Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited

Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited - [2009] NSWCA 186 - NSWCA 2009 case summary — Zoe

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Australia and New Zealand Banking Group Limited v Westpac Banking Corporation [1988] HCA 17; 164 CLR 662 Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 Ball v Mannin (1829) 1 Dow & Cl 380; 6 ER 568 Baltic Shipping Co v Dillon (The "Mikhail Lermontov") (1991) 22 NSWLR 1 Banque Belge pour l'Etranger v Hambrouck [1921] 1 KB 321 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Beverley's Case (1603) 4 Co Rep 123b; 76 ER 1118 Black & Black v S Freedman & Co [1910] HCA 58; 12 CLR 105 Cansdell v O'Donnell (1924) 24 SR (NSW) 596 Chen v Song [2005] NSWSC 19 Collier v Moreland Finance Corporation (Vic) Pty Ltd (1989) ASC 55-716 Crago v McIntyre [1976] 1 NSWLR 729 David Securities Pty Limited v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353 Dexter v Hall 82 US (15 Wallace) 9 (1873) Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 Ellison v Vukicevic (1986) 7 NSWLR 104 Fawcett v Smethurst (1914) 84 LJKB 473 Foster v Mackinnon (1869) LR 4 CPD 704 Gallie v Lee [1969] 2 Ch 17 George v Paul George Pty Ltd (29 February 1996, unreported BC 9600347) Gibbons v Wright [1954] HCA 17; 91 CLR 423 Gore v Gibson (1845) 13 M & W 623; 153 ER 260 Imperial Loan Company Limited v Stone [1892] 1 QB 599 In re Rhodes; Rhodes v Rhodes (1890) 44 Ch D 94 Kelly v Solari (1841) 9 M & W 54; 152 ER 24 Lander v Trigger [1999] NSWSC 1253 CASES CITED: Lipkin Gorman v Karpnale Ltd [1988] UKHL 12; [1991] 2 AC 548 Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; 82 ALJR 1037 Matthews v Baxter (1873) LR 8 Ex 132 McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904] HCA 51; 1 CLR 243 Molton v Camroux (1848) 2 Ex 487; 154 ER 584 Muskham Finance Ltd v Howard [1963] 1 QB 904 National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; 160 CLR 251 Paul George Pty Ltd v George (1999) NSW Con R 55-892 Pavey and Matthews Pty Limited v Paul [1987] HCA 5; 162 CLR 221 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Perpetual Trustees Victoria Limited v Ford [2008] NSWSC 29 Petelin v Cullen [1975] HCA 24; 132 CLR 355 Port of Brisbane Cooporation v ANZ Securities Ltd (No 2) [2002] QCA 158; [2003] 2 Qd R 661 Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 Quek v Beggs (1990) 5 BPR 11,761 R Leslie Limited v Sheill [1914] 3 KB 607 Saunders v Anglia Building Society (Gallie v Lee) [1970] UKHL 5; [1971] AC 1004 Steele-Smith v Liberty Financial Pty Limited [2005] NSWSC 398 Stephens v Badcock (1832) 3 B & Ad 354; 110 ER 133 Thompson v Leach (1698) 3 Mod 301; 87 ER 199 Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 Tugman v Hopkins (1842) 2 Man & G 389; 134 ER 159 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; 13 BPR 25,343 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Wright v Gibbons [1949] HCA 3; 78 CLR 313 Yates v Boen (1738) 2 Strange 1104; 93 ER 1060

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3 We will come to the circumstances of the procuring and entry into the relevant documents shortly. First, however, it is necessary to understand Mr Ford's intellectual impairment. The following comes (unless otherwise identified) from the findings of the primary judge. No appeal is brought against any of those findings. 4 The findings of the trial judge were reached after contested lay and expert evidence on the level of Mr Ford's intellectual functioning and impairment. In particular, there was a controversy between a psychiatrist, Dr Roberts, called on behalf of Perpetual and a clinical psychologist, Ms Nassar, called on behalf of Mr Ford. The primary judge accepted Ms Nassar's evidence in preference to that of Dr Roberts. 5 Mr Ford was born in 1945. At all relevant times, he suffered from a congenital intellectual impairment. He is illiterate, although he has the ability to sign his name and to recognise some words and numbers. 6 Prior to the death of Mr Ford's mother in 1994, with the exception of a period of about six years, from 1970 to 1976, when he was married, his mother looked after him. She cooked for him, made his bed and accompanied him on outings such as to the bowling club. 7 Mr Ford had worked in mines in the South Coast region. When he was working there he was not permitted to use machinery. Mr Ford gave evidence, which the primary judge can be taken to have accepted, that he could not understand figures or what had been written on his pay slips when he was working and he would ask those who worked with him to read his pay packet information to him. His employer had attempted to arrange for someone to teach him to read and write, but without success. Mr Ford gave evidence that he could not get to Sydney by himself without help from his family. After his mother's death, his sister would read his mail and help him pay his bills. His sister would attend doctors' appointments with him and take him to the credit union and do his shopping. 8 The congenital intellectual impairment placed Mr Ford's overall level of intellectual functioning below the first percentile when the Wechsler Adult Intelligence Scale - Third Edition was administered by Ms Nasser. 9 Set against the above background, it is appropriate next to identify the transaction and how it was entered into. We will then identify the issues in the proceedings and the critical conclusions and reasoning of the primary judge. The transaction of loan and mortgage and its background

