Egan v Egan

The plaintiff's case

1. The plaintiff swore two affidavits. The first was dated 17 May 2017 and was more in the form of a formal affidavit proving the essentials of the claim for possession. The affidavit annexed the various documents including a Deed of Loan dated 22 June 2006, the mortgage of the same date and the fact that the monies to purchase the property were provided by the plaintiff and Barry. Those monies were paid to the vendor of the property. The affidavit also identified that no monthly repayments had been made as required by clause 3.2(b) of the Deed of Loan. The plaintiff also swore that it came to her knowledge that by mid to late June 2016 the defendant had not been paying the rates on the property.
2. All of that led to the notice dated 17 October 2016 pursuant to s 111(2)(b) of the Conveyancing Act 1919 (NSW) and s 57(2)(b) of the Real Property Act identifying the breaches as: (a) the failure to make repayments of principal and interest; and (b) being unable to pay her debts as they became due in contravention of clause 4.1(f) of the Deed of Loan. The notice required payment of the amount of $610,834.23 being repayments of principal and interest from 22 June 2006 until 22 September 2016.
3. The plaintiff's second affidavit of 1 August 2017 set out the whole of the background of the purchase of the property. That background may be summarised as follows. The plaintiff and Barry had three children. The eldest was Peter, the defendant was the second child born, and the third child was Michael. Barry was an actuary who worked in the life insurance and superannuation industry.
4. In around early 2001 the defendant said that she was expecting her first child with her then partner, who later became her husband, David Olteanu. At that time the defendant and David were living with the plaintiff and Barry at their Edensor Park property. David's family lived in Newcastle.
5. The defendant and David decided to look for a place to live on the Central Coast which was about half way between the two families. On 13 May 2001 the defendant rang the plaintiff and said that they had found a house at Bateau Bay, but she said that she and David could not afford it by themselves.
6. After having inspected the property, the plaintiff and Barry decided to purchase it and rent it to the defendant and David to provide them with assistance while they started their family. The agreement was that the property would be rented to them for $200 per week, which was below market rent. The defendant and David agreed to that arrangement.
7. The plaintiff and Barry did not have sufficient funds to purchase the Bateau Bay property outright. The Edensor Park property was mortgaged in the plaintiff's name alone and she was unable to obtain a second mortgage to purchase the Bateau Bay property. Accordingly, the plaintiff and Barry decided to buy the Bateau Bay property in the name of a company they controlled called Syswest Services Pty Ltd. The property was purchased on or about 29 June 2001. The defendant and David moved into it. Despite the agreement to pay $200 per week they did not make any payments. The plaintiff and Barry were reluctant to do anything about that because the defendant was expecting her first child.
8. The defendant and David married on about 9 May 2003 but separated about 27 December 2004.
9. Throughout 2005 and the first half of 2006 the defendant said to the plaintiff and Barry on a number of occasions that she no longer wished to live at the Bateau Bay property. She said that she hated the house because it held too many bad memories. In early 2006 the plaintiff and Barry had a conversation with the defendant around the kitchen table at the Edensor Park property. Barry said words to the effect: We've got some cash available from working overseas so we'll look at buying a property that you and the children can live in.
10. The defendant then found the property at 1 Bettong Lane, Glenning Valley. The plaintiff and Barry thought it was a suitable property.
11. The plaintiff says that she and Barry had previously instructed Tihomic ("Tic") Stoikovich of Stoikovich Lawyers at Liverpool for legal advice from time to time. They retained him to prepare a Deed of Loan and mortgage in relation to the Glenning Valley property. The plaintiff says that Barry said to her: I've contacted Tic Stoikovich and asked him to look after the conveyancing for the property. I've explained that we're lending the money to Karen and he's going to prepare loan documents and a mortgage to formalise it.
12. In about June 2006 the plaintiff attended Stoikovich Lawyers' office with Barry and the defendant. She does not recall any specific conversation on that day. The solicitor had prepared the Deed of Loan and mortgage prior to the meeting and provided the documents to them at that time. She said in her affidavit that she does not recall where the Deed of Loan was signed but in her oral evidence she thought it was at the solicitor's office. The mortgage is signed by the plaintiff and the defendant and in each case witnessed by Barry. The signature of the witness to each of their signatures on the Deed of Loan appears also to be Barry's signature and not that of the solicitor as might have been expected. That might suggest that the documents were not signed at the solicitor's office. In the circumstances of this case it probably does not matter.
13. The plaintiff said that at no time did she seek advice formally or informally from the solicitor or anyone else about structuring the purchase of the Glenning Valley property as a sham to protect the defendant for family law reasons or for any other reason. She said she never had a conversation with Barry where it was suggested that the mortgage was not intended to be genuine. She said she did not have any conversations with the defendant where this was suggested, and she does not have any reason to believe that Barry had any such conversation with the defendant.
14. The plaintiff said that after settlement of the purchase of the property she expected that there would be a grace period during which the defendant would not be making mortgage repayments as she had limited employment. She expected that once the defendant and the children had moved into the property the defendant would be in a position to find full-time work with the plaintiff assisting with the children. At that stage she expected the defendant would begin to repay the mortgage. There were a number of conversations about this and on one such occasion the defendant said: Once I move into the house and you are close by, you can pick the girls up from school and help look after them while I'm at work.
15. At some point the plaintiff said it became apparent to her that the defendant had no intention or desire to find full-time employment. She can recall conversations where she said to the defendant, "You promised that you would find a full-time job if we helped you with the house" to which the defendant replied "I'm not going to find a job until the kids are older".
16. The plaintiff said that she decided not to enforce the interest repayments on the mortgage as her grandchildren were living in the property with the defendant. The plaintiff was concerned that the grandchildren would not have a home and that she may be prevented from seeing them in the future.
17. After the defendant and David's divorce was finalised in or around December 2006 the plaintiff said that there was no request from the defendant or any other person to discharge the mortgage over the property.
18. As mentioned earlier, Barry died on 20 November 2011 after suffering from lung cancer for some months. It took the plaintiff some time to deal with his death and to put her affairs into order. She said that she was not mentally or emotionally able to raise the issue of the mortgage with the defendant and she remained concerned not to do anything that would leave the grandchildren without a home.
19. In about 2012 the defendant had a conversation with the plaintiff in these terms: Defendant: I'm thinking about selling the house and using the money to move to Darwin. Plaintiff: Don't forget that you'll need to repay the mortgage to me when you sell. Defendant: But the house is mine, why do I need to repay the mortgage? Plaintiff: Do you understand what a mortgage is? Defendant: Yes, but everything is in my name. It's my house. Plaintiff: It's your house in the same way that your brother owns his house. He owns his house but he has a mortgage to the bank that he needs to repay. You need to repay the mortgage to me. The plaintiff said that there were similar conversations with the defendant around that time.
20. In about September 2013 the defendant and the children moved out of the Glenning Valley property into the plaintiff's house. However, in about December 2015 the plaintiff evicted the defendant, and the defendant returned to live at the Glenning Valley property. The grandchildren remained living with the plaintiff from that time. It was shortly after that time that the plaintiff decided to take steps to enforce the mortgage. The plaintiff said that the grandchildren were living with her and indicated that they did not want to go back to living with the defendant, that the defendant was not living in the Glenning Valley property and its condition, which was not good because of the way it had been looked after by the defendant, was likely to deteriorate further if action were not taken.

