Krambousanos, Evangelos & Anor v Jedda Investments Pty Ltd & Ors [1996] FCA 144

Sutherland Shire Council v Heyman & Anor (1984) 157 CLR 424 San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 Gala & Ors v Preston (1991) 172 CLR 243 Bryan v Moloney (1995) 182 CLR 609 Hawkins v Clayton & Ors (1988) 164 CLR 539 Ross v Caunters [1980] Ch 297 Van Erp v Hill (trading as R F Hill & Associates) [1995] ATR 81-317 Brusewitz v Brown [1923] NZLR 1106 Hogan & Anor v Howard Finance Limited & Anor (1987) ASC 55-594 Orszulak & Anor v Hoy & Anor [1989] ATR 80-293 Gallagher & Anor v Carman [1990] ATR 81-011 Bowdage v Harold Michelmore & Co Vol 106 The Solicitor's Journal at 512 McNamara & Ors v Commonwealth Trading Bank of Australia (1984) 37 SASR 232 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 Rolph, Debra: Solicitors' Liability to Non-Clients in Negligence (1993) 15 Advocates Quarterly 129 No TG 16 of 1994 EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS Applicants

• and - JEDDA INVESTMENTS PTY LTD First Respondent
• and - A D HOLMES, P V MANSER, C A CUNNINGHAM and D J MORRIS trading as SIMMONS WOLFHAGEN Second Respondent
• and - JEDDA INVESTMENTS PTY LTD Cross-Claimant
• and - EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS Cross-Respondents Branson J Adelaide (Heard in Hobart) 14 March 1996

IN THE FEDERAL COURT OF AUSTRALIA) ) TASMANIA DISTRICT REGISTRY ) No TG 16 of 1994 ) GENERAL DIVISION ) BETWEEN: EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS Applicants

• and - JEDDA INVESTMENTS PTY LTD First Respondent
• and - A D HOLMES, P V MANSER, C A CUNNINGHAM and D J MORRIS trading as SIMMONS WOLFHAGEN Second Respondent
• and - JEDDA INVESTMENTS PTY LTD Cross-Claimant
• and - EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS Cross-Respondents REASONS FOR JUDGMENT CORAM: Branson J PLACE: Adelaide (Heard in Hobart) DATE: 14 March 1996 By an application dated 14 July 1994 the applicants seek an order that a certain mortgage be avoided on the ground that its execution was procured by unconscionable conduct, or alternatively on the ground that its execution was procured by undue influence. By such application they further seek an order that the first respondent do all acts necessary to cause the removal of the mortgage from the title to their land and they claim damages. By a late amendment to the statement of claim, for which leave was given over the objection of the first respondent, the applicants alleged that the initial mortgagee (the assignor of the mortgage to the first respondent) had engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, contrary to s52 of the Trade Practices Act 1974 (Cth) and/or s14 of the Fair Trading Act 1990 (Tas). Such conduct was relied upon by the applicants as a further alternative ground for the avoidance of the mortgage. No point was taken that leave was not sought or granted to amend the application to reflect this alternative claimed ground of relief. By an earlier amendment of the statement of claim, also not reflected by amendment to the application, the applicants make a claim for damages for professional negligence against the second respondent, partners of the legal firm "Simmons Wolfhagen". An employee of that firm had undertaken to provide advice to the applicants with respect to the mortgage. The first respondent, by way of cross-claim, claims against the applicants the sum of $77,160.03 said to be due under the mortgage plus interest and costs. BACKGROUND By the end of the hearing in this matter, there was little dispute as to the background facts. The applicants were each born on the small Greek island of Lipsos. Each of them had a limited formal education. They married on Lipsos in 1947. Mr Krambousanos came to Australia in 1952 and Mrs Krambousanos in 1954. They settled in Hobart, Tasmania. During most of his working life in Australia Mr Krambousanos cooked in fish and chip shops. Initially he worked for other people. Later he worked in a business apparently owned by him and Mrs Krambousanos. Later again he worked for other people. When first in Australia Mrs Krambousanos' time was taken up caring for young children. Later she cooked in the family fish and chip shop and later again she undertook food preparation and cooking at a restaurant owned by Italian people. Each of the applicants came to Australia with some familiarity with the Italian language as the island of Lipsos had been occupied by the Italian army during the second world war. On 7 July 1967 the applicants became the registered proprietors of a property at 40 Burnett Street, North Hobart. It became then and remains to this day their home. There is perhaps a little uncertainty on the evidence as to Mrs Krambousanos' precise age. It appears, however, that at the time of the events with which this case is concerned, Mr Krambousanos was 74 years of age and Mrs Krambousanos 62 years of age. Each of the applicants gave their evidence through an interpreter. The extent to which each of them speaks and understands the English language is in dispute. Plainly they do not speak English fluently. I accept that they speak in Greek between themselves. Each