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10 The loan was arranged by Mr Ford's son (to whom we will refer as Scott) in order for Scott to purchase a cleaning business known as Melmat Cleaning for the sum of $180,000. In the events that occurred, the business was purchased in Mr Ford's name, although he had neither the desire nor the need to acquire it for himself. As the judge found at [3] of his reasons Mr Ford clearly did not have the ability to manage or conduct the business. 11 In 2003 (the year before the loan and mortgage were taken out) Mr Ford invited Scott to come and stay with him at the property. He was not close to Scott nor was he close to Scott's partner, Sophie, or their four children, but he said that he hoped by asking them to stay he would see more of them. There were only two bedrooms in the house. The defendant offered to move into an old caravan in the back garden with his dogs. Scott was the second child of Mr Ford's first marriage. Mr Ford had been married on two occasions. There were no children of the second marriage. 12 The primary judge set out what he saw as the facts relevant to the transactions in paragraph [52]-[60] as follows: "[52] On 12 May 2004, Peter Economos of Dolphinex Pty Limited ('Dolphinex'), a company that provided mortgage broking and financial planning services, went to the property and had a meeting with [Mr Ford] and his son. Mr Economos did not know who had made the appointment for him to visit. During the meeting, according to Mr Economos' evidence, he had a discussion with [Mr Ford] and his son in which they both participated approximately equally and in which [Mr Ford] gave him information about his assets, including the property, his bank accounts and investments. Mr Economos had a specific recollection of some questions that [Mr Ford] asked during the meeting that he set out in his affidavit. During that meeting Mr Economos made some handwritten notes for the purpose of preparing a mortgage reduction plan, which was part of a service offered by Dolphinex to help borrowers pay off their loans more quickly. [Mr Ford] told Mr Economos that he did not want his son on the title deeds. The ideas of the loan being in [Mr Ford's] name and for him to buy the business with his son were discussed. Mr Economos advised [Mr Ford] to see a lawyer. [53] On 15 May 2004, there was a second meeting at [Mr Ford's] house involving Mr Economos, [Mr Ford] and his son. At this meeting, according to Mr Economos, [Mr Ford] told him that he was going to buy the business and that his son was going to run it. At the meeting [Mr Ford] signed the loan application and other documents such as declarations as to purpose and said that he understood his obligations under the proposed loan and could meet them. [Mr Ford] also entered into an agreement with Dolphinex for it to provide him with its mortgage reduction service. A fee of $385 was paid for Mr Economos to draft a mortgage reduction plan and an irrevocable authority and permission to pay was signed in favour of Dolphinex so that it could be paid a fee of $3,245 from the loan funds or [Mr Ford's] funds on settlement of the loan. The irrevocable authority also gave Dolphinex authority to act on [Mr Ford's] behalf. Mr Economos again advised [Mr Ford] to see a lawyer. [54] On 19 and 21 May 2004, Dolphinex sent the loan application documents to Australian Financial Group Limited ('AFG'), a loan originator. These documents did not include the mortgage reduction plan that had been prepared by Mr Economos after his meetings with [Mr Ford] and his son. [55] AFG passed the loan application to [Perpetual's] mortgage manager, Challenger (at that stage known as Interstar). Challenger assessed the loan application and, after making some enquiries which were answered by AFG and seeking and obtaining insurance for the loan, approved the loan on about 16 June 2004. Challenger then instructed its settlement agents, First Title Secure, to draft the documents and settle the transaction. [56] On or about 17 June 2004, First Title Secure sent loan and mortgage documents directly to [Mr Ford] for him to sign. Whilst Dolphinex's files contain a note that [Mr Ford] was proposing to sign the documents in front of a solicitor, he actually signed them in front of Mr Economos. Mr Economos was requested to attend the property, which he did for this purpose, and all the documents were duly signed after Mr Economos explained them to [Mr Ford]. Mr Economos did not take the documents to the property; First Title Secure had already sent them there. Mr Economos said he had no reason to believe or to think that [Mr Ford] did not understand the nature or content of the documents. [57] On 29 June 2004, Dolphinex sent the executed loan documents including the Loan Agreement, the Mortgage and a direct debit authority to First Title Secure by post along with Directions about the disbursement of the loan. [58] On 1 July 2007, [Mr Ford] signed an agreement to purchase the business known as Melmat Cleaning from Matthew Ritchie and Melissa Ritchie for $180,000 as mentioned earlier. $10,000 of the purchase price was paid on exchange as a deposit. The amount of $10,000 was paid from the defendant's personal account with the Illawarra Credit Union. [59] On 5 July 2004, the transaction was settled. After the payment of expenses, the balance of the loan was disbursed by cheques drawn in favour of Matthew Ritchie for $170,000, [Mr Ford] for $24,857 and the Mortgage Reduction Centre (Dolphinex) for $3,245 for the mortgage reduction service. The first two of these cheques were sent by mail to [Mr Ford] at the property. He signed a document acknowledging their receipt and returned it to First Title Secure. The cheque to [Mr Ford] was banked into his personal account. The last cheque was sent to AFG along with a cheque to AFG for commission, which came out of the lender's funds. AFG forwarded the cheque for the mortgage reduction service to Dolphinex and was also required to remit 80% of the commission to Dolphinex. First Title Secure did not deal with Dolphinex. [60] It is reasonable to infer that that the cheque for $170,000 was paid to Mr and Mrs Ritchie because there are numerous documents that show that Melmat Cleaning was transferred to the defendant. On 23 July 2004 [Mr Ford] opened another account at the Illawarra Credit Union in the name of the business. The application form listed [Mr Ford] as proprietor of the business and gave his son access to the account. There were no documents that suggested, nor did the evidence establish, that [Mr Ford's] son had access to [Mr Ford's] personal account. The Melmat Cleaning bank statements show activity suggesting that the business was trading." 13 One of the documents provided by Perpetual or Interstar for submission to Perpetual was entitled "Retro Declaration of Purpose & Financial Position". This document contained a section entitled "Declaration of Financial Position" under which the following appeared: "I/We certify warrant and represent to you that: (a) I am/we are aware of our financial obligations under our proposed loan with you and I am/we are fully able to meet our obligations under this loan; and (b) I am/we are satisfied that our obligations to you will not adversely impact on our ability to meet all my/our other financial obligations (including living expenses) as and when they fall due; (c) I/we request Perpetual Trustees Victoria Ltd to assess this facility without the documentary evidence of my/our income and financial position; (d) My/our ABN/ACN number is:________. I/We acknowledge that you are replying on this statement in considering whether or not to approve this loan application." (emphasis added)

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The "commercial" background and the purchase of the cleaning business 20 There were few findings specifically about the contract with the vendors of the business. That contract was, however, entered some three or four days before the loan and mortgage were signed. 21 The findings about incapacity were such as necessarily to permit the conclusion that Mr Ford could also have had no understanding of this underlying transaction. 22 The primary judge concluded that Mr Ford was not a "volunteer" ([89] of the reasons). He also said, at [91] of the reasons: "In the present case, whatever view one may take about receipt of the benefit of the monies used to purchase the cleaning business, or whether or not the present circumstances are such that the benefit of the consideration moved to some third party involved in the transaction, [Mr Ford's] bank account was in fact credited with the net difference between the purchase price of the business plus expenses, and the sum of $200,000, amounting to $24,857. It is difficult in those circumstances to characterise [Mr Ford] as a volunteer, even notwithstanding his total inability by reason of his cognitive impairment to understand that fact." 23 The primary judge found at [103] of his reasons that the cleaning business "went wrong" and at [104] that it had not "succeeded". 24 It should be said, however, that there was no suggestion in the evidence, in the reasons, or in the argument on appeal that apart from his name on the purchase documents for the cleaning business and apart from the receipt of $24,857 that Mr Ford benefited in any way whatsoever from the making of the loan and purchase of the business. The findings of the primary judge are sufficient to conclude confidently that: (1) Scott manipulated his intellectually impaired father to place him on the documentation for the business and the loan and mortgage to protect Scott from any potential liability and financial responsibility for the venture. (2) Mr Ford reaped no benefit from the business or the loan other than from the receipt of $24,857 into his bank account (the evidence not disclosing what happened to this money). (3) Mr Ford had no capacity to understand and did not understand any aspect of the transaction, being the purchase of the business, the loan and the mortgage. (4) The transaction, being the purchase of the business, the loan and the mortgage, was entered, and the business was to be run, and was run, by Scott, for the purposes and benefit of Scott, in circumstances where Scott became (as he was intended to become) the actual (though not in name) proprietor of the business.

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The parties' claims 27 In its amended statement of claim, Perpetual sought, in the alternative to judgment under the loan agreement, restitution of the sum lent plus interest; and further in the alternative it sought damages from Mr Ford under the Fair Trading Act 1987 (NSW), s 68 and/or orders under s 72 of that Act restoring it to the position it would have been in had the loan agreement and mortgage been enforceable (if they were not). These last orders sought were on the assumption that some aspects of Mr Ford's claims were successful. 28 Mr Ford claimed in his defence and cross-claim: (1) that he was entitled to the plea of non est factum directed to the loan and mortgage documents; (2) that he lacked capacity to enter into any contract; and (3) that the contracts of loan and mortgage were unconscionable, unfair and unjust for the purposes of the general law, or the Contracts Review Act 1980 (NSW), s 7, or the Australian Securities and Investment Commission Act 2001 (Cth), ss 12CA, 12CB and 12CC, or under the Consumer Credit Code, s 70, or the Trade Practices Act 1974 (Cth), s 51AB. 29 The structure of the issues as they came before the primary judge were as set out in [46]-[50] of his Honour's reasons as follows: "[46] There was no relevant dispute between the parties as to the nature of [Perpetual's] claim or the structure of the anterior transaction upon which it is based. [Perpetual] relied strictly upon the terms of the loan agreement as it was entitled to do and [Mr Ford], whilst not admitting the case pleaded in reliance upon the loan agreement, did not take issue with [Perpetual's] formal entitlement to the relief that it sought if the transaction were otherwise enforceable against him. On the contrary, [Mr Ford] pleaded in his defence and cross claim that he was not liable to [Perpetual] because of, in summary, his congenitally impaired intellectual functioning. Accordingly, [Mr Ford] put his case in three ways. First, that he lacked the capacity to enter into any contract with [Perpetual]. Secondly, [Mr Ford] relied upon the doctrine of non est factum . Thirdly, [Mr Ford] alleged that to enforce the transaction against him would in the circumstances be unconscionable and/or unfair or unjust within the meaning of s 7 of the Contracts Review Act 1980.

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[47] [Mr Ford] also relied upon a defence of undue influence. It will be necessary to return to this aspect later in these reasons. [48] In general response to these matters [Perpetual] said that even if [Mr Ford's] incapacity were established, [Perpetual] did not know, or was not put on notice, of it at any time prior to 5 July 2004 when the transaction was entered into. [Perpetual] contended that it was entitled to enforce its rights under the loan agreement and the mortgage and that in any event the mortgage, being registered, is indefeasible. [Perpetual] denied that [Mr Ford] was entitled to relief under the Contracts Review Act 1980 by reason of s 6(2) because the loan agreement and the mortgage were entered into for the purpose of a trade, business or profession carried on by [Mr Ford]. Furthermore, [Perpetual] said that the circumstances pleaded were not reasonably foreseeable at the time that the loan agreement and the mortgage were made within the meaning of s 9(4) of that Act. [49] More particularly, [Perpetual] pleaded in its amended statement of claim, but in effect in response to [Mr Ford's] cross claim, that if the court were to find that the loan agreement were void or unenforceable for the reasons promoted by [Mr Ford] the money advanced by [Perpetual] to the defendant was advanced on the basis of a mistake that the transaction was enforceable against the [Mr Ford] according to its terms, and that [Mr Ford] was capable of entering into the transaction and understood the general nature of the loan agreement and the mortgage when he signed them. By reason of the advance of the monies to [Mr Ford] in those circumstances, he had been unjustly enriched. [50] Furthermore, [Perpetual] alleged that [Mr Ford] engaged in conduct in trade and commerce contrary to the provisions of the Fair Trading Act 1987 . [Perpetual] alleged that [Mr Ford] represented that he was applying for a loan of $200,000 as a borrower intending to purchase a business with the proceeds of the loan and represented that Mr Economos was his mortgage broker. It alleged that [Mr Ford] represented that the loan was for investment or business purposes, that he was fully aware of his financial obligations under the proposed loan with [Perpetual] and that he was fully able to meet his obligations under it. Finally, [Perpetual] alleged that [Mr Ford] represented that the information in the loan application dated 17 May 2004 was true and correct and could be relied upon, and that the information in the loan agreement was true as was the information he had given about his capacity and financial position. Alternatively, [Perpetual] alleged that [Mr Ford] was estopped from denying that that conduct occurred in trade or commerce."