The defendant's case

1. There is much common ground in the evidence of the plaintiff and the defendant. The main area of dispute turns on what the defendant asserts that her father said to her.
2. After she and her husband separated at the end of 2005 she indicated to her parents that she did not want to continue living in the Bateau Bay property. At dinner at her parents' place in Edensor Park she and her father had a conversation in the presence of her mother as follows: Father: I can see that you're struggling. Do you want me to buy a house to give you and the girls security or do you want me to put it the bank and you'll receive it when I die? If I buy you a house you won't have to worry about a mortgage. Defendant (bursting into tears): I want the house. Father: You know that if I do this, you won't get anything when I die. Your brothers will get the rest. Defendant: Yes.
3. Thereafter the defendant found the Glenning Valley property. She said in May 2006 that Barry purchased the house for her and paid for it in cash. He told her: I withdrew it out of the bank. In cross-examination she agreed that that was a reference to the deposit.
4. She also recalls her father telephoning her while she was at McDonalds saying words to the effect "I've just bought you a house". She said a few weeks later she went to the real estate agent, picked up the keys and was given a bunch of flowers and a bottle of champagne. The agent said words to the effect of, "The house is yours. Congratulations".
5. The defendant said that she had separated from her husband David, and that they were going through family law property proceedings. The divorce was finalised in about November 2006. She said that Barry said to her words to the effect of: We need to protect your property from any claim by David so I need you to sign a few papers just in case. It's not a real mortgage Karen, it's just to protect you. As soon as you're divorced and there is no possibility of David making a property claim regarding the house it will be ripped up. It will need to be registered just to make it seem real. I need it in mum's name because AM Corporation Ltd is being investigated and I am concerned about any personal liability I might face.
6. The defendant said that in about June 2006 she attended the offices of Stoikovich Macri with her parents to sign the mortgage documents. She said they went into the office of a person introduced to her as Mr Stoikovich. He spoke mostly to Barry and not much to her.
7. In her oral evidence the defendant said that Mr Stoikovich said to her, This will protect you from David having any claim in the Family Court, and that it was in her best interests to sign the papers. She signed the documents at the solicitors' office.
8. The defendant said in July 2006 she had a housewarming party where Barry gave a speech to the guests and said: I'm so happy that I could buy this house for Karen and her girls to give them security.
9. The defendant said that she and David were divorced in November 2006. She did not ask her parents whether the mortgage had been ripped up. She said she relied on them to attend to those matters as Barry had said would be done.
10. The defendant said that when she was served with the s 57 notice she was shocked, as she was not aware that she was supposed to make repayments on the mortgage. She said that at no time between 2006 and October 2016 did her parents ask her to pay any mortgage instalments.

Is the arrangement a sham?

