Commonwealth Bank of Australia v Sarah Marie Holdings Pty Ltd [2002] VSC 1

11. The borrower defaulted. According to evidence called by the plaintiff, it was for this reason that the plaintiff re-classified the borrowing as a fully-drawn loan. For present purposes, it is more important to note the allegation, made in the statement of claim, that as at 27 May 1999 the plaintiff was owed $161,903.81. This sum had, by the commencement of the trial, increased to $223,241.83. Interest is alleged to be accruing at the rate of $81.33 per day. Demand for the former amount was made, in writing, on 27 May 1999. Neither the first defendant nor Mr Halaseh, who was a guarantor, responded. The present trial is not concerned with the plaintiff's claim against the latter.

14. A second written demand was made on the first defendant. This was for the sum of $166,658.18, said to be owing as at the date of the second notice (18 August 1999). It too received a negative response. The plaintiff now seeks possession of the land and payment of the principal and interest said to be outstanding.

17. The writ was issued on 22 November 1999. A defence was filed by the first defendant on 22 February 2000. It admitted the execution of, but denied any liability under, the mortgage. This pleading has since been twice amended. As a result, the original denial of liability is now based upon a comprehensive, if not all-embracing, range of issues of fact and law. These issues, rather than any raised by the statement of claim, therefore dominated the trial.

20. In its original form, the defence alleged that Mr Halaseh, as agent for the plaintiff, represented to his wife that the relevant document was a mortgage to secure a proposed overdraft facility to a maximum of $100,000 which, unless secured by the mortgage, the plaintiff had declined to grant to Darlington Developments. Given the changing nature of these allegations, it is worth noting here the date on or about which they are said to have been made, as well as their substance. It is to this that I now turn.

23. The agency is alleged to have been created in or about December 1998. In conversations between one of the plaintiff's "relationship managers", a man named Larry Heath, and Mr Halaseh, the former requested the latter to obtain the first defendant's execution of the mortgage. In accordance with that request, Mr Halaseh "in or about December 1998 or January 1999" produced the unexecuted document to his wife and asked her to execute it on behalf of the first defendant: see the particulars to paragraph 7 of the defence filed on 22 February 2000. This she did, without any direct contact having been made between her and the plaintiff and (according to paragraph 7) after having been told by her husband that:

"(a) [Darlington Developments] sought an overdraft facility from the plaintiff for its business purposes; (b) the facility would have an upper limit of $100,000 and no more; (c) [Darlington Developments] might not need to use the overdraft depending on how [its] business fluctuated; (d) the mortgage was required for the overdraft facility and for no other purpose; (e) the first defendant's exposure under the mortgage would be limited to the sum of $100,000; (f) the plaintiff required the executed mortgage before it would grant the overdraft."

27. This mixed bag of representations, but especially no doubt the sweeteners to be found in (c) and (e), induced Mrs Halaseh to execute the mortgage on behalf of the first defendant. Mr Halaseh then returned the executed document to Mr Heath.

30. According to the defence, however, Mrs Halaseh and through her the first defendant, were misled. The representations put by Mr Halaseh to his wife were not based upon "reasonable grounds": paragraph 8. The facility had already been not only approved by the plaintiff; it had also been drawn upon by Darlington Developments - to such effect, indeed, that by 12 January 1999 the parties had agreed that the plaintiff should increase its limit to $140,000 "to assist with working capital": particulars under paragraph 8. Of special significance, the mortgage was not limited to secure a debt of up to $100,000 but no more. It was, to the contrary, an "all moneys" mortgage "without limitation of the moneys secured thereunder to the sum of $100,000 or any other sum": particulars under paragraph 8. Moreover, as Mr Halaseh knew, Darlington Developments was already in financial difficulty.

33. The first defendant relies on its allegation of agency to fix the plaintiff with the representations made to Mrs Halaseh by her husband. These were misleading and deceptive and, being made in trade and commerce, contravened s.52 of the Trade Practices Act. As a result, having executed the mortgage, the first defendant unknowingly exposed itself to a liability under it to such amount over $100,000 as Darlington Developments might owe: paragraph 13 of the defence.

36. It follows from the defence as originally pleaded that the first defendant then accepted initial exposure to liability to the plaintiff for the first $100,000 of the borrower's debt. It nevertheless sought to avoid the consequence of this (limited) exposure by pleading "that the subsequent purported transferral of the overdraft facility to a fully drawn loan was a material variation of the principal obligation purportedly guaranteed by it with the result that it was absolutely discharged from any and all liability to the plaintiff under the mortgage": paragraph 16. This allegation survived the otherwise wholesale changes made to the defence. It is now to be found in paragraph 24 of the further amended defence and counterclaim dated 15 August 2001.

39. The initial defence puts forward another basis (which survives in paragraphs 25-28 of the further amended defence and counterclaim) for denying that the first defendant is liable under the mortgage for any amount at all. It is that, by the terms pursuant to which the overdraft facility was made available, any outstanding amount was to be repayable on demand. No demand was made before Darlington Developments went into liquidation on 21 April 1999. The borrower was, therefore, not indebted as at that date; and, as is stated in the particulars under paragraph 19 of the original defence:

"Pursuant to s.554 [of the] Corporations Law the amount of the debt or claim of the borrower is to be computed for the purposes of the winding up as at the relevant date, viz. 21 April 1999. As at the relevant date, no demand had been made on the borrower for payment of the said sum or any other sum."

43. Doubtless encouraged by the admission that the first defendant had agreed to cover the indebtedness of Darlington Developments to the sum of $100,000, the plaintiff on 16 June 2000 issued a summons seeking, pursuant to Order 22 of the Rules of the Supreme Court, judgment for possession of the land and for the sum of $187,238.27 (the basis of the calculation of so much of this sum as exceeds $100,000 is unknown). Alternatively, the plaintiff sought either (a) judgment under rule 23.01 or (b) an order that the defence be struck out under rule 23.02.