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Non Est Factum 36 The first submission of Perpetual was that in circumstances such as the present, where the findings were that Mr Ford had no capacity to understand, and did not understand, the document at all, non est factum was not available as a defence. Rather, it was submitted, only the defence of incapacity was available, in respect of which to succeed, it was necessary to prove that Perpetual knew of Mr Ford's incapacity. 37 The proposition was said to be made good by the expression of principle in Petelin v Cullen [1975] HCA 24; 132 CLR 355. There, in the reasons of the Court (Barwick CJ, McTiernan, Gibbs, Stephen and Mason JJ) the following was said at 359, 360 and 361: "The principle which underlies the extension of the plea to cases in which a defendant has actually signed the instrument on which he is sued has not proved easy of precise formulation. The problem is that the principle must accommodate two policy considerations which pull in opposite directions: first, the injustice of holding a person to a bargain to which he has not brought a consenting mind; and, secondly, the necessity of holding a person who signs a document to that document, more particularly so as to protect innocent persons who rely on that signature when there is no reason to doubt its validity. The importance which the law assigns to the act of signing and to the protection of innocent persons who rely upon a signature is readily discerned in the statement that the plea is one 'which must necessarily be kept within narrow limits' ( Muskham Finance Ltd. v. Howard) [[1963] 1 QB 904 at 912] and in the qualifications attaching to the defence which are designed to achieve this objective. The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence. All this is made clear by the recent decision of the House of Lords in Saunders v. Anglia Building Society (Gallie v. Lee [[1971] AC 1004 at 1019]). … It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it. The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed. It is otherwise when the defence is asserted against the other party to the transaction who is aware of the circumstances in which it came to be executed and who knows (because the document was signed on his representation) or has reason to suspect that it was executed under some misapprehension as to its character. In such a case the law must give effect to the policy which requires that a person should not be held to a bargain to which he has not brought a consenting mind for there is no conflicting or countervailing consideration to be accommodated -- no innocent person has placed reliance on the signature without reason to doubt its validity.

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The other element in the defence which requires to be mentioned is the necessity that the appellant should show that he believed the document to be radically different from what it was in fact. Once it is accepted that the primary judge could properly find that the appellant believed it to be a receipt, this point of contention disappears from the case. The respondent urged that the evidence was so slight as not to overcome the "heavy" onus which rested with the appellant. The existence of that onus unquestionably was present to the mind of the primary judge when he came to assess the credibility of the appellant. But once he accepted the appellant's evidence the question of onus in our opinion was set at rest." 38 In our view, it is clear from the terms of these reasons of the High Court that the central question in the operation of the plea concerns the true consent of the signer to the act of signature. That is clear from the Court's expression of the first policy consideration (at 359): "the injustice of holding a person to a bargain to which he has not brought a consenting mind." It is reinforced by the identification of the class of persons who can avail themselves of the defence. The Court said (at 359-360) that the class includes "those who through no fault of their own are unable to have any understanding of the purport of a particular document." It is in that context that the Court referred (at 360 and 361) to the person showing that he (or she) signed in the belief that the document was radically different from which it in fact was. If a person, who has capacity to form a belief that a document has a certain character, but is radically wrong in that belief, can qualify for the defence it makes no coherent logical sense for the law to deny the same defence (reflecting the policy consideration to which the High Court referred) to someone without any capacity for forming any relevant belief. We do not read the words of the Court in Petelin v Cullen as removing from the operation of the defence circumstances which fall within its clear informing policy and which are even more clearly demonstrative of a lack of consent than the narrow confines articulated for someone capable of forming a relevant belief. 39 A further matter arising out of the judgment in Petelin v Cullen with which it is convenient to deal here is the question of the required lack of negligence referred to at 360. From the facts discussed at 361, it is clear that their Honours were directing the enquiry as to satisfaction of that standard of reasonableness, bearing in mind the circumstances of the person in question. It is clear from this approach that one does not posit an objective standard of a reasonable man shorn of the disability that the person may have - whether blindness, illiteracy or other impairment. It is negligence or lack of reasonableness of a person in the position of the signer that is the relevant enquiry. 40 The above reading of the reasons in Petelin v Cullen is reinforced when one reads the speeches in Saunders v Anglia Building Society (Gallie v Lee) [1970] UKHL 5; [1971] AC 1004, which was referred to in Petelin v Cullen. The five speeches in Gallie v Lee reflect the content of the High Court's expression of principle. A number of matters are worthy of note from their Lordships' speeches. 41 Lord Reid's expression of principle at 1015-1016 extended expressly to people "of innate incapacity". He said: "The plea of non est factum obviously applies when the person sought to be held liable did not in fact sign the document. But at least since the sixteenth century it has also been held to apply in certain cases so as to enable a person who in fact signed a document to say that it is not his deed. Obviously any such extension must be kept within narrow limits if it is not to shake the confidence of those who habitually and rightly rely on signatures when there is no obvious reason to doubt their validity. Originally this extension appears to have been made in favour of those who were unable to read owing to blindness or illiteracy and who therefore had to trust someone to tell them what they were signing. I think that it must also apply in favour of those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity." 42 Lord Reid, in discussing the difference between what the document was and what it was believed to have been said at 1017 that the difference must be "radical", or "fundamental" or "serious" or "very substantial". His Lordship noted at 1016-1017 that it was extremely difficult to state where dividing line was between what a person in fact signed and what the person believed he was signing (an important observation to which we will return). 43 Lord Wilberforce undertook an historical analysis, recognising the difficulty of expressing the test as the law developed in the 19th century and the development of the consensual contract. One of the difficulties in the plea, referred to by Lord Wilberforce (at 1025) and which was discussed at length by Lord Denning MR in the Court of Appeal in Gallie v Lee [1969] 2 Ch 17, was whether a person of full understanding could ever take advantage of the plea. Accepting these difficulties Lord Wilberforce said at 1025-1026: "But there remains a residue of difficult cases. There are still illiterate or senile persons who cannot read, or apprehend, a legal document; there are still persons who may be tricked into putting their signature on a piece of paper which has legal consequences totally different from anything they intended. Certainly the first class may in some cases, even without the plea, be able to obtain relief, either because no third party has become involved, or, if he has, with the assistance of equitable doctrines, because the third party's interest is equitable only and his conduct such that his rights should be postponed (see National Provincial Bank of England v Jackson (1886) 33 Ch.D. 1 and cf Hunter v Walters (1871) 7 Ch App 75 at 89). Certainly, too, the second class may in some cases fall under the heading of plain forgery, in which event the plea of non est factum is not needed, or indeed available (cf Swan v North British Australasian Co Ltd (1863) 2 H &C 175 ) and in others be reduced if the signer is denied the benefit of the plea because of his negligence. But accepting all that has been said by learned judges as to the necessity of confining the plea within narrow limits, to eliminate it altogether would, in my opinion, deprive the courts of what may be, doubtless on sufficiently rare occasions, an instrument of justice. How, then, ought the principle, on which a plea of non est factum is admissible, to be stated? In my opinion, a document should be held to be void (as opposed to voidable) only when the element of consent to it is totally lacking, ie more concretely, when the transaction which the document purports to effect is essentially different in substance or in kind from the transaction intended. Many other expressions, or adjectives, could be used - 'basically' or 'radically' or 'fundamentally'. In substance, the test does not differ from that which was applied in the leading cases of Thoroughgood's Case (1582) 2 Co Rep 96 and Foster v Mackinnon (1869) L.R. 4 C.P. 704 , except in moving from the character/contents distinction to an area better understood in modern practice." 44 His Lordship then went on to make certain amplifications concerning fraud, signing without reading and carelessness. At 1027, his Lordship said in dealing with persons other than adult, literate and competent persons: "The preceding paragraphs contemplate persons who are adult and literate: the conclusion as to such persons is that, while there are cases in which they may successfully plead non est factum, these cases will, in modern times, be rare. As to persons who are illiterate, or blind, or lacking in understanding, the law is in a dilemma. On the one hand, the law is traditionally, and rightly, ready to relieve them against hardship and imposition. On the other hand, regard has to be paid to the position of innocent third parties who cannot be expected, and often would have no means, to know the condition or status of the signer. I do not think that a defined solution can be provided for all cases. The law ought, in my opinion, to give relief if satisfied that consent was truly lacking but will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents." 45 Lord Pearson said at 1034: "… [T]he plea of non est factum ought to be available in a proper case for the relief of a person who for permanent or temporary reasons (not limited to blindness or illiteracy) is not capable of both reading and sufficiently understanding the deed or other document to be signed."