1. The first matter to be determined is whether the arrangement concerning the Deed of Loan and the mortgage is a sham. If it was a sham and is set aside, the result must be that the land was purchased for the defendant as a gift and she is not obliged to pay any monies to the plaintiff pursuant to the Deed of Loan, the mortgage or otherwise.
2. In Lewis v Condon; Condon v Lewis (2013) 85 NSWLR 99; [2013] NSWCA 204, Leeming JA (with whom McColl JA and Sackville AJA agreed) said: [57] It is well-recognised that "sham" is an ambiguous term and uncertainty surrounds its meaning and application in various legal contexts: Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 453; Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516 at [35]. It is necessary to use the term precisely. [58] The essence of a sham for present purposes is as stated by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at [46]: "[Sham] refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences." [59] That is to say, it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, "to say that a document or transaction is a 'sham' means that while professing to be one thing, it is in fact something different": WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323. [60] Basic to the legal notion of sham is that it is a confined and exceptional aspect of the process of giving legal meaning to a document, as Professor Conaglen has pointed out ("Sham Trusts" (2008) 67 CLJ 176 at 206): "The relevance of the sham doctrine, and the difference between it and normal processes of construction, lies in the fact that it justifies the court in ignoring (as opposed to construing) the usual primary material regarding that transaction, and focusing its attention instead on all other material factors which indicate the arrangement that the parties in fact intended." [61] That echoes the words of Windeyer J in Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265 at 279: "The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front ... concealing their real transaction." [62] The sham doctrine is thus one of those relatively rare doctrines in the law where legal meaning is given to a document by reference to a subjective intention. Other examples are a plea of non est factum at law and a claim for rectification in equity. All these doctrines "must necessarily be kept within narrow limits", for all subtract from the objective theory of contractual obligation, and if unchecked would cause "serious mischief": see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [46]-[47]. This has long been the law: see for example Jordan CJ's reasons in Perpetual Trustee Co (Ltd) v Bligh (1940) 38 SR NSW 33 at 39-40. In all these areas, strong evidence is required in order to displace the orthodox approach to construction. Hence the "heavy onus" that must be discharged by the plaintiff in a non est factum case (Petelin v Cullen (1975) 132 CLR 355 at 360) and the need for "clear and convincing proof" in a rectification suit (Franklins Pty Ltd v Metcash Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [451]-[460]). [63] Because a finding of sham requires a finding of an intent to deceive, considerations associated with Briginshaw v Briginshaw (1938) 60 CLR 336 require a cautious approach: Raftland Pty Ltd v Commission of Taxation at [36]. Thus there is a "strong and natural presumption against holding a provision or a document a sham": National Westminster Bank plc v Jones [2001] 1 BCLC 98 at [59] (Neuberger J). "A court will only look behind a transaction's ostensible validity if there is a good reason to do so, and 'good reason' is a high threshold, since a premium is placed on commercial certainty": Official Assignee v Wilson [2007] NZCA 122; [2008] 3 NZLR 45 at [52] (Robertson and O'Regan JJ). Lockhart J referred to "a strong finding, and one which cannot be made if another inference is at least equally open" in Sharrment Pty Ltd v Official Trustee in Bankruptcy at 461. [64] Sham in the sense relevant to this appeal is to be distinguished from other transactions to which legal opprobrium attaches, such as transactions entered into for an improper purpose, which have long been the subject of statutory attention, such as voidable settlements or conveyances to defraud creditors. Sham is also to be distinguished from the body of law (which ultimately turns on questions of statutory construction) as to whether apparently artificial transactions attract taxation advantages: see Fletcher v Federal Commissioner of Taxation [1991] HCA 42; (1991) 173 CLR 1 at 19 and Customs v Tower MCashback, LLPI v Revenue and Customs Commissioners [2011] UKSC 19; [2011] 2 AC 457, decisions referred to by G Pagone, "Sham trusts" [2012] VicJSchol 5 and which reflect what Lord Walker described in the latter appeal at [80] as the "unremitting ingenuity of tax consultants and investment bankers determined to test the limits". The High Court criticised applying the notion of sham to transactions which were legally effective, albeit that they had no "economic effect" and which did not involve "real money" in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd at [46]-[51]. … [68] Critical to this appeal is the proposition that a transaction will not be a sham merely because it was entered into with an improper motive. That is confirmed by two authorities relied on by the primary judge, Chase Manhattan Equities Ltd v Goodman [1991] BCLC 897 at 921 ("mere impropriety of motive is no ground for treating a transaction as a sham") and Miles v Bull [1969] 1 QB 258 at 264 ("[i]f what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it"). It is also affirmed by G Thomas and A Hudson, The Law of Trusts (2nd ed 2010), para 2.33, Lewin on Trusts (18th ed 2008), para 4.21 and Waters' Law of Trusts in Canada (4th ed 2012) at 157-159. The same principle was stated by Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy at 455, by the Court of Criminal Appeal (Beazley JA, Grove and Ireland JJ) in Barendse v Comptroller-General of Customs (1996) 136 FLR 243 at 257-258, and applied by Ward J (as her Honour then was) in In the matter of Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 at [2044]-[2046]. [69] The proposition that not every transaction entered into for a legally improper motive is a sham must also be correct in principle. There is a clear distinction between a settlement of property in favour of (say) a spouse intended to operate in its terms, but made with the intent of defrauding creditors, and a sham declaration of trust in favour of a spouse never intended to give rise to the ordinary incidents of a trust. Both are entered into for an improper purpose, but the legal meaning of the former accords with the language of the declaration (although it is apt to be set aside pursuant to statute), while the legal meaning of the latter is that there is no trust at all. The limited notion of what constitutes a sham does not swallow up the large class of other transactions entered into for a purpose regarded as improper by the law. [70] In short, every case of shamming intent involves a finding of intentional deception as to the effect of a document, but not every case of improper purpose is a sham. …
3. As Leeming JA makes clear at [62], strong evidence is required in order to displace the orthodox approach to construction; hence, the cases use expressions such as "heavy onus" which applies in a non est factum case, and "clear and convincing proof" in a rectification suit.
4. Proof that the loan and mortgage arrangement was a sham is largely but not wholly dependent on acceptance of the defendant's evidence. Further, it requires rejection of the plaintiff's evidence at least by a finding that her evidence is unreliable even if not dishonest.
5. In my opinion, the defendant has not discharged the onus of demonstrating that the Deed of Loan and mortgage were a sham. I do not consider that there is strong evidence suggesting that they were. My reasons for that conclusion follow.
6. First, I found the plaintiff to be an impressive witness. I considered her evidence to be honest and reliable. She was prepared to make concessions and acknowledge when she may have been mistaken about events that occurred a long time ago. My impression was that she felt somewhat frustrated as a result of what she and Barry had done for the defendant, and for the way that things had turned out, particularly for the need to bring the present proceedings. However, I do not think that this caused her to be other than truthful about what had been said and done in relation to the Glenning Valley property.
7. Secondly, the impression I had from the defendant was that she believed what she was saying. Her belief was that the property had been given to her by her parents and she was not obliged to repay any part of the purchase price. I do not think she was being deliberately dishonest but she seems to have come to a particular view about what her father, in particular, had said in relation to the purchase of the property. For example, a great deal was made on behalf of the defendant about statements made by Barry at the time of purchase to the effect that he was buying the property for the defendant. While that was certainly the case, these statements said nothing about what the underlying arrangements might have been with respect to repayment of the purchase price.
8. Thirdly, the plaintiff gave evidence that in early 2006, at a conversation around the kitchen table with the defendant and the plaintiff, Barry said words to the effect of: We've got some cash available from working overseas so we'll look at buying a property that you and the children can live in. The defendant admitted that that conversation occurred but said that the conversation she had set out in paragraph 11 of her affidavit of 23 June 2017 also took place. That is the conversation set out at [30] above. The plaintiff denies that the conversation set out at [30] above took place in the discussion around the kitchen table that the plaintiff refers to in her affidavit. Further, the two conversations do not sit easily together and it must be doubted if they took place on the same occasion. I accept the plaintiff's evidence that the conversation at [30] did not take place in her presence.
9. Although the parties agreed not to challenge statements attributed to Barry, there is still the difficulty associated with the reliability of the evidence about those statements. In circumstances where the defendant herself admits that she had no chance of borrowing money to buy a property, the statement supposedly by Barry, "If I buy you a house you won't have to worry about a mortgage", is a statement that seems unlikely to have been made. It suggests that the defendant obtaining a mortgage was a possible alternative.
10. Further, the evidence is that, despite what Barry is alleged to have said in that conversation, he did not take any steps to alter his will dated 25 August 1997 which, in a gift over, divided his estate equally amongst the three children. The fact that the will was not changed has a greater significance where Barry did not die for a further five years and did not die suddenly or unexpectedly.