46. This provoked an affidavit in opposition from Mrs Halaseh. It was sworn on 25 August 2000, and filed on behalf of the first defendant. It postulates a very different set of facts from those alleged in that party's original defence. In her affidavit, Mrs Halaseh states (at paragraph 9) that "one day in January 1999" Samuel Halaseh told her that he "needed" the first defendant "to sign some papers" because the first defendant "needed" to take a debenture over Darlington Developments; and the debenture was "needed" to secure a debt owed to the former by the latter. Having asked her husband what a debenture was, Mrs Halaseh was told by him that "it was a mortgage": paragraph 10. Mr Halaseh then, on behalf of the first defendant, signed and sealed "a page of a document" which, she assumed, "was a debenture which my husband had just spoken to me about": paragraph 11. She did not read that page first; Mr Halaseh told her there was no need. The affidavit continues (at paragraph 13):

"My husband did not inform me that the page which he presented for my signature formed part of the mortgage. I did not sign the page knowing it to be part of the mortgage but I now know that to be the case."

50. According to Mrs Halaseh (paragraph 21 of her affidavit) she later received a demand from the plaintiff. She was "shocked" and immediately contacted her husband. According to paragraph 21 of her affidavit, he then told her "that Mr Larry Heath (the plaintiff's bank manager) had led him to believe that the mortgage was a debenture from Darlington [Developments] in favour of [the first defendant]".

53. The affidavit does not say whether Mrs. Halaseh believed this account. Such an omission is significant, because her husband himself could scarcely have expected that she would accept without query such a highly implausible explanation of his behaviour. After all, the plaintiff had no observable interest in a debenture such as that in question. Nor did it have any reason to identify for her husband a document evidencing a dealing between the corporate vehicles of, respectively, the husband and the wife. More particularly, there is absolutely no reason why Mr. Halaseh should have "believed" what he said he was told when the teller (Mr. Heath) presumably had far less opportunity to know the truth than Mr. Halaseh himself.

56. With like implausibility, Mrs. Halaseh's affidavit then avers that Mr. Halaseh went on to make, for the first time, the representations subsequently pleaded in paragraph 7 of the defence, and to which I refer in paragraph [8] above.

59. If paragraph 21 of Mrs Halaseh's affidavit accurately records the facts, the defence, as originally drawn, was and is wrong. As Mrs Halaseh, in acknowledging this and seeking to confess and avoid, puts it in paragraph 23 of her affidavit:

"The representations set out in paragraph 7 of the defence were made, but they occurred after the demand for possession of the home was served, not when I executed the page which my husband wanted [the first defendant] to execute in January 1999."

63. Despite Mrs Halaseh's admission that she thought she was signing a debenture, and that a debenture "was a mortgage", the affidavit achieved its purpose. On 19 September 2000, the plaintiff by consent abandoned its application for summary judgment and the parties agreed upon a timetable for completion of certain interlocutory steps before mediation or trial. Doubtless the plaintiff was influenced by the consideration that, whatever the precise nature of the security which Mrs Halaseh admittedly executed, it was on the evidence contained in her affidavit granted not by the first defendant in favour of the plaintiff, but by Darlington Developments in favour of the first defendant. The plaintiff was not a party to it.

66. The agreed timetable provided for the filing of an amended defence and counterclaim. This was done on 3 October 2000. The process culminated on 15 August 2001, when the first defendant filed its further amended defence and counterclaim. An amended reply and defence to counterclaim was filed on behalf of the plaintiff on 4 September 2001.

69. The first defendant's amended pleading retains each of the two broad strands of its original defence: first, that the first defendant was under a misapprehension when it executed the mortgage; and, secondly, that in any event the plaintiff cannot now enforce its security. In other respects, the case was presented at the trial in a very different light. It may be convenient to summarise the fresh pleadings before examining them in more detail.

72. As presently drawn, the further amended defence and counterclaim alleges that the first defendant, acting through Mrs Halaseh, was deceived into executing in favour of the plaintiff a mortgage which it believed was a debenture in favour of itself. The immediate source of the deception was Mr Halaseh. He, in turn, was acting as agent for the plaintiff which in any event knew shortly thereafter about Mrs Halaseh's mistaken belief. The plaintiff nevertheless subsequently proceeded to register the mortgage. The security is for this reason unenforceable by the plaintiff against the first defendant. It is also unenforceable because Mrs Halaseh was not authorised to execute it; because the plaintiff knew of its vulnerable position and exploited that vulnerability; and because the plaintiff failed to ensure that the first defendant was relevantly informed.

75. The further amended defence and counterclaim includes in the particulars under paragraph 6 a reference to a letter dated 16 November 1998. It received much attention at the trial. It was written by Mr Heath, and is addressed to Mr Halaseh. It is clear that some communication had taken place between these two before the letter was written, although in the particulars the relevant conversations are alleged to have occurred in December 1998. In any event, the first defendant relies upon both the letter and the conversations as constituting Mr Halaseh's appointment as the plaintiff's agent "to procure the first defendant's execution of the mortgage": paragraph 6 of the further amended defence and counterclaim. In its amended reply, the plaintiff denies this agency.

78. Paragraph 7 of the further amended defence bears little resemblance to paragraph 7 of the original. Both allege agency. Both allege representations by Mr Halaseh as agent for the plaintiff to Mrs Halaseh as sole director of the first defendant. The amended pleading, however, adopts the position taken in Mrs Halaseh's affidavit. In both the amended defence and its further amended form, the representation is said to be that the document presented for Mrs Halaseh's signature was a debenture "which was required to be executed by the first defendant to secure moneys borrowed by [Darlington Developments] from the first defendant". This representation, according to those amended pleadings, was made "in early January 1999".

81. The first defendant claims to have acted upon, and to have been induced by, this representation - which was "made in relation to 'financial services' within the meaning of the ASIC Act": paragraph 8. But it was false: the document in question "was not a debenture which secured moneys owed by [Darlington Developments] to the first defendant but was the mortgage": paragraph 10. The representation nevertheless bound the plaintiff because it was made within the scope of the agency between the plaintiff and Mr Halaseh.