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46 These passages from the speeches of Lords Reid, Wilberforce and Pearson, which were not contradicted in any of the other speeches, make clear that incapacity is a potentially qualifying, not a disqualifying, characteristic; that the underlying consideration informing the plea is true consent; that the relevant difference required between the document and the belief is "radical", but that is the measure of the lack of consent not a mechanical requirement of a positive informed belief; and that the lack of negligence required to be displayed is to be judged according to the circumstances of the person in question. 47 The submissions of Perpetual in support of the proposition that incapacity in fact disqualified a party from the plea of non est factum stressed what was said to be the inconsistency of the pleas of non est factum and incapacity. Particular reliance was placed on Gibbons v Wright [1954] HCA 17; 91 CLR 423. It is necessary to analyse Gibbons v Wright and its relationship with Petelin v Cullen in order to understand and express the relationship between the two pleas and to assess the extent to which, if at all, a lack of understanding, through incapacity, can found a plea of non est factum and the extent to which, if it be the case, incapacity is a mutually exclusive plea to non est factum, such that incapacity may not found the latter plea. 48 The controversy in Gibbons v Wright arose from the affairs of two sisters (Ethel Rose Gibbons and Olinda Gibbons) and their brother (Gustav Gibbons) and his wife (Bessie Melba Gibbons). Gustav died on 4 April 1943. Before he died, he and his two sisters (Ethel and Olinda) were seised of an estate in fee simple as joint tenants in certain land in Hobart, some of which was old system title and some of which was Torrens title. By indenture dated 14 April 1943 (in effect a deed of gift) between Ethel and Olinda on the one part and Bessie on the other part, Ethel and Olinda covenanted to do all things necessary to vest in Bessie the same right, title and interest in the land as Gustav had. In the same year, on 3 July 1943 (according to the reasons for judgment), by indenture of that date, Ethel and Olinda, of the one part, and themselves and Bessie of the other part conveyed to themselves and Bessie as joint tenants in fee simple the old system land and by memorandum of transfer of the same date Ethel and Olinda transferred to themselves and Bessie as joint tenants in fee simple the Torrens title land. 49 On 11 October 1944, Ethel and Olinda by separate instruments mortgaged their interests as joint tenants in the old system land to Reginald Charles Wright. This (if a valid instrument) severed the joint tenancies under the old system land. 50 On 6 December 1945, Ethel and Olinda executed a document in respect of the Torrens title land which was registered as a memorandum of transfer. By the document, Ethel transferred to Olinda her one-third share in the land and Olinda transferred to Ethel her one-third share in the land. 51 Ethel died the following month at Hobart, on 20 January 1946 and Olinda died later in the year at Hobart, on 30 November 1946. Mr Wright was the executor of both their wills and estates. 52 In the litigation between Bessie Gibbons and Mr Wright, Bessie, as plaintiff, claimed a declaration that the document executed on 6 December 1945 was ineffective in its terms and operation to sever the joint tenancy. This was dealt with as a separate question between the parties before the resolution of the balance of the litigation. Bessie succeeded at first instance. An appeal was taken directly to the High Court (Latham CJ, Rich and Dixon JJ). The Court reversed the trial judge: see Wright v Gibbons [1949] HCA 3; 78 CLR 313. The document (if otherwise valid) was held to be effective to sever the joint tenancy in the Torrens title land. 53 Upon Bessie Gibbons' failure to win the separate issue, she proceeded with the balance of the suit that had been commenced on 23 April 1947 seeking declarations that she was the sole surviving joint tenant, that the mortgages executed in October 1944 and the document executed on 6 December 1945 were ineffective to sever the joint tenancy, and rectification of the register. The remaining foundation for the claims was contained in a paragraph of the statement of claim set out at 91 CLR 425: "… Olinda Gibbons and Ethel Rose Gibbons, or, alternatively, one or other of them, were not or was not of sound mind and understanding, nor capable of understanding or entering into the said purported transaction." 54 The trial proceeded before the Chief Justice and a jury. The jury found the following in answer to questions left to it by the Chief Justice: First, that at the time of the deed of gift (14 April 1943) Ethel was capable of understanding the effect of the deed, Ethel and Olinda did not stand in a confidential relationship to Bessie and were not under her influence and, in executing the deed, both Ethel and Olinda had independent legal advice. Secondly, as to the time of the execution of the conveyance to create the joint tenancy (3 July 1943) the same findings were made. Thirdly, at the times of executing the mortgages (11 October 1944) and of executing the document by way of transfer (6 December 1945) neither Ethel nor Olinda was capable of understanding the nature and effect thereof. (See the findings of the jury set out at 91 CLR 428.) 55 The Chief Justice ordered and declared that each of the two indentures of mortgage (of 11 October 1944) and the transfer (of 6 December 1945) was a nullity and of no effect. The recorder of titles was ordered to rectify the register. 56 The Full Court set aside these orders, having given Bessie an opportunity to amend the statement of claim to allege knowledge on the part of Mr Wright as a party to the two indenture of mortgage of the unsoundness of mind attributed to Ethel and Olinda. 57 Bessie appealed. The High Court (Dixon CJ, Kitto and Taylor JJ) dismissed the appeal in a judgment of the Court. 58 The Court recognised (at 437) that the phrase "the effect of the deed", taken apart from context, was ambiguous and so their Honours examined the Chief Justice's summing up. The records of the trial were less than perfect, there being no official transcript and four (to a degree conflicting) notes made by the lawyers who had been present. A variety of expressions were attributed to the Chief Justice. The Court concluded (at 437) that the phrase "the effect of the deed" in the questions referred to "the broad operation of the deed, as distinguished from its precise terms." 59 The Court first emphasised (at 437-438) that the law has no fixed standard of sanity or capacity as requisite for all transactions. Rather, it requires in relation to each transaction that each party shall have "a degree of" soundness of mind as to be capable of understanding the general nature of what he is doing by his participation (437). In discussing the House of Lords decision in Ball v Mannin (1829) 1 Dow & Cl 380; 6 ER 568, the Court noted that their Lordships rejected the need, in order to avoid a deed, to prove idiocy in the sense of "a total absence and deprivation of the faculty of reason" (438). Rather, their Lordships approved a statement as to the requisite capacity that the person was "capable of understanding what he did by executing the deed when its general purport was explained to him" (438). By reference to Ball v Mannin and a number of other cases the Court said at 438: "… the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity to understand the nature of that transaction when it is explained. … Ordinarily the nature of the transaction means in this connection the broad operation, the 'general purport' of the instrument; but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out: …" 60 Turning their attention to the understanding of Ethel and Olinda, the Court found it was necessary that they should have been capable of understanding, if it had been explained to them, that by executing the mortgages and transfer they would be altering the character of their interests in the properties as to survivorship. This was not the direction of the Chief Justice. Nevertheless, the Court was satisfied that the jury's findings were sufficient to encompass the effect as expressed by the Court. The Court was therefore satisfied that (see 439): "… the sisters lacked that capacity to understand which was necessary for the complete validity of the instruments." 61 The Court then turned to the effect of such a conclusion. It was necessary, of course, for Bessie to succeed, for this factual finding to be sufficient to render the mortgages and transfers absolutely void. Mr Wright had not avoided them, indeed he had affirmed them. 62 The Court set to one side lunatics so found where control, custody and power of disposition had passed to the Crown (439-440). 63 The Court examined the history of the law in relation to the validity of acts done by someone, not a lunatic so found, but of unsound mind, from the early doctrine that no man could be heard to set up his own disability or insanity. This is usually referred to as the principle in Beverley's Case (1603) 4 Co Rep 123b; 76 ER 1118. Holdsworth, A History of English Law, 2nd ed (1937 Methuen & Co) Vol 8 at p 53 says that it is indeed doubtful as to whether this was ever the law. Certainly by the early 19th century it seems only to have been applied when the incapable person was perceived to have been acting unconscionably. By the mid-19th century, the rule had disappeared: Dexter v Hall 82 US (15 Wallace) 9 at 21 (1873) and see the "learned note" to Gore v Gibson (1845) 9 Jur 140 at 142 and Molton v Camroux (1848) 2 Ex 487; 154 ER 584 and the discussion of the Court at 440-441. The subsequently applied principle grew out of one exception to the rule against setting up one's own insanity, being the case where the other party to the contract was aware of the insanity. The exception to the rule came, the Court said (at 441), to found the principle that lunacy was not sufficient to have the contract treated as invalid without proof of knowledge of the lunacy by the other party or proof "of the greatest reason to believe" it, and that this was so, even in circumstances which had not previously been covered by the rule against setting up one's own insanity. By the late 19th century the principle was, the Court said (at 441), as stated by Lopes LJ in Imperial Loan Company Limited v Stone [1892] 1 QB 599 at 602-603: "… A contract made by a person of unsound mind is not voidable at that person's option if the other party to the contract believed at the time he made the contract that the person with whom he was dealing was of sound mind. In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties. A defendant who seeks to avoid a contract on the gound of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff's knowledge of that fact, and unless he proves these two things he cannot succeed"