of them acknowledges the capacity to speak "a little" or "not a lot" of English. Their daughter-in-law, Cheryl Krambousanos ("Mrs Cheryl Krambousanos"), whose evidence I accept, described each of them as being able to carry on a simple conversation in English. I accept that they can do this, but I find that neither of them has a command of the English language. In particular, I find, that they lack the English vocabulary (indeed, probably also the Greek vocabulary) necessary to discuss anything more than simple commercial concepts. The applicants have 5 children. Two of their children were born on Lipsos and the other three were born in Hobart, Tasmania. There is no suggestion that any of the applicants' children are other than fluent in the English language. By an indenture of lease dated 30 April 1986 one of the applicants' children, Anna Cazaly ("Ms Cazaly") became the lessee of a hairdressing salon in the city of Hobart. The lessor of the premises was The New Imperial Pty. Ltd. ("New Imperial"). The applicant Mr Krambousanos was also a party to the indenture of lease as a guarantor of the due performance by Ms Cazaly of her obligations to the lessor. In February 1988 New Imperial instituted proceedings in the Court of Requests, Hobart against Ms Cazaly and Mr Krambousanos with respect to unpaid rent under the indenture of lease. On 18 March 1988 judgment was entered against Mr Krambousanos by default for $3,228.32 with costs of $105.60 plus interest at the daily rate of $1.54 from 11 February 1988 until payment. On 18 August 1989 a caveat against the interest of Mr Krambousanos was entered on the certificate of title of the applicants' home at 40 Burnett Street, North Hobart to secure payment of the judgment debt. On 6 September 1989 Ms Cazaly was declared bankrupt. In 1991 another of the applicants' children, John Krambousanos ("Mr John Krambousanos") and his wife Mrs Cheryl Krambousanos (together "Mr and Mrs Krambousanos jnr.") became interested in a new business. The business was a supermarket in the Tasmanian town of Dover ("the Dover supermarket"). A Mr Ali Sultan had apparently been the developer of the building complex in which the proposed supermarket was to operate. The belief of Mr and Mrs Krambousanos jnr. was that Mr Ali Sultan would provide the necessary finance for the new supermarket business and Mr John Krambousanos would run the business. Mr and Mrs Krambousanos jnr. had no money or other assets of their own at that time. Krambo Holdings Pty Ltd ("Krambo"), a company controlled by Mr and Mrs Krambousanos jnr., commenced trading as the Dover supermarket in September 1991. Mr John Krambousanos arranged with a supplier for the supermarket to be stocked. Mr Ali Sultan did not contribute any funds to the supermarket business. In October 1991 the supplier to the supermarket demanded payment of moneys owing to it by Krambo. Not surprisingly, the situation became a stressful one for Mr and Mrs Krambousanos jnr. Mr John Krambousanos approached Trust Bank Tasmania ("Trust Bank") seeking a loan to support the supermarket business. He mentioned to an officer of the Bank that he may be able to offer his parents' home as security for a loan. This was not a matter which he had at that time discussed with his parents. Trust Bank by letter dated 18 November 1991 offered to provide finance to assist with the working capital requirements of the Dover supermarket by way of a fluctuating overdraft, but on the condition, amongst certain other conditions, that it was given a registered first mortgage over the property at 40 Burnett Street, North Hobart. Mr John Krambousanos approached his parents to obtain their agreement to mortgage their home to secure borrowings in the name of himself and his wife to finance the Dover supermarket. The applicants' agreement was obtained. Mr John Krambousanos' solicitor with respect to matters concerning the Dover supermarket was Ian Alfred Charles Creese ("Mr Creese"). On 18 November 1991 Mr Creese attended with Mr John Krambousanos at the home of the applicants and obtained the applicants' signatures to a mortgage whereby they guaranteed the repayment of all monies at any time owing by Mr and Mrs Krambousanos jnr. to Trust Bank and secured such guarantee by a mortgage of their home. Mr Creese gave evidence that he spoke to the applicants in English and explained to them the document which they subsequently signed. He further gave evidence that Mr John Krambousanos was present whilst he was providing the explanation and that Mr John Krambousanos spoke on occasions to his parents in Greek. Immediately after his attendance upon the applicants, Mr Creese, on behalf of his firm, signed a certificate addressed to The General Manager, Trust Bank that stated, amongst other things (some of which Mr Creese acknowledged in his evidence to be untrue) that the applicants had "... been advised by this firm of their respective rights, obligations and liabilities arising under the respective loan and/or security documentation entered into ...". Mr John Krambousanos then took the mortgage and the certificate signed by Mr Creese to the Trust Bank. At the