84. The plaintiff denies not only that the representation was made, but also that Mr Halaseh was acting as the plaintiff's agent. It does not specifically deny that the first defendant relied upon what Mr Halaseh is alleged to have said. This may have been an oversight; but the plaintiff fought the case on the basis that the representation was never made, and that Mrs Halaseh knew that what she signed was the mortgage upon which the plaintiff sues. Were I to find to the contrary, reliance would not be an issue.

87. As another aspect of its defence, the first defendant puts forward what was admittedly the plaintiff's failure to tell the first defendant anything about the state of Darlington Development's overdraft. This is the subject of paragraph 12 of the further amended defence. It is there alleged that there were associated with the overdraft several "unusual features", none of which were brought to the first defendant's attention. First, the approved overdraft limit had been exceeded at the date of execution of the mortgage by $50,000: the account was then in debit in the sum of $190,000 or thereabouts, whereas the then approved limit was $140,000. Secondly, the willingness of the plaintiff to indulge Darlington Developments in this way "was influenced by [that company] being a substantial source of home loan referrals to the plaintiff": paragraph 12(b). Thirdly, the plaintiff had not followed its own internal procedures in its conduct of the account. Finally, the first defendant alleges that the plaintiff considered that the account was "troublesome" and that Darlington Developments would be unlikely to make good any deficiency in it. The first defendant was kept in ignorance of all this, a matter which in itself "constituted a misrepresentation of a material part of the overdraft facility between the plaintiff and [Darlington Developments]": paragraph 12.

90. The plaintiff denies that any of the above "constituted unusual features as alleged and that it was required to make any disclosure to the first defendant": paragraph 4 of the amended reply. On the other hand, there is no explicit denial of the allegations, contained in paragraphs 13 and 14 of the further amended statement of claim, that the plaintiff "has engaged in misleading and deceptive conduct ... and/or misrepresentation under the general law" (paragraph 13) and that the plaintiff aided, abetted, counselled and procured or was directly or indirectly knowingly concerned in or a party to, or conspired with Mr Halaseh to engage in, misleading and deceptive conduct.

93. In paragraphs 15 and 16 of the further amended defence, the first defendant alleges breach of a duty of care and breach of a contractual duty. Neither breach was relied upon at the trial; and, indeed, I am satisfied that neither duty exists in the circumstances of this case.

96. The further amended defence next turns to allegations about the plaintiff's state of knowledge at the time of execution by Mrs Halaseh of the mortgage. According to the first defendant, the plaintiff then knew or ought to have known:

(a) that Mr Halaseh, because he was Mrs Halaseh's husband, "was therefore in a position to exert undue influence over her";

(b) that neither Mrs Halaseh nor the first defendant were involved in the conduct of Darlington Developments' business "and therefore would not in the ordinary course have access to [Darlington Developments'] accounts";

(c) that Mr Halaseh "had a motive" to influence his wife to execute the mortgage because he "required the continuation of the facility" for the business of Darlington Developments;

(d) of the possibility that Mr Halaseh would not tell his wife to what extent Darlington Developments had overdrawn its account "as, if revealed, she would be unwilling to risk the land by executing the mortgage";

(e) of the possibility that Mr Halaseh, in order to induce his wife to sign the mortgage, would provide her with "a false or misleading explanation of the nature of the document she was executing and of the reasons she was required to execute it";

(f) that the facility was in debit;

(g) that Darlington Developments was having difficulty in keeping the overdraft within approved limits; and

(h) that it was not in the first defendant's interest to execute the mortgage "because it derived no benefit from it": paragraph 17.

102. Pleading in this way is analogous to firing a canon at a mosquito. If the insect is sandwiched between the projectile and a hard object, the mosquito will disappear without trace. Otherwise, however, it may well escape unscathed. The impression that the pleader seized without discrimination upon every point by which the defence might possibly be sustained is reinforced when one reads Mrs Halaseh's witness statement. She there asserts (at paragraph 31) that she "had reason to believe that Darlington Developments might fail because for some time Sam had been telling me that a client for whom Darlington Developments built units ... owed him $300,000 and he did not think he would get the money." It follows that whatever the plaintiff knew or ought to have known about the financial affairs of Darlington Developments, or of Mrs Halaseh's knowledge of them, is irrelevant; as she also says at paragraph 31 of her witness statement, her husband told her immediately before she executed the mortgage that Darlington Developments might "go down" and that if anything did happen to it, the first defendant would be the first to be paid. On Mrs. Halaseh's own account of the facts, therefore, she did not need the plaintiff to tell her that Darlington Developments was wobbly. The plaintiff concealed nothing of substance that she did not already know.

105. Undeterred by such considerations as these, the further amended defence and counterclaim marshals its resources for a decisive assault. It is launched by paragraph 18:

"By reason of the matters referred to in the preceding paragraph, the circumstances in which the mortgage was executed as referred to in paragraphs 6-11, the plaintiff's failure to explain, inform or advise the first defendant of the matters referred to in paragraph 12 and the plaintiff's knowledge of the matters referred to in paragraph 17 the plaintiff has engaged in unconscionable conduct under the general law, alternatively in contravention of ss.51AA, 51AB and/or 51AC of the Trade Practices Act, alternatively in contravention of ss.12CA(1) and/or 12CB(1) of the ASIC Act by reason of which the mortgage is unenforceable, voidable or void ab initio."

109. The response of the plaintiff is a flat denial of the entire paragraph, as well as paragraph 17 and, indeed, of all the remaining paragraphs in which any allegations are made.

112. These commence with paragraph 19 of the further amended defence and counterclaim. That paragraph alleges that, under the influence of the man to whom she was married and who she trusted, Mrs Halaseh executed a mortgage believing it to be a debenture. In doing so she was at a special disadvantage. This arises from a number of circumstances. First, she did not know that Darlington Developments had exceeded the limits of its overdraft. Nor was she aware of the connection between that circumstance and the substantial number of home loan referrals by Darlington Developments to the plaintiff. Thirdly, neither the first defendant nor the Sarah Marie Trust (of which the first defendant was the trustee) derived any benefit from the mortgage. Fourthly, the plaintiff neither explained the nature and effect of the mortgage to the first defendant or Mrs Halaseh (about which they remained ignorant) nor ensured that they received legal advice before its execution.