11. Fourthly, the defendant relies on a statement by Barry that is set out at [33] above. As the cases frequently note, statements attributed to dead persons which are relied upon must be scrutinised with great care because they cannot be challenged. The issue of reliability arises in relation to this statement also. It was not alleged by the defendant to have been said in the plaintiff's presence, nor is it asserted that the plaintiff was told about it. In circumstances where I have accepted the plaintiff's evidence that the statement set out at [30] above was not said in her presence as alleged, I cannot place great weight on the truth of what is alleged in the statement set out at [33] above. To accept the truth of the statement at [33], I would have to find that Barry was telling the defendant one thing and the plaintiff something different.
12. In her cross-examination of the plaintiff, Ms Tibbey of counsel for the defendant put a number of questions to her suggesting that she and Barry always discussed business and financial matters together, and that Barry consulted her about financial and investment matters. The plaintiff agreed with all that was put to her in that regard. The plaintiff also said that Barry never saw Mr Stoikovich about matters unless she was present. I accept all of that evidence. In those circumstances, I cannot find that Barry's dealings with the defendant were kept from, or misreported to, the plaintiff.
13. Fifthly, after the divorce between the defendant and her husband was finalised, no person took any steps to "rip up the mortgage" as Barry is alleged to have said. Certainly, the defendant, in whose interest it was on her account of events, took no steps to ensure that that happened in circumstances where she knew that she had signed the Deed of Loan and the mortgage and that it was registered on the title.
14. Sixthly, the defendant relies on what she alleges the solicitor said to her after the conference where the documents were signed. She alleges that Mr Stoikovich said to her words to the effect: Don't worry about this, it's just to look after you Karen.
15. Counsel for the plaintiff objected to that material on the basis that it was hearsay in circumstances where Mr Stoikovich was not being called to give evidence. Counsel for the defendant said that it was not relied upon as to the truth of the representation but only for the fact that it was said by Mr Stoikovich. Counsel for the plaintiff asked that, if the words were admitted, an order should be made under s 136 of the Evidence Act 1995 (NSW) limiting the use to be made of the evidence to the fact that it was said and not as to the truth of the statement. I initially admitted the statement on that basis only to see how the statement would be used in submissions by the defendant.
16. Counsel for the defendant agreed that she wished to rely on the statement for the fact that the defendant heard Mr Stoikovich say those words and believed that what he said was right. In those circumstances, the only use that can be made of the statement is as to its truth. It is, therefore, hearsay and should not be admitted.
17. When dealing with objections to affidavit evidence, I had rejected a statement made by the defendant that the documents were not adequately explained to her during the conference with Mr Stoikovich, because the statement was bad in form. However, I gave leave to the defendant to lead oral evidence in proper form. When the defendant was asked what explanation of the documents was given, she said that Mr Stoikovich said: This will protect you from David having any claim in the Family Court.
18. It seems to me that that statement suffers from the same difficulty as the statement made in her affidavit (at [52] above) about what Mr Stoikovich said. For the statement to have any significance, reliance must be placed on the truth of the statement.
19. There is the further difficulty that if the statement is admitted as to its truth, it points to Mr Stoikovich having been involved in the sham transaction that was ultimately intended to deceive the defendant's husband and the Family Court in any property application the husband might make. Where Mr Stoikovich has not been called to give evidence, and I accept that he was not called by the defendant because he claimed to have no memory of the transaction, I would be loath to draw an inference that he was so involved without giving him the opportunity to provide an explanation. Quite clearly, making a finding against a solicitor in those circumstances might have serious consequences for him.
20. Seventhly, in her affidavit the defendant said: 18. I had separated from my husband, David Olfeanu (sic), who was unemployed and we were going through family law property proceedings. 19. … My father said to me words to the effect of "We need to protect your property from any claim by David so I need you to sign a few papers just in case…."
21. In fact, as the defendant said a number of times in her oral evidence, there were never any property proceedings, nor was any property claim made by her husband. Neither counsel asked her why she had said what appears in paragraph 18 of her affidavit if it was not correct. The fact that it was not correct causes me to have serious doubts about whether her father ever said what is attributed to him in paragraph 19, in circumstances where the clear inference from the juxtaposition of those paragraphs is that the two matters were connected.
22. Finally, the defendant also relies on the evidence of Catherine Gilmore. Ms Gilmore lived at the adjoining property in Glenning Valley at the time the defendant moved to her property there. Ms Gilmore remained a neighbour until 2010.
23. In paragraph 10 of her affidavit she said this: I remember one specific incident when I was talking with Karen and Barry arrived. I said to him words to the effect of "Oh my god she is so lucky that you bought her a house". He said words to the effect of "I am lucky that I could do that for her". I heard Karen say frequently in front of both her parents words to the effect of "I am so lucky that you bought me this house and I don't have to worry about a mortgage". At no time did I hear Barry or Carol ever say anything different or contradict her in any respect. (emphasis added)
24. Ms Gilmore's evidence in cross-examination was somewhat different. Her evidence relevantly was this: Q. And likewise, over to paragraph 10, which is on the next page. Do you see paragraph 10 there? A. Yes. Q. And do you see in the third line down, you say, you heard Karen say frequently in front of both her parents, words to the effect, "I am so lucky that you bought me this house and I don't have to worry about a mortgage." A. Yeah, yes, yes. Q. How frequently did she say those words to her parents? A. I think that was more that there was this one particular conversation when they - when they had all moved in and that's when we were discussing it. Because, like I say, it's not something we discussed every time we spoke, we were neighbours. That was a definite when we were having that conversation about that - was a definite one time. But at times, I would say, she's - "You're so lucky, you're so lucky, do you realise you're so lucky?" And in front of her parents, Carol and Barry, both of them. And, yeah, she would say, she - she was. Q. So you didn't hear Karen say that frequently, you heard her say it once, is that correct? A. On that particular conversation, it was when we were all together, we would say it frequently, but that one was that particular conversation with us all together. Q. Why have you used the word "frequently" if you can only recollect those words being said once? A. Because I would say to Karen frequently how lucky she was because I just would say I - I couldn't believe that her parents would be able to help her like that, that that was fantastic. So that was something I would say frequently to her. Q. So when you say in your affidavit, "I heard Karen say frequently", you were actually talking about things that you frequently said to her, is that correct? A. Well, in our discussions if she might bring it up to me, I'd bring it up - our discussions were always about how lucky she was that she was - she was fortunate to be in the position she was in, so whether she brought it up or whether I brought it up, it was something we discussed frequently - yes. Q. My question is you did not frequently hear Karen say the words which you have put in your affidavit in paragraph 10, did you? A. Yes, I did. Q. Well your evidence just before was that there was only one specific occasion on which you heard her say that. A. No, that was when Carol and Barry were present. HIS HONOUR Q. But you say there, "I heard Karen say frequently in front of both her parents". A. The one conversation I remember absolutely was that very first one, because that's the one that sticks in my brain more so, but there were - there were lots of conversations that we'd have, probably more so with Karen and - cause Barry was always there, but we always had definite conversations, so Q. Yes, but how many conversations were there where a mortgage was mentioned? A. No, there was - it wasn't mortgage, it was just about them purchasing a house, we never discussed mortgage. PARISH Q. Can I take you to paragraph 10 again. A. Yeah. Q. The sentence starts at line 3. A. Yeah. Q. "I heard Karen say frequently in front of both of her parents, words to the effect, 'I am so lucky that you bought me this house and I don't have to worry about a mortgage'." Is your evidence now that those words attributed to Karen are not correct? A. No, they were correct for her saying that, I never discussed the mortgage with her, is what I'm saying. HIS HONOUR Q. How many times did she mention in front of her parents to you about a mortgage? A. That one time - sorry, yes. PARISH Q. When was that one time? A. That was when she first moved in. Q. Why have you used the word "frequently" if it only happened once? A. Probably because I could remember having conversations frequently about how lucky she was, so that was obviously my recollection. Q. That's not the conversation you've deposed to, you deposed that you heard Karen talk in front of her parents about her mortgage multiple times. A. Yeah, maybe I used the wrong word in mortgage, we were always talking about the house, I never discussed the mortgage - that wasn't my business.
25. In the first instance, Ms Gilmore used the word "frequently" in her affidavit in relation to the conversation that she asserted the defendant had in front of her parents where she said "I don't have to worry about a mortgage". In the light of what she said in cross-examination both about the word "frequently" and the fact that she never discussed "mortgage", I can place no reliance on paragraph 10 of her affidavit. Furthermore, although she agreed that after she moved away from the property in 2010 she had little to do with the defendant, later questioning by me to ascertain how the defendant's telephone call to her to give evidence occurred, Ms Gilmore disclosed that she and the defendant were Facebook friends and they see what's going on when using Facebook.
26. I note in any event that the conversation in paragraph 10 of her affidavit was never put to the plaintiff in cross-examination. Nor do I think any inference can be drawn that the mortgage was a sham from Ms Gilmore's statement that neither Barry nor the plaintiff said anything in response to the defendant's comment about the mortgage, if that remark was even made. There might be any number of reasons why the plaintiff and/or Barry would not have wished to discuss family financial arrangements with a neighbour.
27. I do not consider Ms Gilmore's evidence to be reliable.
28. For these reasons I do not consider that the defendant establishes that the Deed of Loan and the mortgage were not intended to have legal effect.