Trust Bank Mr John Krambousanos was advised that there was a caveat on the title of his parents property which had been lodged by New Imperial. He telephoned Mr Creese. He mentioned his sister's earlier involvement with New Imperial. Mr John Krambousanos formed the belief from information provided to him by Mr Creese, that once the judgment debt secured by the loan plus interest on such debt reached the value of the property at 40 Burnett Street, North Hobart, the caveator would be free to take possession of the property and to sell it. It was agreed before me that such caveat could at that time have been removed from the title of the applicants' property by a payment to the Registrar of Titles of the amount of the judgment debt to which it related plus interest accrued since judgment on the judgment debt. That is, the payment of $3,333.92 with interest at the daily rate of $1.54 from 11 February 1988 until payment. Mr Creese was aware of the name of the solicitor who ordinarily acted for companies in the same ownership as New Imperial. He contacted that solicitor, Damien Francis Egan ("Mr Egan"). Mr Egan confirmed to Mr Creese that the caveat related to default under the lease which Ms Cazaly had earlier entered into with New Imperial. In response to a question from Mr Creese, he indicated that approximately $30,000 might be involved but he was unsure. Mr Creese formed the view that the caveat must secure the payment of an amount of approximately $30,000. He did not obtain a copy of the caveat for himself then or at any later time. By letter dated 21 November 1991 Mr Egan, on behalf of his firm, wrote to Mr Creese's firm in the following terms:- "We advise that our clients shall consider consenting to the registration of a First Mortgage to the Trust Bank provided: (a) That we secure your undertaking to pay our costs with respect to the matter; (b) That the Trust Bank's Mortgage is limited to an amount of $70,000.00; (c) That your client execute in favour of our client a Second Mortgage for security of damages pursuant to the breach of the Lease dated 30th of April 1986. We do not have the exact amount of the damages, but understand that they are in the vicinity of $44,000.00." Mr Creese advised Mr Egan by telephone on 22 November 1991 that "his clients" now wished to proceed with the second mortgage. I accept the accuracy of Mr Creese's telephone note which records that Mr Egan pointed out the risk to the applicants and the need for them to obtain independent advice. During this conversation Mr Creese requested a copy of the "Judgment Debt" and of "other documentation setting out the monies owing". In fact Mr Creese did not ever receive from Mr Egan, or obtain for himself, a copy of the judgment or the caveat. On 25 November 1991, after learning from Mr Egan that the documentation concerning the proposed second mortgage would be ready that afternoon, Mr Creese telephoned Jill Susan Green ("Ms Green"), a solicitor then in the employ of the second respondent. He explained to her that his clients were borrowing money on the security of their parents house and that an independent solicitor was required urgently to explain the mortgages to the parents. Ms Green agreed to give such advice and opened a file showing her client as Mr Creese's firm. Mr Creese provided Ms Green with a facsimile copy of the certificate of title of the property at 40 Burnett Street, North Hobart, the mortgage document to be signed and a copy of a letter addressed to Mr Creese's firm signed by Mr Egan which contained the following paragraphs:- "We advise that our client's debt is made up as follows:- a) Arrears of rent, rates and taxes of the Lease to the expiration thereof (23/03/91) 44,037.82 b) Interest in accordance with the terms of the Lease to 23/03/91 @ 18% 13,080.81 c) Interest from 23/03/91 to 23/11/91 on principle sum @ 18% as per the Lease 5,284.49

$62,403.12 The monthly payment of $1,200.00 is to be reduced firstly in reduction of the outstanding interest, secondly in reduction of the interest on the principal sum of $44,037.82, and thirdly in reduction of that principal sum. . . . . . . Please note that at the settlement we shall require a letter from Mr and Mrs E Krambousanos' Solicitors that they have been independently advised in relation to the Mortgage, that they understand the Mortgage and have executed it as security for the outstanding debt of their own free volition." Ms Green was not advised by anyone, or by any document provided to her, of a relationship between the mortgage concerning which she was to advise the applicants and the caveat registered on the title of their property. Ms Green was driven by Mr John Krambousanos to his parents' house on 27 November 1991. I accept the evidence of Ms Green as to what happened on that occasion. Her evidence was that she went into a room with the applicants and went through the mortgage explaining its significant features to them in simple language. At one stage she asked Mr John Krambousanos to come in to the room to explain to his parents where payments were to be made under the mortgage and how the interest was to be calculated. Ms Green