115. In one respect, the first defendant's case is not accurately pleaded in paragraph 19 of the further amended defence and counterclaim. We have been informed by Mrs Halaseh herself, in paragraph 10 of her affidavit of 25 August 2000, that her husband (in January 1999) told her that a debenture was a mortgage. I am satisfied that this conversation was held before Mrs Halaseh signed the mortgage upon which the plaintiff brings this action. In these circumstances, the plea that she "purported to execute the mortgage on behalf of the first defendant believing it to be a debenture" is of no relevance. I am satisfied that, on whatever date it was executed, Mrs. Halaseh then knew what a mortgage was. The evidence admits of no other conclusion. I cite two instances at random. For one thing, she had been involved with the grant to the plaintiff of a first mortgage over the Kew property when it was originally purchased. For another, paragraph 19 of the further amended defence impliedly asserts that she was familiar with debentures. It would in these circumstances be odd if she were not also familiar with mortgages. She certainly knew that each was a form of security, and that the document she executed on behalf of the first defendant was a mortgage which gave the plaintiff security rights over 11 Dunlop Avenue.

118. Paragraph 19 of the further amended defence and counterclaim mentions, for the first time in any of the pleadings then filed, the Sarah Marie Trust. This was and is a trust established by a trust deed made on 1 February 1995. The "primary beneficiary" is Sarah Marie Halaseh; but each of her parents are "general beneficiaries". By clause 6 of the trust deed, the trustee may in its absolute discretion at any time pay out of the capital of the trust fund any sum or sums "to any one or more of the general beneficiaries for his or her own use and benefit in addition to any income or share of income to which he or she may from time to time be entitled".

121. The first defendant seeks, in paragraph 20 of the further amended defence and counterclaim, to pursue the question of the interest (if any) of the Sarah Marie Trust in the transactions of which the mortgage was a part. It there pleads that at all relevant times the plaintiff knew or should have known of Mr Halaseh's capacity to influence the first defendant to execute the mortgage. The plaintiff knew that Mr Halaseh was married to Mrs Halaseh; that he may not fully explain the nature and effect of the mortgage; that Mrs Halaseh had no involvement in the affairs of Darlington Developments and would not have relevant information about its financial circumstances; and that "there was no benefit to the first defendant or to the Sarah Marie Trust in providing the mortgage": particular (iv) under paragraph 20. Moreover, the plaintiff made no contact with the first defendant, took no steps to explain the mortgage to it, and did not inquire whether it had received adequate advice from a third party before the mortgage was executed.

124. After repeating the allegations, contained in the original defence, that the first defendant is absolutely discharged from any liability under the mortgage because the overdraft facility was altered to become a fully drawn loan, and that no amount was owing under the mortgage because no demand had been made before Darlington Developments was placed in liquidation, the further amended defence goes on to allege that, at the date of execution of the mortgage, the Memorandum and Articles of Association of the first defendant required that "every document to which the seal [of the first defendant] is affixed shall be signed by a director and counter-signed by another director": paragraph 39(c) of the further amended statement of claim. Given this provision in the Memorandum and Articles, the execution of the mortgage by Mrs Halaseh alone was invalid.

127. The further amended defence and counterclaim next turns to plead that the plaintiff was guilty of fraud. This allegation is put in a number of ways, most of which echo earlier portions of the pleading. It is necessary here to note only the assertion that, after the mortgage was executed, Mr Halaseh told Larry Heath that shortly before the mortgage was executed he (Mr Halaseh) "had informed [his wife] that the document she was executing was a debenture which secured moneys owed by [Darlington Developments] to the first defendant": see particulars under paragraph 43 of the further amended defence and counterclaim. Knowing this, the plaintiff nevertheless caused the mortgage to be registered on the certificate of title to 11 Dunlop Avenue, Kew.

130. It will be appreciated from this recital of the pleadings that the circumstances under which the mortgage was executed constitute the fulcrum around which this case will largely be determined. I have already adverted to the dramatically different versions pleaded in (on the one hand) the original defence and (on the other) the further amended defence and counterclaim. It is convenient now to analyse the evidence on this point given by Mrs Halaseh and her husband at trial. It should be said at once that it was totally unconvincing.

133. Mrs Halaseh presented as an intelligent and articulate woman intent on protecting the interests of herself and her family in a difficult situation. I have no reason to think that she is not, in general, honest and trustworthy. She also presented as likely to be a good mother and wife. Certainly, she put herself forward as being very concerned to advance and protect the interests of her children. I accept her evidence in this regard. I am satisfied, however, that she was prepared to be untruthful if that were the only means by which her home could be retained.

136. Her husband, Samuel Halaseh, came to these proceedings already burdened by an admittedly dishonest earlier attempt to obtain security for borrowings for his business interests: he forged the signature of his mother-in-law to a mortgage of her house, which she later lost as a result. While I made my own assessment of him, that assessment took into account his further admission that he was prepared to deceive his wife if that were necessary to preserve his financial position. He was also prepared not only to put at risk the family home by offering it as security for his business activities but also to put pressure on her to consent to his taking this course. I am satisfied that, as things turned out, that pressure succeeded. Her consent was obtained. He did not need to deceive her. However reluctantly, she acceded to his importunings. She put up the family home as security for the borrowings of the company (Darlington Developments Pty Ltd) through which her husband conducted his business as a builder and developer. In so agreeing, she knew what she was doing and knew what the consequences might be - although, throughout, she fervently hoped that all would be well. It is her misfortune, for which she has one's sympathy, that her fears were realised while her hopes were dashed. But, while one may be sympathetic, her predicament does not provide the slightest justification for telling lies under oath.