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64 In support of this statement of principle, the Court explained (at 441-442) the true effect of some of the statements in Gore v Gibson (1845) 13 M & W 623; 153 ER 260 of Pollock CB, Parke B and Alderson B (at 626 (262); 626, 627 (262); and 627 (262), respectively). Some of those statements could be read to mean that a contract entered by someone in such a state of drunkenness as not to know what he was doing was void. The Court said that their Lordships meant voidable, not void. That was how the case was interpreted in the Court of Exchequer in 1873 in Matthews v Baxter (1873) LR 8 Ex 132 by Kelly CB (at 133), Martin B (at 133-134), Pigott B (at 134) and Pollock B (at 134). The Court then noted (at 442) that this had been to the unanimous view of the King's Bench in 1603 in Beverley's Case. 65 At this point, the Court dealt with the relationship between the pleas of incapacity and non est factum. After referring to Beverley's Case, the Court stated the following (at 442-443), which is heavily relied on by Perpetual here: "The logical flaw in the contrary theory was that it erroneously assumed that a plea that the defendant was unable to understand the nature of the document sued upon is equivalent to, or involves, an allegation that he did not intend to sign it. In truth the plea does not deny the defendant's execution of the document. It assumes his execution of it. It concedes that his mind, such as it was, went with his act. What it asserts is that the state of his mind was such that if the other contracting party was aware of it he ought not to be allowed to insist upon the contract. The essence of the plea is, therefore, not that the contract was not signed by the defendant, but that 'a person who takes an obligation from another under such circumstances is guilty of actual fraud.'" 66 It was for not drawing this distinction between contesting and accepting signing that the Court (at 443) disapproved and rejected the suggestion of Griffith CJ in McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904] HCA 51; 1 CLR 243 at 272-274 that the principle rendering void a contract with a lunatic entered into by someone unaware of his insanity is the same as the principle rendering void ab initio a contract signed by someone who is fraudulently induced into believing it to be a contract of a different nature. The Court said (at 443-444): "The reason for holding a contract of the latter kind void is that the party imposed upon did not really sign his name as a signature to any such contract as appears on the piece of paper. In that sense, 'his mind did not go with his pen'; Carlisle & Cumberland Banking Co. v. Bragg [[1911] 1 KB 489 at 496]; Foster v. Mackinnon [(1869) LR 4 CPD 704 at 711]. 'The deed is not his deed at all, because he was neither minded nor intended to sign a document of that character or class?: National Provincial Bank v. Jackson [(1886) 33 Ch D 1 at 10]. No doubt it would be correct to apply the same reasoning to a case in which a lunatic wrote his name on a paper which in fact contained a contract, but did so in a frenzy, not even being aware what were the motions his hand was performing. That would be a simple case of non est factum, for the truth would be that the signature was not a signature to that document; it would be the kind of case which Alderson B. suggested in Gore v. Gibson … when he spoke of a somnambulist writing his name in his sleep. But if the case made is only a case of incapacity to understand the nature of that to which admittedly the signature was affixed, no analogy exists with cases in which a seeming contract is held to be completely void for want of intention that the signature shall apply to any contract of such a kind. Indeed, after Molton v. Camroux …, whatever doubt may have persisted as to what must be proved in addition to mental incapacity in order to avoid a contract, it was the settled doctrine of English law that the contract of a lunatic was not void but was voidable only. Subsequent cases have confirmed this: Beavan v. McDonnell [(1854) 9 Exch 309; 10 Exch 184]; Imperial Loan Co. v. Stone …; Tremills v. Benton [(1892) 18 VLR 607]; Baldwyn v. Smith [[1900] 1 Ch 588]; Bawlf Grain Co. v. Ross [(1917) 55 Can SCR 232]; York Glass Co. v. Jubb [(1925) 134 LT 36]." 67 At this point in its reasons the Court turned to the law with respect to conveyances. The Court stated at 444: "… proof of a conveyor's incapacity to understand the nature of the instrument is not proof that it is not his deed, and it therefore provides no logical ground for holding that the deed is void." 68 The Court then examined the authorities said to require a contrary conclusion in respect of conveyances. Before saying something about that examination, we would respectfully make some comments upon some of the cases discussed by the Court to this point in order that some aspects of the debate not be lost. In a learned article in the Columbia Law Review in 1921 ("Mental Deficiency and the English Law of Contract" (1921) 21 Columbia Law Review 424) W G H Cook examined the cases used by the Court to found its conclusions to which we have referred. In particular, the author carefully examined and criticised Beverley's Case, Molton v Camroux and Imperial Loan Co v Stone, being the cases used by the Court as the foundation of its conclusion. The author further noted that the Court of Appeal in Imperial Loan Co v Stone did not follow (or consider) the contrary decision of the Court of Appeal two years earlier in In re Rhodes; Rhodes v Rhodes (1890) 44 Ch D 94. 69 In any event, the Court in Gibbons v Wright went on (at 444-448) to consider McLaughlin (in the High Court and Privy Council) limiting it to the subject of powers of attorney, in which case no authority could be vested in an agent without capacity in the principal, irrespective of any question of notice: Dexter v Hall; Thompson v Leach (1689) 3 Mod 301; 87 ER 199 and various other cases. In dealing with Thompson v Leach which appeared to provide some foundation for the conclusion that lack of capacity rendered a deed void the Court noted that the case appears to have been one of "complete dementia" in which case, it was said at 446: "… it was impossible that there should have been any real execution of the deed, rather than as one in which the deed was duly executed but by a person incapable of understanding its effect." 70 The Court concluded as follows at 449 about conveyances: "… we ought to regard it as settled law that an instrument of conveyance executed by a person incapable of understanding its effect, in the sense of its general purport, is not on that account void, though in the circumstances it may be voidable by the conveyor or his representatives."