gave evidence that she advised the applicants of the amount of the debt secured by the mortgage, that such amount could increase with the accrual of interest, that they would be personally liable for the debt and that if one of them died the other would take on the total responsibility, that their home was available for sale by the mortgagee if the debt was not paid, and that they had no obligation to sign the mortgage. Ms Green gained the impression that the applicants had understood her advice and explanations. Her evidence was that as soon as she arrived at their home the applicants said to her words to the effect "We want to sign, tell us where to sign". Nonetheless, she explained the mortgage as described above, and thereafter witnessed the applicants' signatures on the mortgage. On the same day Ms Green wrote on the letterhead of the second respondent to Mr Egan's firm in the following terms:- "Dear Sirs, Krambousanos - New Imperial Pty Ltd. We act for Mr. and Mrs. E Krambousanos, the Mortgagors in the above matter. We have advised Mr. and Mrs. Krambousanos in relation to the Mortgage over their property at 40 Burnett Street. We are satisfied that the Mortgagors understand the Mortgage and the legal effects thereof. We are also satisfied that they have executed the Mortgage of their own free volition, without undue influence from the Borrowers." On 29 November 1991 the executed second mortgage ("the mortgage") was provided by Mr Creese to Mr Egan along with the above letter signed by Ms Green. A withdrawal of caveat was provided to the Trust Bank and the Trust Bank opened an overdraft facility in the names of Mr and Mrs Krambousanos jnr. On the case of the applicants, ten payments of $1,200.00 each were made under the mortgage to New Imperial, principally from monies provided by the applicants who were at that time in receipt of pensions which I understand to have been aged pensions. On the case of the cross-claimant, 9 such payments were made. There is agreement that the last payment was made early in September 1992. The Dover supermarket business failed on a date which the evidence does not make clear. On 15 January 1992 New Imperial went into liquidation. On that day a transfer of the mortgage from New Imperial to the first respondent was executed. Such transfer was registered on the applicants' certificate of title on 9 March 1992. On 27 June 1994 the applicants received a demand made on behalf of the first respondent, for the payment of all monies due under the mortgage. The amount outstanding as at 30 May 1994 was said to be $74,401.66. These proceedings were instituted on 15 July 1994. MISLEADING AND DECEPTIVE CONDUCT The case of the applicants as to misleading and deceptive conduct is that New Imperial represented to the applicants via its solicitor and secretary, Mr Egan, that the judgment upon which the caveat was founded was variously for sums of approximately $30,000, approximately $44,000 and exactly $62,403.12. Such representations were particularised as representations made to Mr Creese, the solicitor for Krambo and for Mr and Mrs Krambousanos jnr. Reliance was also placed on behalf of the applicants on the failure of New Imperial to provide to the applicants or to Mr Creese a copy of the "Judgment Debt" when requested to do so. This was pleaded to have "the effect of or purpose of denying the Applicants or the Applicants' son or the Applicants' son's solicitor knowledge of the true amount of the judgment debt." It is further pleaded that New Imperial "concealed the Judgment and/or a copy thereof and the sum for which it had been obtained from the Applicants, the Applicants' son and the Applicants' son's solicitor, and failed to disclose to the same parties the indenture of lease executed by Ms Cazaly and Mr Krambousanos." Paragraph 32F of the amended statement of claim reads as follows:- "The Company knew or ought to have known that Anna Cazaly was a bankrupt and had become so in about September 1989 and from the date of her bankruptcy, neither she nor the firstnamed Applicant had any obligation to the Company [i.e. New Imperial] pursuant to the terms of "The Lease" ...". I pause to say that the drafter of paragraph 32F displays a certainty with respect to the rights of a lessor to claim in a bankruptcy with respect to future rent which the present state of the law does not seem to me to justify (see Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed), unreported, Federal Court, Branson J, 16 February 1996). As Mr Tree, who with Mr Wallace appeared for the applicants, frankly conceded, a hurdle in the way of the applicants' claims concerning misleading and deceptive conduct is that New Imperial is not a party to these proceedings. Moreover, no attempt was made by the pleadings or otherwise to link the first respondent with the conduct of New Imperial sought to be impugned, or to establish a basis upon which it should assume responsibility for such conduct of New Imperial. Mr Tree referred the Court to the following passage from the joint judgment of Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd & Anor v CCH Australia Ltd & Anor (1993) 42 FCR 