139. It is instructive in this context to compare the different versions of the circumstances in which the mortgage upon which the plaintiff now sues was executed. In the original defence, this occurred "in or about December 1998 or January 1999". According to Mrs Halaseh's affidavit of 25 August 2000, she signed the mortgage "one day in January 1999": paragraph 9. In the amended defence, as also in the further amended defence, the date was "early January 1999". By the time of the trial, this had changed again to "about February" or "in early February" that year (as Mrs Halaseh recorded the date in, respectively, paragraphs 30 and 32 of the witness statement by which she gave her evidence in chief). Documents generated by the plaintiff and put in evidence at the trial establish to my satisfaction that the mortgage had been signed by 12 January.

142. The differences in dates are more than matched by the differences in other relevant details. According to the version promulgated in the original defence, Mr Halaseh told his wife that the document he presented for her execution on behalf of the first defendant was a mortgage to secure an overdraft facility from the plaintiff with an upper limit of $100,000. According to her affidavit sworn on 25 August 2000, Mrs Halaseh was asked by her husband to "sign" a debenture (paragraph 9 of the affidavit), which he said was the same as "a mortgage" (paragraph 10), to secure a loan from the first defendant to Darlington Developments. He told her that she did not need to read the document, and she did not. Acting on the assumption that the page she was given to sign was a page of the debenture about which her husband "had just spoken to [her]" (paragraph 11) she "signed the page as the sole director of [the first defendant] and fixed the [first defendant's] seal to it" (paragraph 12).

145. These two versions may be contrasted (a) not only with each other but also (b) with those appearing in the amended defences, (c) with that in Mrs Halaseh's witness statement, (d) with that given orally by her during her cross-examination at trial and (e) with the instructions given to her solicitor and upon the basis of which he prepared the original defence. In the further amended defence and counterclaim, it is alleged that, following his "appointment" in or about December 1998 as the plaintiff's agent for the purpose (see the particulars under paragraph 6) Mr Halaseh in early January 1999 produced the unexecuted mortgage to his wife and requested that she execute it on behalf of the first defendant. He represented it to her as a debenture "to secure moneys borrowed by [Darlington Developments] from the first defendant": paragraph 7 of the further amended statement of claim.

148. The account in the witness statement is more detailed. Apart from some minor omissions, I quote from the relevant passage in full, beginning at paragraph 30:

"30. When I was into my fifth month of pregnancy with [my second child] Julia (about February 1999) Sam said he had papers for me to sign regarding Darlington Developments. I am not a director of Darlington Developments and have had no involvement in it. I told him I did not want to sign any papers relating to his business. He mentioned four or five times that he had papers which he wanted me to sign but I simply refused. On these occasions he said the papers related to a debenture by Darlington Developments. On several occasions I informed him I did not want to have anything to do with Darlington Developments. 31. One day after Sarah went to school Sam said that it was in the interests of myself and the children to sign the documents. He sounded desperate and was pleading with me to sign them. He said the documents related to a debenture in favour of [the first defendant]. I remember distinctly Sam using the word `debenture' to describe the documents he was asking me to sign. I asked him what the documents were and he explained they related to a debenture and that [the first defendant] would be the first in line to be paid if Darlington Developments `went down'. I asked him if the documents had anything to do with the bank. He said they were not bank documents but related to an agreement between Sarah Marie and Darlington Developments. He said he thought something may happen to Darlington Developments soon and if anything happened [the first defendant] would be the first to receive moneys. At the time I was asked to sign the documents I had reason to believe that Darlington Developments might fail because for some time Sam had been telling me that a client for whom Darlington Developments built units ... owed him $300,000 and he did not think he would get the money .... 32. I do not remember the precise date I signed the documents but I am certain that it was not on 11 December 1998, the date they bear. At the time I signed them I was about five-and-a-half months pregnant and very sick with morning sickness. I recall that the school holidays had just ended so Sarah Marie had recently returned to school. Having regard to these facts, I believe I signed the documents in early February 1999. 33. At the time I signed the documents I was suffering from serious morning sickness as I had done with my first child, Sarah Marie. During both pregnancies I had morning sickness for about five-six months. The symptoms were severe headaches and nausea. I could not stand or walk because of dizziness. The symptoms were like a very bad hangover. At this time Sarah Marie was seven and attended Sacred Heart School in Kew. I was bedridden for most of the time and could not drive. Consequently either Sam or friends would drive Sarah to school and my friends usually picked Sarah up from school. 34. When Sam asked me to sign the documents I believe I was in the kitchen. It was a hot day. I felt nauseous and was upset that Sam was harassing me to sign the documents. I eventually signed the documents because of Sam's harassment and assurance that they related to a debenture and were not bank documents. I did not read the documents before I signed them. Sam took the documents and, I assume, later affixed the seal of [the first defendant]. I did not affix the seal. 35. Sam did not say they were bank documents or that they were a mortgage. Having gone through the experience with my mother in her case [which followed Mr Halaseh's forgery of his mother-in-law's signature]... I would not have signed the documents if I had been informed that one of them was a mortgage giving the plaintiff security in the Dunlop Avenue house."

152. This is the first occasion on which it is said that more than one document was signed at the time of the execution of the mortgage. Under cross-examination, Mrs Halaseh elaborated upon this. The mortgage, and not only the mortgage but every other document signed by her on that day, was presented to her with only the sealing and attestation clauses exposed to view. Thus, according to Mrs Halaseh, she did not see the words "The mortgage" on the mortgage itself even though they appear at the beginning of each of the covenants which are printed at the top of the page on which her signature was placed. Had she seen them, the falsity of her husband's representations would have been revealed. Equally, they would have been revealed if she had seen the first page of the document, at the top of which the plaintiff's name appears in bold type.

155. The same account was given of the attestation of a deed of acknowledgment which bears Mrs Halaseh's signature together with the common seal of the first defendant. Clause 3(vi) of that deed appears at the top of the second page, above Mrs Halaseh's signature. The clause includes three references to "the Bank". According to Mrs Halaseh, she saw none of them.