Estoppel

1. The defendant relies on estoppel by convention, and in particular upon the assurances by Barry that the Deed of Loan and mortgage were mere devices never intended to be enforced and would be destroyed once there was no prospect of a claim on the property by her estranged husband. These assurances were said to be representations as to future conduct inducing her to sign the documents.
2. Any estoppel simply provides the basis for demonstrating that the Deed of Loan and the mortgage are a sham and for identifying the personal equity the defendant relies on to overcome the effect of s 42 of the Real Property Act 1900 (NSW) by the registration of the mortgage.
3. Although I have found that the defendant fails to show that the arrangement was a sham, the defendant may have had difficulty in being able to rely on the personal equity because of the equitable maxim of clean hands. The relationship between sham transactions and the equitable maxim has been discussed by Campbell J (as his Honour then was) in Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060. Campbell J reviewed a large number of cases and, in the course of so doing, said: [178] Gascoigne v Gascoigne [1918] 1 KB 223 was a case where a husband put a lease of land in his wife's name and built a house upon the land with his own money. He used his wife's name in the transaction, with her knowledge and connivance, for the purpose of misleading, defeating and delaying present or future creditors. After the parties separated, the husband sought a declaration that the wife was trustee for him of the property. He succeeded at first instance, but on appeal he failed. The Divisional Court (Lawrence and Lush JJ) said, at 226: "... What the learned judge has done is this: he has permitted the plaintiff to rebut the presumption [of advancement] which the law raises by setting up his own illegality and fraud, and to obtain relief in equity because he has succeeded in proving it. The plaintiff cannot do this; and, whether the point was taken or not in the County Court this court cannot allow a judgment to stand which has given relief under such circumstances as that." [179] Gascoigne was a case where it was necessary for the plaintiff to prove his own bad conduct to rebut the presumption of advancement and thus to establish the trust he sued to enforce. Gascoigne was followed in In Re Emery's Investment Trusts [1959] Ch 410 (property intended to be held equally by husband and wife put in name of wife only, to enable husband to avoid American withholding tax) and approved by the English Court of Appeal in Tinker v Tinker [1970] P 136. If a plaintiff needs to prove his own bad conduct to be able to prove the circumstances which he says entitles him to an equitable remedy, that bad conduct has an immediate and necessary relation to the equity sued for. [180] By contrast, Griffiths v Griffiths [1973] 1 WLR 1454 was a case where a husband claimed an enlarged beneficial interest in the matrimonial home (which had been conveyed into the name of his wife) by reason of having effected improvements. The wife alleged that his claim must fail because of his unclean hands, in that he had represented to the Law Society for the purpose of obtaining a legal aid certificate, and to a court bailiff for the purpose of avoiding a distraint, that the house belonged exclusively to the wife. Arnold J rejected this argument, at 1456-1457: "[I]n my judgement the point is a bad one because he is not, in preferring his claim to the improvements, relying upon his own disreputable act, as, for example, does a man who seeks to enforce a resulting or express trust of property transferred by him to his wife by saying "oh, the transfer was only to defraud my creditors." Nor is he doing the other thing which is forbidden, by the doctrine of promissory estoppel, of reversing a previous contention where, but only where, the party against whom the contention is made it (sic) has in the meantime all that (scil. altered) his or her position in reliance on the previous contention. He falls between the two stalls (scil. stools); for it is no ingredient in the claim that he behaved wrongly, and therefore he escapes from the principle of Gascoigne v Gascoigne [1918] 1 KB 223, and it is not suggested that the wife relied on his disclaimer or either of his disclaimer is in such a way as to make it unfair to her that the position should now be reversed." (This decision was upheld the Court of Appeal (Griffiths v Griffiths [1974] 1 WLR 1350), but with the present point being regarded (at 1359-1360) as depending only on estoppel.) [181] The two tests emerging from the portion quoted at paragraph 164 above, from Dering v Earl of Winchelsea ("immediate and necessary relation to the equity sued for" and "a depravity in a legal as well as in a moral sense") do not provide a complete guide to the circumstances in which the "unclean hands" maxim will be applied to deprive the litigant with the unclean hands of a remedy. Those two tests are a necessary condition for the application of the "unclean hands" maxim, but not a sufficient condition. Equitable relief is always discretionary, and other factors can influence the exercise of the discretion. … [182] Further, the weight which is accorded to bad conduct on the part of the plaintiff can differ depending upon the relief which is sought, and the alternatives for relief which the plaintiff has open to him. In Vigers v Pike (1842) 8 Clark & Finnelly 562; 8 ER 220 Lord Cottenham (at 645 of C & F, 251 - 252 of ER) noted that there is a, "… marked distinction made by the Court of Equity between what is necessary to resist a suit for the specific performance of a contract, and what is necessary to support a suit to set aside a deed executed and an arrangement completed, and consequently to resist a suit founded upon such deed and growing out of such arrangement. When the Court simply refuses to enforce the specific performance of the contract it leaves the party to his remedy at Law; but if it were to refuse to administer equities founded upon a deed executed, it would leave the party applying without remedy, and his opponent in possession of that for which what was sought to be obtained was reserved as an equivalent."
4. Tang v Bongreen [2003] NSWSC 824 was a case where the second and third defendants were seeking an interlocutory injunction to restrain the holding of a meeting of the first defendant requisitioned by the plaintiff, a shareholder in the first defendant. The second and third defendants claimed that the plaintiff's shareholding was a sham because the allocation of the shares was simply to assist with the plaintiff's immigration to Australia. The plaintiff raised a defence of unclean hands on the part of the second and third defendants who were said to be part of the sham arrangement.
5. Although McDougall J found that the share arrangement was not a sham, he went on to consider the defence of unclean hands. His Honour said: [47] There are two aspects to the clean hands' defence raised by the plaintiff. … The second, which really arose from the way in which the second and third defendants put their case at the hearing, was that if the transactions between the plaintiff and the first defendant were as alleged by the second and third defendants, then the second and third defendants' knowing complicity in that transaction was sufficient to enliven the doctrine. [48] … [49] However, the second aspect of the clean hands' defence falls into a different category. If the plaintiff's title is to be impeached, it would be necessary for the second and third defendants to show, to the requisite degree, an arguable case or serious question that there had been a sham transaction in which (necessarily, on the facts) they were complicit. Further, on their case, that sham transaction would have been entered into with the object of deceiving the immigration authorities and, quite possibly, of contravening, or enabling the plaintiff to contravene, relevant provisions of the Migration Act 1958 (Cth). Even if such a claim did not raise questions of illegality in the strict sense (see, for example, Thomas Brown & Sons Limited v Fazal Deen (1962) 108 CLR 391 and Carney v Herbert (1984) 3 NSWLR 85) it would, in my opinion, demonstrate that the defendants had been guilty of "depravity in a legal as well as in a moral sense" that had an "immediate and necessary relation to the equity sued for" (Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184). See, generally, Black Uhlans Inc v NSW Crime Commission [2002] NSW SC 1060 at [157] to [183] where Campbell J reviews the authorities. [50] As his Honour said at [184], when one applies the unclean hands' principle, it is necessary first to identify what is the equity which (absent unclean hands) the Court would be prepared to uphold. In the present case, if there is an equity, it is the defendants' asserted right to have set aside, or to cause the first defendant to have set aside, the allocation of shares to the plaintiff. To prove that equity, the second and third defendants must necessarily prove a sham transaction that, on their case, was entered into for the purposes outlined in the preceding paragraph. On that analysis, in my opinion, if the second and third defendants otherwise succeeded in making out their case, they would necessarily attract the operation of the doctrine and I would therefore refuse injunctive relief.
6. If I had determined that the arrangement in the present case was a sham, those authorities point to the difficulty for the defendant in demonstrating that she seeks relief to set the Deed of Loan and the mortgage aside with clean hands. To prove her equity to have the Deed of Loan and mortgage set aside, the defendant necessarily had to rely on the sham arrangement in which she was complicit.