470 at 503:- "As is the case with Pt IV of the TP Act, the evident purpose and policy underlying Pt V, which includes s52, recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be given the silent relief which the fair meaning of its language will allow ...". Nothing said by their Honours in that case, in my view, can fairly be understood as being intended to address the difficulty which the applicants face here. Section 82 of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act") makes it plain that an action for damages brought by a person who suffers loss or damage by conduct of another that was done in contravention of a provision of Part IV or V of that Act may only be brought against the person who contravened the Act or a person involved in the contravention. Section 87(1) of the Trade Practices Act similarly requires, in my view, that the person or persons against whom orders may be made under that subsection:- (a) was or were the person or persons who engaged in the conduct complained of or was or were involved in such conduct; and (b) is a party or are parties to the proceedings. Section 87(1A), in my view, is to be similarly construed. Section 87(2), which particularises the orders referred to in ss87(1) and (1A), can not be construed as widening the powers given to the Court in ss87(1) and (1A). The claim of the applicants for relief against the first respondent by reason of alleged conduct of New Imperial in contravention of s52 of the Trade Practices Act must fail. For the same reasons, the alternative claim under s14 of the Fair Trading Act 1990 (Tas) must fail. UNCONSCIONABILITY In The Commercial Bank of Australia Limited v Amadio & Anor (1983) 151 CLR 447 ("the Amadio Case") at 474, Deane J, with whom Wilson J agreed, outlined the circumstances in which the equitable jurisdiction to relieve against unconscionability arises. His Honour stated:- "The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it." His Honour went on:- "Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract" (see per Lord Hatherley, O'Rorke v Bolingbroke; Fry v Lane; Blomley v Ryan.)" As Mason J pointed out in the Amadio Case at 462, the type of "special disadvantage" which may justify equitable relief on the ground of unconscionable conduct is one which "seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and its effect on the innocent party." The applicants are elderly and poorly educated. They have only a limited command of the English language, the language in which the mortgage was drawn. However, they do not lack experience in the use of their home as security for the borrowing of money. The certificates of title of the applicants' home between the date of the applicants' purchase of 40 Burnett Street, North Hobart and the date of the impugned mortgage are in evidence. Such titles show a mortgage to the Commonwealth Savings Bank of Australia registered a few weeks after the registration of the applicants as proprietors of the property. Copies of the relevant memorandum of transfer and memorandum of mortgage were placed in evidence. They are dated the same day. This mortgage was discharged on 1 March 1977. A mortgage to four individuals was registered on the title on 17 April 1972 and discharged just over 2 years later. A mortgage to The Commercial Bank of Australia Limited was registered on the title on 21 June 1974 and discharged on 1 March 1977. A further mortgage to the four individuals mentioned above was registered on 26 February 1975 and also discharged on 1 March 1977. A mortgage to two individuals was registered on 1 March 1977 as was a mortgage to Australian and New Zealand Banking Group Limited. The first of these mortgages was discharged on 25 November 1981 and the second on 27 May 1986. The last mortgage to be registered on the title before the events with which these proceedings are concerned was a mortgage to a single individual registered on 27 May 1986 and discharged on 8 October 1987. I am satisfied that each of the applicants well understood the concept of borrowing money against the security of their home, and also understood the risks involved. I do not accept their evidence that they did not know the nature of the document that Ms Green brought to their home and that she did not explain it to them. To the extent that the evidence of either of them, properly understood, suggests that they did not understand that failure to make payments under the mortgage would put their house at risk, I do not accept that evidence. I find that they knew that the document which, as I also find, they were anxious to sign, was a document for "putting up their home" to adopt the language their son Mr John Krambousanos said in evidence (and in this regard I accept his evidence) that he had used in discussions with them. I find that they signed the document of their own free will to assist their son Mr John Krambousanos, and not by reason of any pressure, consciously or unconsciously, placed on them by Mr John Krambousanos. However, in the circumstances of this case, this is not of itself sufficient to demonstrate that the applicants were not under a special disadvantage in