158. Likewise, she failed to see, on a document headed "Declaration By Proprietary Company Concerning its Status as a Child Entity of a Public Company", (a) the name of the first defendant, (b) the reference to "a mortgage by the first defendant to Commonwealth Bank of Australia" or (c) the reference to security for advances to Darlington Developments. That portion of the Declaration, she said under cross-examination, was not exposed when she signed the document at the foot of the page on which those references appear. This was also the case with a document headed "Statement Regarding Constitution". What is even more extraordinary, if Mrs Halaseh is to be believed, is that she signed a document headed "Commonwealth Bank Authority to Complete and Pay" without seeing those words above her signature and without seeing, below it, the words "I/We authorise the bank to debit any moneys paid under this authority in excess of the amount of the loan". The latter words, especially, could not have been covered up without it being obvious that a deliberate attempt was being made to obscure portion of the document which Mrs Halaseh was asked to sign.

161. Failures such as these are incompatible with the picture which Mrs Halaseh elsewhere paints of herself: the vigilant guardian of her daughter's heritage, especially protective of the family home following the fate of that of her mother. They are incompatible with much else as well. Her husband, who sounded desperate and who pleaded with her to sign, was clearly reflecting the problematic financial future of Darlington Developments, or both that future and an urgent need to protect the first defendant against his company's imminent collapse. Having "four or five times... simply refused" to sign documents designed (as she must have thought, unless her mind was operating in a vacuum) to afford that protection, it is unlikely in the extreme that she would suddenly give way. The natural thing for someone as concerned about the first defendant and the preservation of its assets as Mrs Halaseh says she was would be to ask for some indication of the extent of Darlington Developments' indebtedness to it, and the likelihood of repayment. Having obtained that information, she would have been quick to accept any offer of security. She would also be astute to ascertain the nature of the documents she was asked to sign. No matter how ill she may have been, she would not have allowed her husband to present her, as she described in cross-examination, with document after document wholly concealed from her eyes save for the sealing and attestation clauses.

164. The account given by Mrs Halaseh, at the trial, of the circumstances surrounding her execution of the mortgage is replete with inconsistencies. It is unbelievable. It is also totally at odds with the first defendant's original pleading. That document was prepared following instructions given my Mrs Halaseh to her solicitor. These are recorded in a diary note made by him. The relevant portion reads as follows;

"Telephone call to Tina Halaseh 17 February 2000, engaged 9pm to 9.35pm....... She signed some documents regarding an overdraft. Sam brought home some papers to sign regarding an advance of $100,000.00. She signed something which said only $100,000.00. Sam said don't worry about it, just sign it. He said it was a mortgage for an overdraft facility. Sam mentioned $100,000.00. She never read the mortgage. The mortgage was lying on a table for a few days before she signed it. The seal is kept at home and so it must have been signed at home...... She didn't think about the merits of signing the mortgage, she felt compelled to sign because Sam needed it to be signed..... There were demands [sic] in May 1999. Tina opened it. She thought the demand related to the fixed component of the first registered mortgage. Sam explained at the time of signing the mortgage that he needed $100,000.00 to get the business up and running....... Sam said, I don't even think I will need it, it is an overdraft for $100,000.00. She was not sure if Sam had already borrowed it..... Sam said, are you going to sign it, just sign it, I need it."

168. Mrs Halaseh's explanation for the discrepancies between that version and the others is as incredible as her account of the execution itself. I do not accept any of them. The point was addressed, after a fashion, in her solicitor's witness statement (at paragraph 22) where he said;

"Her repeated explanation for the discrepancy was that the matters set out in paragraph 7 of the company's defence had been advised to her by Mr Halaseh, not at the time when she signed the document relied upon by the bank, but when she asked her husband about the bank's demand for possession which she received in the mail. Mrs Halaseh instructed me that it was only when she asked her husband for an explanation of the matter that he informed her that the mortgage document was required by the bank for an overdraft facility for Darlington Developments Pty. Ltd."

172. This does not sit comfortably with Mrs Halaseh's instructions about what was said after "Sam bought home some papers to sign regarding an advance of $100,000.00". Indeed, Mrs Halaseh's account has about it all the indications of a false story the author of which is forced into one inconsistency after another in a desperate attempt to plug a rapidly increasing number of holes which open with increasing obviousness even as the plugs are inserted.

175. In particular, I reject the allegation (made in paragraphs 7 and 9 of the further amended defence and counterclaim) that in executing the mortgage upon which the plaintiff sues Mrs. Halaseh acted in reliance on false representations made by her husband. Whatever he may have told her at different times, she knew when, as sole director of the first defendant, she placed her signature on the mortgage (a) that it was a mortgage; (b) that the plaintiff was the mortgagee; (c) that the first defendant was the mortgagor; and (d) that the mortgage was offered as security for the indebtedness of Darlington Developments to the plaintiff.

178. I am also satisfied that Mrs. Halaseh knew enough about the affairs of Darlington Developments to appreciate that the company was, towards the end of 1998 and thereafter, in considerable financial difficulty. This being the state of her knowledge, she executed the mortgage nevertheless. She was then in a position to make, and did make, an informed decision about whether or not to go ahead; and she decided to proceed nevertheless. This decision was reached reluctantly, but of her own free will. No undue influence was involved. Nor was Mrs. Halaseh under a special disadvantage. She is an intelligent woman, prepared when she thinks it necessary to back her own judgment in opposition to that of her husband. On her own account, she persisted in resisting his requests to execute the "debenture" until she was satisfied that it was appropriate to do so. On her own account, too, she assumed the sole directorship of the first defendant, and orchestrated Mr. Halaseh's resignation as director, so that the company would be protected from exploitation by him. She thereafter held herself out to the world as the person ultimately responsible for the dealings of the first defendant, and as capable of managing its affairs. She cannot have it both ways. In any event, I have sufficient respect for her ability, having seen and heard her for an extended period in the witness box, to be confident that far from labouring under a special disadvantage, she had and has the intelligence, character, knowledge and acumen to easily hold her own in the dealings in question in this litigation.