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73 The same passage was cited in Gallie v Lee by Lord Hodson (at 1020), Lord Wilberforce (at 1026) and Lord Pearson (at 1035). 74 Certainly, the three examples given by the Court can be seen to be circumstances where the mind does not go with the pen. Holland J, in Crago v McIntyre, expressed it succinctly at 737 as: "the mental incapacity must be such as to deprive its victim of an understanding of what he is signing so that his mind cannot go with his signature." (emphasis added) 75 The notion of "what he is signing" carries more than mere recognition of the physical elements of a piece of paper and a pen and more than a recognition of a legal document. The enquiry is not merely about whether the signer knew that he or she had a pen in hand and was making his or her mark on a document of some kind. The cases permitting the invocation of the doctrine when there is a radical difference in what is signed and what is believed to be signed reveal this. 76 In applying the oft cited cry that the plea "must necessarily be kept within narrow limits" (Muskham Finance Ltd v Howard [1963] 1 QB 904 at 912), care must be taken in applying this formula so as not to exclude too much from the scope of the plea. The Full Court of this Court in Cansdell v O'Donnell (1924) 24 SR (NSW) 596 held that the jury was entitled to uphold the plea of non est factum in a case where a woman signed a mortgage believing she was signing an application for a loan. 77 Theoretical discussion is necessary to express or explicate principle. Concrete factual context and conclusions are essential for its application and understanding. The principle is that the signer must know what he or she is signing. The cases reveal (see in particular the comments by Lord Reid in Gallie v Lee at 1016-1017) the difficulty of expression in identifying the line marking the boundary of non est factum. It is sufficient to state for present purposes that a signer who has no understanding at all about what he or she is signing, because of incapacity, does not know what he or she is signing such that the mind does not go with the pen. 78 In PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 673-675 Giles J (as his Honour then was) discussed this question. Having referred to Petelin v Cullen, Gibbons v Wright, Gallie v Lee and Crago v McIntyre, Giles J said the following at 675: "In my view the defence has been made out. Mrs Thompson had no understanding of the purport of the guarantee and the mortgage, and where the foundation for a plea of non est factum is mental incapacity usually there can be no question of a positive belief as to the nature of the documents radically different from their true nature, or of carelessness. A radical difference between the signatory's belief as to the nature of the document and their actual nature is one way in which it may be found that the mind of the signer did not accompany his signature, for example where he has been misled as to the transaction, but mental incapacity preventing any understanding at all of the transaction will also mean that there was in truth no signature of the document." 79 To the extent that Giles J may be seen, in the first part of the above paragraph, as saying that incapacity to understand the general effect of a document ("the purport of the guarantee and the mortgage") is sufficient to found a plea of non est factum, such would be inconsistent with Gibbons v Wright, and thus wrong. This was, in fact, Perpetual's submission about Maradona. We do not think that that is a fair reading of what Giles J said. His Honour was aware of the critical distinction drawn by the Court in Gibbons v Wright. What his Honour was saying was that there was no signature (in the sense described by Byles J in Foster v Mackinnon) if the relevant mental incapacity prevented any understanding at all of the transaction. In such a case, the person could not know and did not know what was being signed. Thus read, Maradona is conformable with Gibbons v Wright and is, in our view, correct. 80 In George v Paul George Pty Ltd (29 February 1996, unreported BC 9600347) Santow J (as he then was) upheld a plea of non est factum after referring to Crago and Maradona. His Honour approached the matter by asking whether the mental deterioration was such as to prevent the defendant from having "any understanding of the character or contents" of the relevant deed. 81 On appeal, Paul George Pty Ltd v George (1999) NSW Con R 55-892, the Court consisting of Powell JA, Stein JA and Sheppard AJA, dismissed the appeal. In his judgment, Sheppard AJA, with whom the other judges agreed, said, in what must be considered to be considered dicta, that Santow J's analysis of non est factum was not completely correct. The Court of Appeal in Paul George was not invited, or called upon, to overrule Maradona. However, Sheppard AJA said at 56, 977-56, 978: "There is a question, on the face of the authorities, whether the defence of non est factum will apply in cases where, no matter how mentally disabled and how illiterate a person who signs a document may be, the person signing the document is not led to belief that its effect is essentially different from that which that person was led to believe. The High Court in Petelin , in the first passages earlier quoted from the judgment in that case, seems to have regarded misrepresentation as the essential nature and effect of a document as a necessary element of the defence. But, bearing in mind what Lord Hodson (in Gallie v Lee at 1019-1020) said about the origin of the defence, I have some reservations whether it is, in any absolute sense, correct to say that the defence cannot be relied upon unless there is a fundamental misunderstanding upon the nature and effect of the document which is signed. … It is clear from his Honour's judgment in this case that he took the view that the defence was available to persons who had suffered mental deterioration of the extent he found was suffered by Mrs George and who, at the same time, were quite illiterate and unable to understand matters of any complexity, particularly legal documents. In his view, a document signed in these circumstances is not the deed of the party executing it. With respect, although I have some sympathy with that view, I do not think that that is the correct reflection of the law."

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84 One can infer from the findings about him and his intellectual impairment and incapacity that he did have relevant cognitive function. He had worked, married, visited shops, and led a simple life, generally with assistance. It can be inferred that he knew that he was carrying out the act of signing a document, that is, a piece of paper. 85 This, however, is insufficient to conclude that he knew what he was signing, in the relevant sense. The primary judge's findings at [72]-[78] are sufficient in our view for it to be concluded, with confidence, that Mr Ford did not know what he was signing and that in that sense his mind did not go with his pen. Those findings were as follows. Mr Ford could not have understood either document if it had been read to him ([39] of the reasons); no explanation of the documents signed by Mr Ford would have been adequate to provide him with an understanding or appreciation of their true meaning or effect even at a basic or visceral level and that Mr Ford did not understand the loan agreement or mortgage at the time he entered them or at the trial ([45] of the reasons); Mr Ford had no understanding at all of the transaction ([72] of the reasons as more fully explained at [74] and [75] of the reasons); Mr Ford had no positive belief at all about the nature and effect of the documents he was signing ([78] of the reasons); Mr Ford did not know that he was a borrower or that he would lose his house if the loan were not paid back ([78] of the reasons); Mr Ford had no real purport of the documents that he was signing and that he was in conscious and intellectual terms a stranger to the transaction; Mr Ford's judgment and his understanding of what he was signing were both affected by his congenital intellectual impairment ([78] of the reasons); and Mr Ford had no capacity either to make a judgment about, or to formulate an understanding of, any documents he was required to sign in order to effect the transaction ([78] of the reasons). 86 The primary judge rejected the submission of Perpetual that Mr Ford was careless or that he did not take proper care to ascertain the true nature of the document he was signing, because Mr Ford was not capable of turning his mind to the issue and was not capable of making a satisfactory judgement about it. 87 These findings were made in the context of the primary judge's discussion of non est factum and, in particular, Maradona. There is no doubt that his Honour was directing himself to the question whether Mr Ford had the capacity to understand what it was that he was signing. So directing himself, the primary judge found that he did not know what he was signing.