dealing with New Imperial. The applicants' son and daughter-in-law had, as at the date when the mortgage was executed, acute financial problems. The loss of the Dover supermarket business and their possible bankruptcies were real possibilities unless they could raise finance. A way out of their problems had apparently been found when Mr John Krambousanos persuaded the applicants to give a mortgage guarantee of a fluctuating overdraft to be provided to them by the Trust Bank. At the last moment it appeared that this plan might be frustrated because of a caveat placed by New Imperial on the title to the applicants' property. I accept the evidence of each of the applicants and of Mr John Krambousanos that he or she was not earlier aware of the registration of the caveat. I also accept that none of the three of them had a proper understanding of the significance of the caveat or of the means available to cause it to be lifted from the title. It is not entirely clear that Mr Creese had a proper understanding of these matters. Whether he did or not, he, surprisingly in my view, failed to take either of the relatively simple steps of searching the relevant judgment or searching the caveat. It appears that he only learned of the actual amount the payment of which was secured by the caveat from the legal representatives of the applicants when being proofed to give evidence in these proceedings. I accept the evidence of Mr John Krambousanos that as a result of his discussions with Mr Creese he formed the view, and relayed it to his parents - "That it was lucky that I had actually approached the bank for a loan because there was a caveat on my parent's property that was accumulating 18 per cent interest and that they would lose the house one day if something wasn't done." His evidence, which I also accept, was that his parents appeared shocked and that he advised them - "that I need to get the money from the bank so that I can conduct business so we could all get together and pay the house off." At the time Mr John Krambousanos believed that the attaining by him and Mrs Cheryl Krambousanos of the fluctuating overdraft facility which had been offered to them by the Trust Bank on certain conditions was vital, first, to preserve the Dover supermarket business, and secondly, to allow him, through that business, to make money to pay off the debt to which the caveat related. Neither the applicants nor Mr John Krambousanos, nor Mr Creese, knew that the caveat could be removed from the title to the applicants' property by the payment of a relatively modest sum. Mr Creese sought to obtain the consent of New Imperial to the registration of the Trust Bank mortgage. He advised Mr Egan, solicitor for New Imperial, that Mr and Mrs Krambousanos jnr. were borrowing $70,000 from the Trust Bank "in a final attempt to save their business". He alerted Mr Egan to the fact that if creditors of Mr and Mrs Krambousanos jnr. commenced proceedings against them, then bankruptcy would "no doubt" result. He sought "urgent and compassionate consideration" of the matter. Mr Egan gave evidence at the hearing of this matter. I accept him as a witness of truth. He gave evidence that for some years he and his firm had acted for a number of companies controlled by the Martin family. He identified New Imperial and the first respondent as two of those companies. As to New Imperial he identified Robert Martin ("Mr Martin") as the individual from whom he received instructions. He agreed that he (i.e. Mr Egan) was the secretary of New Imperial for some time, including the time of the events with which these proceedings are concerned. Mr Martin was the principal executive officer of New Imperial at all relevant times. Mr Egan gave evidence that in November 1991 he was aware of the caveat on the title to the applicants' property and that he believed that it secured payment of a sum of approximately $1,500. Mr Egan confirmed Mr Creese's earlier evidence that when first contacted by Mr Creese in respect of the matters with which these proceedings are concerned he advised Mr Creese that "approximately $30,000 was owing". Mr Egan denies that he told Mr Creese that the judgment debt was $30,000. Mr Egan sought, he said, to advise Mr Creese of the amount owing, so far as he was then aware, under the lease executed by Ms Cazaly as lessee and the applicant Mr Krambousanos as guarantor. Mr Egan subsequently spoke with Mr Martin and thereafter wrote the letter dated 21 November 1991 the crucial paragraphs of which are set out above. The evidence of Mr Egan is that he was not aware at the time that he wrote the letter of 21 November 1991 of Ms Cazaly's bankruptcy. Mr Egan's evidence is that he did not consciously determine not to provide Mr Creese with a copy of the judgment obtained by New Imperial against Ms Cazaly and the applicant Mr Krambousanos. He said that his client was interested in recovering moneys due under the lease and that was what he was discussing with Mr Creese. Mr John Krambousanos, in an endeavour to negotiate a solution to the problems which he saw as facing him and his family, contacted Mr Martin. He reached an agreement