181. Given these findings, many of the defences as pleaded in the further amended defence and counterclaim must fail. It is thus irrelevant that Mr. Halaseh was, or was not, the plaintiff's agent in arranging his wife's execution of the mortgage (paragraph 6 of the further amended defence and counterclaim). It is likewise irrelevant that the representations upon which the first defendant relies were or were not made in relation to "financial services" within the meaning of that expression in the Australian Securities and Investments Commission Act 1989 (paragraph 8). Any failure of the plaintiff to disclose relevant facts (paragraph 12) is of no use to the first defendant now, since at the time the mortgage was finally executed it was aware of them all. It follows, and I find, that the first defendant was not misled or deceived by any misleading and deceptive conduct on the part of the plaintiff; but in any event I find as a fact that the plaintiff was not guilty of such conduct, whether directly (paragraph 13) or as an aider and abettor (paragraph 14). It also follows that the compendious allegations made by paragraph 18 do not, whether singly or in combination, support the conclusion that "the mortgage is unenforceable, voidable or void ab initio."

184. The first defendant asserts that the plaintiff knew that neither that the first defendant nor the Sarah Marie Trust gained anything from its participation in the mortgage arrangements (paragraph 20) and that at either the date of its execution or the date of its registration, or both, the plaintiff knew that "the mortgage was not in the due administration of the Sarah Marie Trust" (paragraph 45). But the first defendant has failed to make this assertion good. Not only is there no, or no convincing, evidence that the plaintiff knew sufficient (if anything) about the Trust to appreciate its significance in the arrangements of the Halaseh family, but there is likewise no evidence that any breach of trust was committed by Mrs Halaseh when she executed the relevant documents. To the contrary, clause 7 of the Trust Deed provides that the trustee has power to guarantee the payment of money by any person, firm or corporation, and to secure the repayment of moneys lent or advanced to a third party.

187. The next defence is that "the subsequent purported transferral of the overdraft facility to a fully drawn loan was a material variation of the principal obligation purportedly guaranteed by [the first defendant] with the result that it was absolutely discharged from any and all liability to the plaintiff under the mortgage": (paragraph 24). The answer to this defence is that the change was to the benefit of the first defendant.

190. Another point taken by the first defendant (paragraphs 26-31) is similarly insubstantial. According to a number of letters written by the plaintiff to Darlington Developments, that company's debt to the plaintiff is repayable on demand. No demand was made before 21 April 1999. On that day, Darlington Developments was by order of this Court placed in liquidation. Under s.554 of the Corporations Law, this is the date from which the amount owing by the company is to be computed. But no amount was then owing, because no demand had then been made. Equally (it seems - this issue is not made explicit in the pleading) the plaintiff had and has no basis for calling on its security.

193. I will not dwell on the merits of this argument as between the plaintiff and Darlington Developments. As between the plaintiff and the first defendant, it suffers from its entire failure to take into account the contractual terms governing their relationship. Among these is clause 7 of the Memorandum of Common Provisions. It applies notwithstanding any other agreement. By clause 7, if an order is made for the winding up of Darlington Developments, all of the moneys secured by the mortgage shall, at the plaintiff's option and without demand, become immediately due and payable. This, in my opinion, means that the sum secured becomes due immediately the winding-up order is made; but the plaintiff may at its option not enforce immediate payment. I am satisfied that, on 27 May 1999, an appropriate demand was made.

196. A defence upon which substantial reliance was placed is pleaded by paragraphs 38-40 of the further amended defence and counter claim. It is that the first defendant did not validly execute the mortgage because Mrs Halaseh was not authorised to do so. This proposition is denied by the plaintiff in its amended reply.

199. According to these paragraphs of the defence, Article 52 of the first defendant's Articles of Association provides that the number of directors shall be not less than two nor more than ten; and by Article 74, every document to which the seal is affixed shall be signed by a director and counter signed by another director, or the secretary, or some other person appointed by the directors for that purpose. By contrast, the mortgage - a document to which the first defendant's seal was affixed - was signed on behalf of the first defendant by Mrs Halaseh alone. Mr Halaseh signed, but as secretary of Darlington Developments.

202. The plaintiff relies upon a resolution of the directors of the first defendant. It was admittedly validly passed on 24 November 1997. It is recorded in a document signed by Mrs Halaseh, the full terms of which are as follows:

"SARAH MARIE HOLDINGS PTY. LTD. A.C.N. 067 970 503

at the company's address; 96 Lygon Street East Brunswick Vic. 3057

It was resolved that Mr Samuel Halaseh resigned from the office of company director and secretary from the above date 24/11/97. Mrs Tina Halaseh has accepted the appointment of the sole director and secretary of Sarah Marie Holdings Pty.Ltd., from the 24/11/97. The company [sic] new director and secretary has been instructed to lodge form 304 for the above changes to take effect from the above date 24/11/1997. Meeting has been closed 11am 24/11/97. Sole director Tina Halaseh".

212. Despite this resolution, no change was made to the memorandum and articles. The first defendant submits that Mrs Halaseh did not, therefore, have actual authority to bind the company to the mortgage. What is more, the plaintiff had been furnished with a copy of the articles, and was thus aware that the number of directors could not fall below two. Accordingly, the plaintiff cannot rely upon any ostensible authority with which Mrs Halaseh might otherwise have been clothed.

215. The document in which the resolution is recorded is clearly intended to serve as a minute of the relevant meeting. Neither party suggested otherwise. In my opinion, the effect of the proceedings as so recorded is that the directors resolved that the first defendant would henceforth operate as a company with only one director.

218. This they had, in general meeting power to do. Article 52 is not as pleaded. It in fact reads as follows:

"52. The number of directors shall be determined by the company in general meeting from time to time and, unless otherwise determined, shall not be less than two nor more than ten. The first directors shall be appointed by the subscribers to the Memorandum of Association of the company."