Is the mortgage unenforceable for other reasons?

1. The defendant submitted that no loan was ever made to her because she never received any monies into her account, nor did she ever direct the solicitor with carriage of the conveyance to apply any funds held on her behalf to the purchase. The defendant further submitted that if there was no loan there could not be any default on a loan.
2. The defendant submitted that the date for payment of the principal (30 years from the date of the advance) had not arrived and there was never any oral or written direction to her as to when payments should be made or how much they should be.
3. It is clear that these submissions all depend on the loan being a sham, as the defendant's written submissions make clear. It is not, in any event, necessary for the purchase price to have passed through the defendant's hands to establish that a loan had been made. The evidence is clear that the plaintiff paid the purchase price for the property which was, at the same time, put into the defendant's name.
4. There was no necessity for any direction in relation to payment of instalments. The Deed of Loan provided in clause 3.2(b): The Borrower must pay principal and interest to the Lender or as the Lender directs in monthly instalments. On the ordinary construction of that requirement in the context of a mortgage, the words "or as the Lender directs" are words in apposition to the words "to the Lender". From the time the deed was executed there was an obligation to pay principal and interest in monthly instalments. That term was not unenforceable for uncertainty because the interest rate was stipulated in item 5 of the Schedule to the Deed of Loan, the amount of the principal was identified, and the term of the loan was specified. It was not necessary for the lender to give any direction about payment unless the lender wished to require payment to someone other than the lender.
5. The defendant also submitted that a search of the Register disclosed that all that was registered was the Mortgage itself and a document headed Annexure "A". The Deed of Loan did not form part of the Register and was not referred to in the Mortgage or Annexure "A". Accordingly, the covenants in the Deed of Loan were contractual only with the result that the s 57(2)(b) notice was invalid because the defaults relied upon were not defaults under the registered mortgage. Further, the plaintiff was not entitled to possession of land because rights to possession arose only under the Deed and not the mortgage.
6. I note that this matter was not pleaded in the Defence nor the Cross-Claim. Since, however, it was argued without opposition from the plaintiff, I will deal with the argument.
7. Annexure "A' relevantly provided: The Mortgagor hereby acknowledges receipt of the principal sum of $450,000.00 and; (1) Irrevocably appoints the Mortgagee the attorney of the Mortgagor immediately on or at any time after any breach or default by the Mortgagor to exercise in the name of the Mortgagor all rights, powers and remedies of the Mortgagee expressed or implied herein and to receive any moneys payable to the Mortgagor in respect of the mortgaged land whether in respect of the insurance compensation or otherwise and to do all things required to be done by the Mortgagor and to execute all documents and to do all things necessary in regard to such matters. (2) Covenants with the Mortgagee as follows:- Firstly - The Mortgagor will observe the provisions set forth in the Memorandum filed in the Land Titles Office as number Q86O0O0 all of the provisions of which Memorandum, are deemed to be incorporated in this Mortgage and are deemed to be covenants for the purposes of section 80A of the Real Property Act 1900 as amended: Secondly- The Mortgagor must observe the provisions set forth in the Deed of Acknowledgment of Loan this day executed between the Mortgagee as Lender and the Mortgagor as Borrower. Thirdly - The Mortgagor will pay upon demand by the Mortgagee and indemnify the Mortgagee for any stamp duty, receipts or other governmental duty or charge arising directly or indirectly by reason of this Mortgage or any security collateral hereto. (emphasis added)
8. The issue arises because Annexure "A" refers to "the Deed of Acknowledgement of Loan" rather than "the Deed of Loan". The defendant says that the covenant should be construed strictly against the mortgagee, relying on Tsan v Electronic Resources Aust Pty Ltd (Supreme Court (NSW), Hodgson J, 24 July 1997, unrep).
9. The mortgage in Tsan, said to have been given by way of guarantee for a loan to a third party, did not contain any acknowledgement or promise that the mortgagors were actually giving the guarantee or mortgage contemplated by the loan agreement with the third party. Furthermore, as Hodgson J noted, since guarantors were involved the contra proferentem principle and the principle that documents are to be construed strictissimi juris both applied. The result was that the mortgage was ineffectual and secured nothing.
10. In the present matter the defendant is not a guarantor. Furthermore, as the parties acknowledge, the only documents executed on 22 June 2006 were the mortgage and the document called "Deed of Loan". There was no such document as a "Deed of Acknowledgement of Loan".
11. In New South Wales Land and Housing Corporation v Australia and New Zealand Banking Group Limited [2015] NSWSC 176 Kunc J said: [46] A "misnomer" is an error in naming something or someone. The Corporation based its misnomer case on the analysis of the Full Court of the Supreme Court of Western Australia in Kingstream Steel Ltd v Stemcor UK Ltd [2001] WASCA 138 ("Kingstream"). In that case a commercial transaction was secured by a letter of credit which was payable on the sighting of various documents. One of those was a guarantee to be issued by "An Feng Kingstream Steel Limited". One guarantee was issued on a letter headed "An Feng Kingstream Steel Co Ltd" and another guarantee was issued by a letter headed "An Feng Kingstream Ltd". It was accepted that there was no company with either of those names. [47] In its judgment in Kingstream the Full Court resolved the problem in this way (emphasis added): [16] In our view the misdescription of the guarantor in the first two documents is simply that, and an error of that kind is not fatal to the validity of the guarantee. Counsel for the applicant argued that because of the misdescription in the first and second guarantees, those guarantees were executed by a non-existent company. He relied primarily on Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52. That case concerned a proposed company that had not been incorporated at the date of execution of a document for the sale of land. The document was executed by the signatories in the belief that the company had been incorporated and that they were directors of it. The question that arose in that case was whether the signatories were personally liable in those circumstances. The court held that, because the company on whose behalf the signatories had purported to sign did not exist, the signatories were not parties to the contract. Their signatures had been made as part of the company's signature. They were not parties to the contract as agents or otherwise and there was no basis upon which they could be held liable upon it. [17] That case can be readily distinguished from the present where the respondent sought and obtained a guarantee from an existing company but that company was misdescribed in the guarantee. The company referred to in subcl 4 of the contract did exist. All that happened was that when the first guarantee came to be prepared the word "Co." was mistakenly inserted into its name and, when the second guarantee came to be prepared, the word "Steel" was mistakenly omitted from its name. That was, in each case, simply a misnomer made in circumstances in which it must have been plain to all who were concerned with the document that it was the applicant which was the guarantor there referred to. Even if there had been any doubt at all about that fact then this must have been laid to rest by the fact that the applicant was identified by its address, fax number and telephone number. In those circumstances it seems to us plainly to be arguable that the Court is, as a matter of construction, at liberty to correct the misnomer. (See Whittam v W J Daniel & Co Ltd [1962] 1 QB 271 at 277; F Goldsmith (Sicklesmere) Ltd v Baxter [1970] Ch 85 and Nittan (UK) Ltd v Solent Steel Fabrication Ltd (1981) 1 Lloyd's Rep 633.) [48] It is important to note that the judgment in Kingstream was not dealing with a final determination of the issues. It was an interlocutory appeal against the decision of a Master on a summary judgment application. The Master had concluded that there was a very strong case that the misdescription in the guarantees could be corrected either as a misnomer or by rectification. Similarly, because of the nature of the appeal the Full Court confined its decision to the conclusion that correction by misnomer was plainly arguable. [49] Despite the nature of the appeal in Kingstream, the Full Court's approach is instructive. Applying the language in paragraph [17] of the judgment in Kingstream, I respectfully express the test for misnomer which will be corrected by construction as whether the misnomer was the product of a mistake made in circumstances in which it would have been plain to all who are concerned with the relevant document as to who the party was that was referred to in the document. Stating the principle in that way is supported by the authorities referred to by the Full Court and in the leading contract texts.
12. In my opinion, it would have been plain to the parties to the present arrangement that what was meant by the words "Deed of Acknowledgement of Loan" was the Deed of Loan. The words used are clearly a falsa demonstratio (as Hodgson J said in Tsan) for the words "Deed of Loan". Accordingly, the Deed of Loan is incorporated into the mortgage by Annexure "A" when properly construed. There is no requirement to invoke the principles referred to in Tsan, particularly because there is no real ambiguity.