with him that an interest rate of 18% under the mortgage would be too high and that the rate should be 13% with 10% for prompt payment. I interpolate that Mr John Krambousanos' evidence concerning these negotiations shows him to have a familiarity with financial dealings quite inconsistent with the answers given by him in some of his other evidence. In my view, it must have been plain to Mr Martin during these negotiations that Mr John Krambousanos was acting in the belief that the only way to remove the caveat from the title to his parents property so as to allow the registration of the mortgage to the Trust Bank was to reach an agreement with New Imperial. I find that neither the applicants nor Mr John Krambousanos had any proper understanding of the significance of the caveat registered by New Imperial on the title to the applicants' property. They were not aware of what was necessary to remove it. They did not understand the difference between the amount owed by the applicant Mr Krambousanos by reason of the judgment debt, and the amount of any liability that he might have had by reason of ongoing claims for rent under the lease. They did not understand that the caveat reached only to the applicant Mr Krambousanos' undivided moiety interest in the property. In my view, these circumstances, taken together with their limited language skills, and their social and business dependence upon their children, and especially Mr John Krambousanos, placed the applicants under a special disability in dealing with New Imperial. There was, I conclude, an absence of any reasonable degree of equality between them in the sense discussed by Deane J in the Amadio Case. New Imperial, through Mr Martin and Mr Egan, knew that Mr and Mrs Krambousanos jnr. were receiving legal advice in respect of the caveat. Each of Mr Martin and Mr Egan, in my view, had grounds to suspect, and I find on the balance of probabilities, did suspect that such advice as Mr John Krambousanos had received had not alerted him to the difference between the judgment debt which was secured by the caveat, and the asserted liability of the applicant Mr Krambousanos under the indenture of lease which he had signed as a guarantor. They must, in the circumstances, I conclude, have been alerted to the possibility that the applicants were similarly not alert to the difference. Mr Egan was alert to the need for the applicants to receive independent legal advice with respect to the mortgage to New Imperial. The risk of undue influence being exerted upon the applicants by Mr & Mrs Krambousanos jnr., or one of them, was apparently recognised by him. It was, in my view, rightly so recognised. The mortgage was being given to achieve the lifting of the caveat so as to allow the registration of the Trust Bank mortgage. The Trust Bank mortgage was a condition precedent to Mr & Mrs Krambousanos obtaining a fluctuating overdraft facility from the Trust Bank. The mortgage was not intended to benefit the applicants directly in any way. It would, in addition, have the effect of providing New Imperial with a level of security far greater than it already held so far as its claim for unpaid rent under the lease indenture was concerned. Moreover, New Imperial was by the mortgage obtaining security over the applicant Mrs Krambousanos' interest in the property when it could not have been suggested that she had any liability to New Imperial. Yet nothing was done by any representative of New Imperial to ensure that the applicants obtained independent advice on the significant issue of whether execution of the mortgage to New Imperial was necessary to achieve the removal of the caveat from their title. In his letter of 25 November 1991 to Mr Creese, Mr Egan wrote as follows:- "Please note that at settlement we shall require a letter from Mr and Mrs E Krambousanos' Solicitors that they have been independently advised in relation to the Mortgage, that they understand the Mortgage and have executed it as security for the outstanding debt of their own free volition." This request was insufficiently explicit unambiguously to raise the issue referred to above. The letter dated 27 November 1991, which Mr Egan's firm received in response to the above request was, in my view, sufficient to put New Imperial, through its solicitors and secretary, on notice that the applicants had not been advised as to the significance of the caveat on their title or as to the means, short of their execution of the mortgage, available to remove it. The letter of 27 November 1991 signed by Ms Green, in my view, makes it plain that she had considered her obligation to be to proffer advice to the applicants on the basis that they were considering the execution of a third party guarantee mortgage in circumstances of no particular significance. I find that the special disability which the applicants were under in dealing with New Imperial was sufficiently evident to New Imperial through Mr Egan and Mr Martin to make it unconscionable for New Imperial to accept the applicants' assent to the mortgage in the circumstances in which it was given. The mortgage was transferred by New Imperial