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Contracts Review Act 91 There is no definition of the word "contract" in the Contracts Review Act. In his work The Law of Unjust Contracts (1982, Butterworths), the late Professor J Peden (who prepared the Report on Harsh and Unconscionable Contracts and the draft Bill) commented on this omission (at p 105). He said that the scope of the Act depends upon the common law meaning of contract. The Act, of course, also extends to an arrangement consisting of an inter-related combination or series of contracts considered as a whole: s 15. Professor Peden included in the meaning a contract formed, but voidable by reason of fraud, illegality, mistake or lack of capacity. We agree with this analysis. There appears, however, to be no basis to apply the Act to circumstances where there is no contract formed. Here, the only basis for the contract of loan and the mortgage was the signing by Mr Ford of the documents in question. The success of the plea of non est factum means that there was no signature. Thus, there was no relevant contract for the purposes of the Contracts Review Act. 92 In case we are found to be wrong about the plea of non est factum or in the above conclusion about the applicability of the Contracts Review Act, it is appropriate that we deal with the relief claimed under the Act, assuming it to apply. 93 The primary judge expressed the view that the Contracts Review Act, s 6(2) was a bar to relief at the suit of Mr Ford. We disagree. Section 6(2) is in the following terms: "6(2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales." 94 In [108] of his reasons, the primary judge said: "Moreover, the plaintiff argued that the provisions of the Act did not in any event apply to the transaction as the loan was for business purposes within the terms of s 6(2) of the Act. Had it been necessary for me to decide it, I would have agreed with that submission. See Steele-Smith v Liberty Financial Pty Ltd [2005] NSWSC 398 and Lander v Trigger [1999] NSWSC 1253 at [51] - [55]." 95 With respect, that is not the relevant question for s 6(2). What must be answered is whether Mr Ford entered into the contract in the course of or for the purpose of a trade or business carried on by him or proposed to be carried on by him. 96 The findings of fact are clear. Mr Ford was manipulated by his son to place his name on the documentation. There was no intention for Mr Ford to take any benefit whatsoever from the business or to carry on the business. Scott was intended to carry on the business for his own benefit. 97 On 1 July 2004, Mr Ford signed an agreement to purchase the business known as Melmat Cleaning from Matthew and Melissa Ritchie for $180,000. There was no evidence that the business was not worth that price. A deposit of $10,000 was paid which came from Mr Ford's personal account with the Illawarra Credit Union. The transaction was settled on 5 July 2004. A cheque drawn on Perpetual for $170,000 was delivered to the vendors and a cheque for $24,857 was deposited into Mr Ford's account. 98 The application of s 6(2) should be looked at as a matter of substance and not form. As the primary judge found, Mr Ford was in no real sense a participant in the scheme, but a hapless victim of manipulation. The primary judge described Scott as the "actual, but not the legal, proprietor" of the business. In such circumstances, as a matter of fact and substance, the business was not "carried on" or "proposed to be carried on" by Mr Ford for the purposes of s 6(2). 99 In Steele-Smith v Liberty Financial Pty Limited [2005] NSWSC 398, Mrs Steele-Smith who was said to be suffering from dementia borrowed large sums of money which were stated in her application for loan "to be for business purposes". At [88] of his judgment Palmer J said: "The loans sought by Mrs Steele-Smith were stated in her application to be for business purposes. She confirmed that purpose to Mr McKeown. There is no evidence that the proceeds of the loans were not applied for a business purpose, contrary to Mrs Steele-Smith's statements. Those circumstances take the loans out fo the purview of the Contracts Review Act 1980 (NSW), even if some factual basis for relief under the Act had otherwise been made out: see s.6(2)." 100 With respect as a statement of the relevant test under s 6(2) that expression of the matter is inadequate. That is not to say that the case was wrongly decided. His Honour's expression of the matter in context may well have been shorthand for the statutory language in s 6(2). 101 Lander v Trigger [1999] NSWSC 1253 was concerned with the phrase "for the purpose of". The decision of Young J in Ellison v Vukicevic (1986) 7 NSWLR 104 was relied on. There is no doubt here that the loan was for the purposes of a trade or business. The issue is whether it was one carried on or proposed to be carried on by Mr Ford. 102 In Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; 13 BPR 25,343 at 25,382 [363] Young CJ in Eq stated that because the purpose of the loan was commercial the Act did not apply. Again this cannot be taken other than as a form of shorthand for the operative words of the statute. 103 Nothing we have said is intended to deal with the question of the operation of a business through a trust. Difficult questions might arise somewhat different to those dealt with in the context of a company and shareholder in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174, Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 and Chen v Song [2005] NSWSC 19. It would be a factual and legal mistake to attribute the status of trustee to Mr Ford. He was not the owner of the business in any sense and he was not intended to be. He was not intended to be a trustee and did not have the capacity to be a trustee. 104 Turning to the Contracts Review Act, ss 7 and 9 and relief, the facts as found by the primary judge and which we have already discussed lead to the conclusion that relief would be granted (if the Act applied) to vary Mr Ford's liability to $24,857. Whilst the terms of the loan agreement and mortgage examined in the abstract are uncontroversial, in the circumstances relating to the contract at the time it was made, the contract was unjust to Mr Ford. It is unnecessary to repeat all the factual findings, but the manipulation of him in the circumstances of lack of objective need for the borrowing, the complete lack of understanding of the nature of the contract, the attendant risk in the failure of the whole transaction make the conclusion that for Mr Ford the contract was unjust almost inevitable. It is not an answer to that conclusion to say that he had already entered the contract to purchase the business. If that contract had been sought to be dealt with under the Act, or by the pleas of non est factum or incapacity, there is a high probability that Mr Ford would have been relieved from its executory obligations. That matter was not fully litigated, but the existence on and after 1 July 2004 of the illiterate and intellectually impaired Mr Ford's signature on a contract as a manipulated instrument of his son's interests does not convert an otherwise wholly improvident borrowing into a just contract. In any event, if it be necessary, one can look to the consequences and results of the contract under s 9(1). Here the disabled, intellectually impaired and illiterate Mr Ford was manipulated by his son into exposing his home to the risk of loss by entry into two contracts of which he had, and could have had, no understanding. That risk has come to pass with the failure of the son's business. 105 The question arises whether, in the light of Perpetual's lack of knowledge of Mr Ford's disabilities and of his son's manipulation the Court should draw back from granting relief which would deprive Perpetual of the benefit of the contract and, in effect, of its property. 106 First, it is important to recognise the public policy (for the purposes of s 9(1)) in keeping parties to their bargains: Baltic Shipping Co v Dillon (The "Mikhail Lermontov") (1991) 22 NSWLR 1 at 9 (per Gleeson CJ). 107 Secondly, Perpetual relied on the dictum of McHugh JA (with whom Hope JA agreed at 618) in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 622, as follows: "… under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means which he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s 88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are 'unfair'."

[67]

This was also the view of Hope JA in Collier at 58,429-58,430, with which Clarke JA agreed at 58,431. 110 Thus the Court could make an order under s 7 notwithstanding the primary judge's finding of lack of knowledge of Perpetual of Mr Ford's disability or of his son's conduct. 111 One matter sought to be taken into account on behalf of Mr Ford was the fact that Perpetual took no step to acquaint itself with the attributes of its borrower and took the commercial risk as to the circumstances of the borrower. Care needs to be exercised in dealing with this submission. The cross-claim identified, as the basis for orders under the Act, the circumstances of Mr Ford's disability, the circumstances of the taking out of the loan and the manipulation by his son. The pleading of the agency of Dolphinex (which was rejected by the primary judge) can be taken to be relevant also. There was, however, no pleading that Perpetual so conducted its business as a lender that it should be taken to have engaged in improper conduct. Nor was there a pleading that this was "asset lending" and, if it were, it was in itself unjust: cf Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 at 20,851 [57]-[59] and [79] and Khoshaba at [128]. No argument was put below or on appeal that public policy (for s 9(1) of the Act) required asset lending to be viewed as presumptively unjust. 112 It is plain, however, that Perpetual took no step to investigate the borrower. It propounded documents which contemplated a request (that was made here) that the loan be assessed without regard to documentary evidence of the borrower's income and financial position. Those facts are indisputable. No doubt there were sufficient commercial reasons for Perpetual to deal in this way. No criticism is to be levelled against Perpetual from these facts alone. They can, as indisputable facts, be taken into account, in the exercise of discretion as to whether to grant relief under s 7. They are, however, not necessary for our conclusion that relief would be given under s 7. 113 Given the helpless position of Mr Ford, the plain injustice of the loan and mortgage contracts from his perspective for the reasons that we have given, we would make an order varying the contract of loan and mortgage to limit his liability to $24,857 plus interest. This conclusion is reinforced by the recognition that Perpetual took no steps whatsoever to ascertain the circumstances of the borrower.

[75]

(f) The relevant focus is on what the paying party bargained for, which here, was a binding promise of repayment. 118 With respect, we cannot agree with his Honour's reasoning or conclusion. 119 It is the case that the right to recovery is prima facie enlivened by the relevant legal circumstance accompanying the payment, here mistake, or the request for the loan (if made by Mr Ford): David Securities Pty Limited v Commonwealth Bank of Australia [1992] HCA 48; 175 CLR 353 at 379. Nevertheless, underpinning recovery is the "unifying legal concept" of unjust enrichment: David Securities at 375; Pavey and Matthews Pty Limited v Paul [1987] HCA 5; 162 CLR 221 at 256-257; and Lumbers v W Cook Builders Pty Ltd (In liq) [2008] HCA 27; 82 ALJR 1037 at 1054 [85]. 120 No separate defence of change of position or any other particular restitutionary defence was pleaded. 121 The relevant enquiry as to the availability of the order for payment or repayment does not cease with the identification of the relevant qualifying consideration, such as mistake. The enquiry is as to the injustice of the retention of any money or benefit. This lies at the root of the claim and of any defence such as change of position: Lipkin Gorman v Karpnale Ltd [1988] UKHL 12; [1991] 2 AC 548 at 560 (per Lord Templeman) and 578 (per Lord Goff). The High Court has recognised this element of the injustice or otherwise of retention in the operation of defences: David Securities at 385-386 and ANZ v Westpac at 673. Lord Goff, similarly, in Lipkin Gorman examined the question of the injustice or otherwise of retention in the context of defences. Lord Templeman examined the question in evaluating the primary right of recovery. (It is to be noted that the balance of the House of Lords in Lipkin Gorman - Lord Bridge of Harwich, Lord Griffiths and Lord Ackner agreed with both Lord Templeman and Lord Goff.) 122 A similar emphasis on retention as the foundation for the restitutionary action can be seen in the cases dealing with voluntary receipt of moneys belonging to another and the later discovery of that fact: Black & Black v S Freedman & Co [1910] HCA 58; 12 CLR 105; Banque Belge pour l'Etranger v Hambrouck [1921] 1 KB 321; and see also Port of Brisbane Cooporation v ANZ Securities Ltd (No 2) [2002] QCA 158; [2003] 2 Qd R 661 at 670 [9].