Was the contract unjust?

1. A consideration of whether the contract was unjust only arises in circumstances where the defendant does not establish that the Deed of Loan and the mortgage were a sham.
2. I said earlier that I consider the defendant now honestly believes what she is asserting. What I cannot determine is whether at the time of execution of the documents she had that belief. That means that there are two possibilities. First, the defendant might have executed the documents in the mistaken belief that the loan and mortgage would never be enforced, whether because she understood it was merely a protection against a claim by her former husband, or for some other reason. The second possibility is that she did not execute the documents under any mistaken belief.
3. Whilst, in some circumstances, it might be necessary to consider those possibilities separately, in the circumstances of the defendant's entry into the transaction, I do not think it needs to be determined which was the case.
4. The plaintiff submitted that the contract was not unjust where the arrangement gave the defendant security of accommodation which she would not have been able to achieve in any other way. Further, the Deed of Loan in clause 3.2(b) providing for repayment of the principal and interest gave a flexibility that would not have been possible if she had borrowed from a bank or financial institution. The plaintiff submitted that even if the defendant had received independent legal advice she would have agreed to the arrangement in any event because of the benefit she was receiving of the house. That benefit included any increase in the value of the property over time. The plaintiff pointed to the defendant's knowledge of what a mortgage was, and that she knew she was executing a Deed of Loan and a mortgage.
5. The evidence discloses a financial dependence and reliance on her parents over some years prior to the execution of the documents. Barry was an actuary who worked in the life insurance and superannuation industry. The evidence also disclosed that he bought companies in financial difficulty and "turned them around". The plaintiff had been an accounts clerk, an electorate officer, and had assisted Barry with a computing business. The impression I had of the defendant was that she was not very sophisticated in relation to financial matters.
6. The plaintiff and Barry had purchased the Bateau Bay property for the defendant and her husband in the circumstances of her first pregnancy. Although an arrangement was put in place for her to pay $200 per week rent, such rent was never paid. There was no attempt by the parents to enforce that arrangement. After the defendant and her husband separated she told her parents that she did not wish to live in the Bateau Bay property because of the bad memories. It was in those circumstances that the offer was made to purchase a property in her name.
7. Even on the plaintiff's evidence, however, no conversation is recorded between the plaintiff and/or Barry on the one hand and the defendant on the other that, although the parents were buying the property, there would be a mortgage back over a 30 year period. The plaintiff's evidence, which I accept, was that she did not have any intention of gifting a property to the defendant and she did not have any discussions with her husband where he indicated he wanted to provide the house as a gift. There was a conversation between the plaintiff and her husband where one of them said: We need to make sure that we protect ourselves when we help Karen so that she doesn't take advantage of us.
8. The plaintiff then records a discussion with her husband at about the time of exchange of contracts where Barry said to her: I've contacted Tic Stoikovich and asked him to look after the conveyancing for the property. I've explained that we're lending money to Karen and he's going to prepare loan documents and a mortgage to formalise it.
9. The next thing that happened as far as the defendant was concerned is that she went with her parents to the solicitor's office where, in their company, she was asked to sign the Deed of Loan and the mortgage without any explanation being given to her about what the signing of the documents would mean.
10. Not only is there no evidence of any discussion with the defendant about the mortgage before they were at the solicitor's office, it is apparent that the matter seems to have been presented to the defendant by Barry and the plaintiff on a "take it or leave it" basis. There was no evidence of any negotiation of the basis for the purchase and the terms of the Deed of Loan or mortgage. That is a relevant matter under s 9(2) of the Contracts Review Act.
11. Further, it was quite inappropriate that the same solicitor acted for the plaintiff and the defendant. Although, in one sense, this was a family matter, the interests of the plaintiff and the defendant diverged considerably. The defendant ought to have been advised to get independent legal advice. Competent independent legal advice would have resulted in the defendant being told that, under the terms of the Deed of Loan and the mortgage, she was obliged to start paying principal and interest within a month of settlement, that she was thereafter obliged to repay the monthly instalment, that failure in that regard would entitle the plaintiff to issue a notice under s 57(2)(b) of the Real Property Act and thereafter, if that notice was not complied with, to take proceedings seeking possession of the property so that it could be sold to repay the entirety of the amount loaned. The solicitor should probably have asked the defendant how she was going to make the instalment payments. A solicitor's obligation is not simply to explain the legal effect of documents but to advise of the obvious practical implications of the client's entry into the transaction the subject of the advice: Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [80], [120]-[122].
12. The plaintiff said that at the time of settlement of the conveyance she expected that there would be a grace period during which the defendant would not be making mortgage repayments because she had limited employment. She expected that once the defendant and her children had moved into the property she would be in a position to find full-time work with the plaintiff assisting with the children. The defendant would then begin to repay the mortgage.
13. In all of those circumstances, the plaintiff must have known that the defendant would be likely to default under the terms of the Deed of Loan and the mortgage almost immediately. In those circumstances, there was not at the time the mortgage was entered into, to the knowledge of the plaintiff, any reasonable expectation that the repayments required under the Deed of Loan would be able to be made. That would mean that the only way the loan could be repaid would be by a sale of the property. That is what is classically described as "asset lending" in cases like Perpetual Trustee Company Limited v Albert and Rose Khoshaba [2006] NSWCA 41; (2006) 14 BPR 26,639 at [128]; Spina v Permanent Custodians Limited [2009] NSWCA 206; (2009) 14 BPR 26,923 at [69]-[70] and Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343 at [96]; and see Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [43].
14. Contrary to the plaintiff's submissions, the matter of the unjustness of the contract cannot be tested by pointing to the fact that the defendant was receiving a property pursuant to this arrangement that she would not have been able to obtain in any other way. What must be examined is not the underlying transaction but the contract itself.
15. Moreover, although the evidence discloses that the defendant knew that the documents she was executing were a Deed of Loan and a mortgage, and she also knew what a mortgage was, in all of the circumstances that knowledge is not determinative.
16. In my opinion, the financial and emotional dependence of the defendant on her parents, the lack of any explanation, the lack of negotiation, the failure to ensure the defendant obtained independent legal advice, and the knowledge of the plaintiff and Barry that the defendant had no ability at least in the short term of complying with the provisions of the Deed of Loan and mortgage, all combine to make the contract unjust in the circumstances it was made.