222. In attendance at the meeting of 24 November 1997 were all the directors and all the shareholders of the first defendant: Mr and Mrs Halaseh together had that privilege. They did not "take the formal step of constituting themselves a general meeting of the company and passing a formal resolution" of its members in such general meeting: see the judgment of Buckley J. in Re Duomatic[1]. But they did convene a meeting of directors, and they did - in effect - then resolve to appoint Mrs Halaseh as the sole director. They could, if they wished, thus rely on the Duomatic principle as expressed by Buckley J. in the following words:

"It seems to me that if it had occurred to Mr Elvins and Mr East, at the time when they were considering the accounts, to take the formal step of constituting themselves a general meeting of the company and passing a formal resolution approving the payment of directors' salaries, that it would have made the position of the directors who received the remuneration, Mr Elvins and Mr Hanley, secure, and nobody could thereafter have disputed their right to retain their remuneration. The fact that they did not take that formal step but that they nevertheless did apply their minds to the question of whether the drawings by Mr Elvins and Mr Hanley should be approved as being on account of remuneration payable to them as directors, seems to lead to the conclusion that I ought to regard their consent as being tantamount to a resolution of a general meeting of the company. In other words, I proceed upon the basis that where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."

226. Here, Mr and Mrs Halaseh, being all the members of the first defendant, determined that the number of directors shall be less than two. This, by Article 52, they in general meeting had power to do. In my opinion (to repeat the words of Buckley J. in the Duomatic case), "I ought to regard their consent as being tantamount to a resolution of a general meeting of the company". There was no breach of Article 52, and there is no need to amend it. If this is correct, Mrs Halaseh was entitled thereafter to exercise all the powers of the Board. The first defendant does not suggest that these powers do not include the power to mortgage the first defendant's property.

229. Even if I am wrong in coming this conclusion, nevertheless the first defendant is estopped from relying on the proposition that Mrs Halaseh was not entitled to execute the mortgage on behalf of the first defendant. By the very act of signing the document, she (and therefore the first defendant) put herself forward as being so entitled. That in itself would not necessarily be enough to create an estoppel. But Mrs Halaseh and the first defendant are also fixed with Mr Halaseh's act in proffering to the plaintiff the resolution of 24 November 1997. I am satisfied that the relevant officers of the plaintiff were led by that document to proceed in the belief that Mrs Halaseh was the duly appointed and empowered sole director of the first defendant. Even given that the plaintiff also had in its possession a copy of the Articles, the plaintiff was perfectly entitled to conclude (whether correctly or otherwise is irrelevant) that the resolution was in conformity with Article 52, or in any event surmounted whatever difficulty the Articles created. Indeed, the evidence given by Mrs Halaseh was that she deliberately engineered the resignation of her husband as a director to ensure that she alone made any decision which might effect the future of the matrimonial home; and this fact alone provides an answer to the proposition (put in the first defendant's outline of final submissions) that the plaintiff "knew that the sole director of [the first defendant] was the wife of Samuel Halaseh and was therefore on notice that Samuel Halaseh would procure the execution of the mortgage by deceit". This case is distinguishable from National Australia Bank v Sparrow Green Pty. Ltd.[2]. In that case, there was no resolution of the Board, let alone of the company in general meeting; and (as Nyland J. said, at 1,672) there "was no evidence to suggest that the Bank had a belief in a false state of affairs induced by any act of the company or reliance on any representation of the company."

232. There remains the issue raised by Article 74(2). This prohibits the use of the seal of the first defendant except with the authority of its directors. As sole director, Mrs Halaseh necessarily had that authority. The Article, however, goes on to require that every document to which the seal is affixed shall be signed by a director and be counter signed by another director, a secretary, or another person appointed by the directors for that purpose.

235. In my opinion, this requirement necessarily disappears once effect has been given to the decision that the first defendant be managed by a sole director. What Article 52 allows, Article 74 cannot prevent. If I am wrong about this, there remains an answer to the proposition that the failure to comply with Article 74 vitiates this mortgage. As the High Court pointed out in MYT Engineering Pty.Ltd. v Mulcon Pty.Ltd.[3] if the company seal is affixed to a contract that does not have to be sealed, and the sealing is not done or witnessed as the articles of association require, the document may, nevertheless, constitute a contract binding on the company.

238. A mortgage of land, once registered, takes effect as if the relevant instrument were a deed: Transfer of Land Act, 1958, section 40. It therefore does not matter that the document itself was not executed as a deed. Mrs Halaseh was, as the properly constituted sole director of the first defendant, empowered to execute the mortgage on behalf of the first defendant. She might have done so by merely signing the instrument. The fact that she happened also to place the first defendant's seal on it is of no consequence.

241. At one and the same time, the first defendant argued before me (a) that the plaintiff had failed to inform Mrs Halaseh that Darlington Developments was indebted to it, and (b) that such indebtedness had not been established. In truth, however, the evidence as presented revealed no basis for any conclusion other than that the plaintiff did grant overdraft facilities to Darlington Developments, that that company took advantage of them, and that the amount owing as a result by the first defendant to the plaintiff was, when the trial began, $223,241.83.

244. The first defendant pleads want of consideration (paragraph 47). I am satisfied, however, that in the absence of security provided by the first defendant, the plaintiff would not have allowed Darlington Developments continued access to overdraft facilities. Alternatively, it would not have done as it did: after the mortgage was executed, the amount made available was increased.

247. In my opinion, for the reasons expressed above, none of the arguments, whether of fact or law, put forward on behalf of the first defendant have any merit. On the other hand, the plaintiff has proved to my satisfaction on the balance of probabilities that Darlington Developments is indebted to it (as at the commencement of the trial) in the sum of $223,241.83. The plaintiff has also proved to my satisfaction on the balance of probabilities that it is entitled to possession of the land at 11 Dunlop Avenue Kew and to judgment against the first defendant for the amount claimed, together with interest at the rate of $81.33 per day. There will be judgment accordingly.

[1] [1969] 2 Ch. 365 at 373.

[2] [1999] HCA 27; (1999) 17 ACLC 1,665.

[3] [1999] HCA 24; (1999) 162 ALR 441.