[76]

123 The question of request, payment, receipt and benefit should be viewed as matters of substance and not form or legal technicality: ANZ v Westpac at 673-674. A good illustration of the legitimacy of this approach can be found in National Commercial Banking Corporation of Australia Ltd v Batty [1986] HCA 21; 160 CLR 251. In that case, Davis and Batty were accountants practising in a partnership. Davis wrongly deposited a cheque from the plaintiff to the partnership's account and then used the proceeds for his own purposes. The trial judge found that Davis, in depositing the cheque, was not acting in the ordinary course of business of the firm. On appeal the High Court held that the fact of partnership was not enough in the circumstances to make Mr Batty liable, and that there needed to be consideration of the alternative claim for money had and received by the members of the firm to the use of a bank. Gibbs CJ started his consideration of this issue at 263. His Honour analysed cases where a partner is sued because the partnership's bank account had a payment into it otherwise than in the ordinary course of business of which the innocent partner had no knowledge. Gibbs CJ then said at [268-269]: "[T]he emphasis on justice and equity in both old and modern authority on this subject supports the view that the action will not lie unless the defendant in justice and equity ought to pay the money to the plaintiff: Moses v Macferlan [(1760) 2 Burr 1005 at 1012; 97 ER 676 at 680-681]; Campbell v Kitchen & Sons Ltd and Brisbane Soap Co Limited [[1910] HCA 50; 12 CLR 515 at 531]; R v Brown [[1912] HCA 6; 14 CLR 17 at 25]; Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Limited [[1943] AC 32 at 61 and 64]; Watney v Mass [(1954) 54 SR (NSW) 203 at 205-206]; and Fischler v Administrator of Roumanian Property [1960] 1 WLR 917 at 946-947; (1960) 3 All ER 433 at 446-447]. Where, because of the action of a servant or agent acting outside the scope of his authority, or for that matter because of the action of a complete stranger, money has been paid into the account of the defendant, who has technically received it, although he is quite unaware of the fact, and the money is then misappropriated, still without the knowledge or intervention of the defendant, there seems to be no reason in justice or equity why the defendant should be answerable for the money simply because theoretically he had the means of knowing that the money was in the account. In principle, in those circumstances, the defendant ought not to be liable unless, before the money was misappropriated, he knew or ought to have known that he had possession or control of it. In other words, where the defendant has not had the benefit of the money, has not played any part in disposing of it and was ignorant of the fact that it was theoretically under his control, he should not be liable in the absence of fault on his part."

[77]

Wilson J agreed with the Chief Justice as did Dawson J. Brennan J said at 274 that merely because the cheque without Mr Batty's knowledge passed through the account was not enough for a successful claim against him for money had and received. 124 Batty is authority for the proposition that in circumstances where funds have been placed in a bank account of a party, that party will not be taken to have received the funds unless he, she or it ought to have known of their presence through some fault. In those circumstances, the relevant fault of the recipient and the consequent conclusion that he, she or it ought to have known of the receipt will then suffice for non repayment of the funds to be unjust or against justice and equity. 125 In other areas, actual receipt will not be viewed as receipt giving rise to an obligation to repay. The receipt by an agent is a well-known example: Stephens v Badcock (1832) 3 B & Ad 354; 110 ER 133; ANZ v Westpac; though, mere payment on will not suffice, of itself, to deny the plaintiff's entitlement: Tugman v Hopkins (1842) 4 Man & G 389; 134 ER 159; Portman Building Society v Hamlyn Taylor Neck [1998] 4 All ER 202 at 207; and see generally Neilson v Moss (1905) 22 WN (NSW) 116 (FC); Vella v Permanent Mortgages Pty Ltd at 25,391 [462] and cases there cited and Mason, Carter and Tolhurst Restitution Law in Australia, 2nd Ed (2008 Butterworths) at 163 [435]. 126 None of the above paradigms covers the facts here precisely, but all reveal the necessity to look to the substance of the matter. In Quek v Beggs (1990) 5 BPR 11,761 McLelland J (as he then was) was concerned with a case of undue influence. This was not a case of money had and received, but rather undue influence by a spiritual adviser. The judge found that Pastor Beggs had used undue influence and the question was whether he should make restitution. The judge said at 11,779: "There is an analogy with proceedings to enforce restitution of money payed by one person to another under a fundamental mistake of fact."

[78]

He then quoted the ANZ Bank case noting that the courts paid regard to substance rather than to form as to what had occurred. McLelland J thought that it would not be appropriate to order restitution looking at the substance of what had occurred. 127 Here, on the facts, Mr Ford was a manipulated intermediary with no understanding of any aspect of the overall transaction. In substance, he received no benefit from the loan, beyond the receipt and retention in his account of $24,857. Executory obligations to the Ritchies were discharged with the loaned funds, but, on his Honour's findings, it can be accepted with confidence that Mr Ford did not know what he was signing in relation to the purchase documentation, giving rise to a likely defence of non est factum, or at least a claim under the Contracts Review Act which would have entitled him to a release from such executory obligations. Looking at the matter as one of substance, Mr Ford was the innocent, mentally incapable dupe of his son. Save for the $24,857, in no real or substantive sense did he receive and retain benefits such that it would be unjust for him not to repay the loan. Further, given the success of the plea of non est factum, there was no written request in substance (or in form) by Mr Ford for the loan. All the writing submitted to him and which he allegedly "signed" was the subject of the imposition by his son and, as found correctly by the primary judge, the loan agreement was not signed by Mr Ford. 128 In all these circumstances, as a matter of substance, apart from the $24,857 placed in his account, Mr Ford did not receive the benefit of the funds in circumstances that would make it unjust for him not to pay to Perpetual the balance of the loan. 129 Three other considerations reinforce this conclusion. First, the loan was not for necessaries. It was for the benefit of Scott, brought about by the manipulation of his father. 130 Secondly, the conduct of Perpetual is also relevant to the question of the injustice of the "retention" by Mr Ford. It is clear that a payer who assumes the risk of the relevant mistake will be denied recovery: Kelly v Solari (1841) 9 M & W 54 at 59; 152 ER 24 at 26; Goff and Jones The Law of Restitution, 6th Ed (2002 Sweet & Maxwell) at pp 200 ff; and David Securities at 373-374. Here, Perpetual made no enquiry of the borrower and was prepared to lend pursuant to documentation that requested the loan be assessed without documentary evidence of the financial position of the borrower. It may be going too far to conclude that Perpetual took the risk of the relevant mistake, in particular given the limits of the litigated controversy. At the trial, no investigation was undertaken of Perpetual's business methods, such matter not being pleaded. Perpetual, however, sought restitution asserting the injustice of not being repaid. In this context, it is legitimate to recognise that it made no enquiry of a borrower, who in fact was deeply intellectually impaired and the subject of manipulative influence. These are relevant considerations in assessing the injustice, or otherwise, of Mr Ford not paying Perpetual the equivalent of the balance of the loan beyond $24,857. 131 Thirdly, we note that although courts may allow restitution by the count of money had and received where a contractual remedy is barred (the most famous example is Pavey & Matthews Pty Ltd v Paul), generally speaking, if recovery is against public policy, and a fortiori if illegality is involved, restitution cannot be employed to gain the same object as if the impugned contract were valid: see R Leslie Limited v Sheill [1914] 3 KB 607; Fawcett v Smethurst (1914) 84 LJKB 473 and article P S Atiyah "The Liability of Infants in Fraud and Restitution" (1959) 22 Modern Law Review 273 at 281. The need for conformance and coherence of legal principles of the common law assists in recognising that there should be no recovery in restitution. The plea of non est factum has been made out. Mr Ford did not sign the only document binding him in contract to Perpetual. That document was, in substance, the request for the borrowing upon which Perpetual operated (without it no loan would have been made to him). The principle underlying the plea of non est factum is, as the High Court said in Petelin v Cullen, the prevention of the injustice of holding a person to a bargain to which he has not brought a consenting mind. It would undermine that protection given by the law (in this case) to the weak and disabled to require recovery on the basis of another common law doctrine, also grounded in justice and equity, through a mechanical application of a calculus of mistake and receipt based on legal form and not substance of true benefit. The policy to which the High Court referred in Petelin v Cullen is seen also in the judgments in Gallie v Lee. Lord Wilberforce, in particular, recognised that, though in one sense anomalous in the context of the objective theory of contract, though there was a need to confine it and though its limits were difficult to identify, the plea was occasionally an essential instrument of justice for the protection of the weak, powerless or preyed upon - as here. It would undermine the effective deployment of that common law instrument of justice to apply restitutionary rules in a mechanical way so as to require payment in circumstances such as the present. 132 For these reasons and given that Mr Ford has always been willing to repay $24,857, we would make the following orders:

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