What order should be made?

1. The plaintiff submitted that any relief under the Act should take into account that she should at least receive the principal amount loaned of $450,000. She submitted that the Deed of Loan should be varied so that interest is first payable from the date of the demand by the s 57 Notice on 17 October 2016.
2. The defendant submitted, first, that I should set aside the mortgage and Deed of Loan entirely, although the only basis for that submission was that I should find the house was a gift to the defendant. This appeared to be confusing the case that the arrangement was a sham with the alternative case that there was a valid loan and mortgage but that they constituted an unjust contract. The defendant's alternative submission was that interest should only run from the date of the first demand, and that the principal owing should be reduced by some unspecified amount for no specified reason.
3. In the circumstances of my acceptance of the plaintiff's evidence that the house was never intended to be a gift to the defendant, no basis is shown for any order varying the principal sum to relieve the defendant of her liability to repay the amount of $450,000. Both parties appear to agree that it would be reasonable not to require interest to be payable prior to 17 October 2016. The only further matters for consideration are whether interest should not start to run until a date later than 17 October 2016, perhaps the date of this judgment, and whether there should be a variation of any other term of the Deed of Loan.
4. A factor of some significance is that the defendant has been residing, or has been able to reside, in the property since 22 June 2006, paying nothing under the Deed of Loan and mortgage. That must also be viewed in the context of the financial and family arrangements between the plaintiff and the defendant.
5. After the purchase of the property the Plaintiff and Barry, on the defendant's own evidence, paid her mobile phone bills, house insurance, car insurance, and provided money for electricity bills and rates. In addition, in 2012 the plaintiff purchased a car for the defendant at a cost of $34,000. In 2013 the defendant and her two children moved into the plaintiff's house where they were looked after by the plaintiff. After the defendant was required to move out of the plaintiff's house in 2015 her two children remained living with the plaintiff who continues to maintain and support them.
6. Despite the apparent agreement of the parties that interest should not run from a date prior to the demand in October 2016, and despite the matters in [103] and [104] above, there is a further consideration in relation to when interest should commence.
7. The defendant said in evidence that she is unemployed at the moment. The impression I have from her evidence and that of the plaintiff is that her employment record has been patchy. If the Deed of Loan was varied to commence interest running in October 2016 and to require the defendant to pay the arrears of principal and interest from that day, the strong likelihood would be that she would immediately default on the loan. The effect would be a variation of the contract that still amounted to asset-lending in that the only way her obligations could be met would be immediate sale of the property. It scarcely seems appropriate to vary a contract that I have held to be unjust, at least partly because it amounted to asset-lending, by creating a new contract that would put her into immediate default.
8. On the other hand, the defendant has had the benefit of the contract for almost 12 years without any payments being made by her. In my opinion, it is appropriate to commence interest running from 17 October 2016 but not to require her to pay the first instalment of principal and interest due under the varied contract until one month after the date of judgment. In other words, the interest would be capitalised from 17 October 2016 to the date of judgment. Whilst I accept that the defendant may not be able to comply with those varied terms, any other variation more favourable to her would not avoid an unjust consequence to the plaintiff (s 7(1) of the Act).
9. The parties will be ordered to execute an amended deed of loan which varies the time interest commences to be charged on the principal sum and provides for the first instalment of principal and interest to be payable one month after the date final orders are made to give effect to this judgment. There should be no variation to the principal sum owing under the existing Deed nor to the term of the loan. Taking into account the terms of s 19 of the Act, the parties will be ordered to execute and register a variation of the mortgage which will incorporate the amended deed of loan. The costs of these documents should be equally borne by the parties.

Unconscionablity and undue influence

1. In the light of my determination that the contract was unjust, it is not necessary to consider these matters.

Conclusion

1. I will hear the parties on costs. My prima facie view is that each party should pay her own costs on the basis that the plaintiff was successful on the issue of the sham arrangement, but the defendant was successful in varying an unjust contract.
2. The order I will make is that the parties are directed to bring in Short Minutes to reflect my reasons in this judgment and, if agreement is reached, to deal with the question of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 March 2018