had there been a process whereby the basic nature, purpose and information contained in the report been explained she would have likely understood." Dr McMahon: "In my opinion if oriented appropriately to the documents Ms Buccoliero would have understood the documents to an adequate degree commensurate with her below average range intellectual functioning." 25At the trial, the doctors were asked to comment similarly in relation to Ms Buccoliero's mental illness. They were agreed that it was " reasonable to conclude that, on balance, Ms Buccoliero was experiencing symptoms of a psychosis ... at the time she executed the loan on 14 th November 2007 " (see [202]). 26As with the question of intellectual capacity, the doctors agreed that, because of the presence of this mental illness, it was unlikely that she would have understood the nature and purpose of the documents if there had been no adequate explanation of them. 27Dr Seidler was of the view that, even if there had been an explanation " page by page, line by line, section by section ", there was " concern " that Ms Buccoliero still might not have understood the documents. In her oral evidence (T100.46) she explained that she had in mind matters such as the effect of the mental illness and of other mental health concerns including trauma, personality disorders, the influence of her relationship with Mr Munro, and the psychosocial stresses upon her. On the other hand, Drs McMahon and Allnutt were of the view that Ms Buccoliero would likely have understood if there had been an adequate explanation (see [202]). 28The primary judge also said: 203 The doctors were also asked whether Ms Buccoliero's below average intellectual capacity and mental illness would have been apparent to a lay person. They agreed that she could present as being eccentric, odd or naive but thought it unlikely a lay person would detect that her intelligence was below average. They noted that distinguishing between average and below average intellectual capacity is not something that a lay person can reliably determine. 204 The doctors agreed that a lay person " might reasonably not have detected a mental illness ". This was a general opinion in that they noted there were a number of variables, such as the person's experience with people with mental illness. 29The primary judge then considered the evidence as to whether the appellant was vulnerable to the influence of Mr Munro. He noted that Dr Allnutt had carried out a thorough review of the history of her mental illness, such as was disclosed in the documents which were provided to him. Dr Allnutt noted that other clinicians prior to 2006 had regarded her as vulnerable to be taken advantage of materially and unable to make realistic and rational decisions. Further, at some stage in the past she had been provided with a guardian in relation to financial matters. This suggested to Dr Allnutt that she was vulnerable to the influence of others, at least when experiencing active symptoms of her mental illness. 30The primary judge noted at [207]: Dr Allnutt explained in oral evidence that Ms Buccoliero's mental illness and, to a lesser degree, her intellectual capacity rendered her a person who placed greater reliance upon the opinions of others than was necessary (T94.35). Drs McMahon and Seidler agreed. Dr McMahon added that Ms Buccoliero impressed him as a person capable of responding with self-preservation if she detected that she was being manipulated (T94.41). 31The judge was not impressed with the appellant as a witness. In particular she gave evidence that she could not see properly when she signed the morgages because she did not have her glasses. The primary judge considered that the internal inconsistency with some of this evidence showed that the appellant's evidence should not be accepted uncritically. 32Mr Ottavio gave evidence which was not disputed that the appellant presented as being " a neatly dressed, attractive, middle aged woman ". It was his belief that, at all times during the meeting on 14 November 2007, she was attentive and coherent in her responses to him. 33The primary judge did not consider that there was sufficient evidence for him to find that Mr Munro exhibited undue influence over the apellant. He said at [208] that he accepted that Ms Buccoliero trusted Mr Munro and was vulnerable to his influence, but, just how, and to what extent, she might have been influenced was difficult to determine. It was difficult to draw conclusions from her own evidence in her favour. He found that the evidence that she had a mental condition that rendered her prone to being manipulative was not insignificant. 34However, he found at [209] that he was not satisifed that the respondent Bank was aware of the exercise of any such undue influience. 35The primary judge virtually concluded his reasons by setting out why he dismissed the appellant's case as follows: 213 Ms Buccoliero was never in a position to make repayments under either of the loans. That started, however, with the RAMS loan. If there was any injustice to Ms Buccoliero, it had its genesis there. The loan and mortgage with the bank was not the cause. 214 I am satisfied Ms Buccoliero had a sufficient understanding of the loan and mortgage documents at the time she signed them. I accept that they were explained to her and that she had the intellectual capacity to understand that explanation. There is no evidence that her capacity in this respect was impaired by her mental illness. 215 I am also satisfied that apart from refinancing in relation to the RAMS loan, Ms Buccoliero understood that additional funds were going to Mr Munro. I am satisfied that she was both aware of, and authorised, this. 36The primary judge, after referring at [216] to the judgment of Mc Hugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 held that he was not satisfied that there was either substantive or procedural injustice. He concluded by noting that it was: not suggested that the terms of the contract were unjust. The case for Ms Buccoliero was based upon the methods used to make it. Regrettably, the case was confused by arguments based upon alleged unfairness to Ms Buccoliero in relation to the antecedent contract with RAMS, yet there was no overt, let alone pleaded, attempt to claim that it was unenforceable. 37The amended notice of appeal contains the following grounds (in summary):