to the first respondent on 15 January 1992. Mr Egan's firm was at that time, and continued thereafter, to be the solicitors for the first respondent. Mr Egan is shown by Australian Securities Commission documentation to have been the Secretary of the first respondent since 15 January 1991. Mr Martin was then, and apparently remains, the principal executive officer of the first respondent. I find that the first respondent took the transfer of the mortgage with notice of the circumstances outlined above. The first respondent has not, in my view, satisfied the onus of showing that the mortgage transaction was "fair, just and reasonable" (see per Deane J in the Amadio Case at 474). In my view, so far as the applicant Mr Krambousanos is concerned, it was unduly favourable to the first respondent: so far as the applicant Mrs Krambousanos is concerned it was oppressive. The mortgage should be set aside. The claim for damages against the first respondent was not pressed. As a consequence of the mortgage being set aside, the cross claim must fail. THE CASE AGAINST THE SECOND RESPONDENT The second respondent, by its employee Ms Green was retained by Mr Creese's firm to provide independent legal advice to the applicants with respect to the mortgage. It was not contended on behalf of the applicants that they were the clients of the second respondent or of Ms Green. This case is thus distinguishable from Tarzia & Anor v National Australia Bank & Anor (unreported, Full Federal Court, 12 October 1995) where the applicants were regarded as the clients of the solicitor who provided advice to them (see the reasons for judgment of the Court at p28). Paragraph 39 of the amended statement of claim relevantly pleads:- "Messrs Simmons Wolfhagen were ... negligent in their conduct for the Applicants and each of them as follows: a. By omitting to disclose information which they knew or ought to have known was relevant to the giving of the Mortgage and in giving no advice or no adequate advice as to: i. the type of document the Applicants were being asked to sign; ii. the terms and conditions of the document the Applicants were being asked to sign; iii.the liability or potential liability created by the document the Applicants were being asked to sign; iv. the effect generally of the document the Applicants were being asked to sign; v. any of the circumstances giving rise to the request for the giving of the Mortgage; vi. alternatives to the giving of the Mortgage as a way of having the Caveat removed from the title or otherwise assisting their son; b. No enquiry or no adequate enquiry was made of any of the circumstances surrounding the giving of the second Mortgage or about the Caveat, the removal of which was being obtained by the giving of the second Mortgage, or about the Judgment Debt upon which the Caveat had been based; and as a consequence of that, the Applicants were not individually apprised of any of those matters when they were asked to sign the second Mortgage; c. In not explaining the amount of the liability under the Judgment secured by the Caveat, and means of satisfying that Judgment; d. In failing to engage the services of an interpreter to apprise the Applicants of all of the circumstances relevant to the giving of the Mortgage, alternatives to giving the Mortgage and the terms of the Mortgage; e. In having the Applicants execute the Mortgage document at their home; f. In having the Applicants execute the Mortgage document at their home when their son was present; g. In failing to explain to the Applicant Angela Krambousanos that she was not liable for the Judgment secured by the Caveat and that by signing the Mortgage she would become liable; h. In the circumstances set out in (g) above, not ensuring that the Applicant Angela Krambousanos obtained her own advice independent of her husband; i. Not ensuring that the circumstances surrounding the giving of the Mortgage were not circumstances of special disadvantage or which gave rise to a special disadvantage such that each of the Applicants was not able to make a free and informed decision to sign the Mortgage; j. In failing to ensure that the Applicants' son or the son's solicitor had not unduly influenced each of the Applicants to sign the Mortgage; k. In failing to make proper or adequate enquiry as to the circumstances in which the Mortgage was being procured; l. In failing to make proper or adequate enquiry as to the circumstances in which the Mortgage was being given by the Applicants and each of them; m. In relying on the son's solicitor to advise as to the circumstances relevant to the procuring of the Mortgage and in relying on that advice when the son's solicitor was involved in the transaction for the son and when the son, for whom that solicitor acted, was benefiting by and from the giving of the Mortgage which facts were within the knowledge of Simmons Wolfhagen." This case was conducted on the basis that two broad allegations of negligence were made against the second respondent. First, that it failed properly to advise the applicants as to the nature of the document which they signed and its legal effect. Secondly, that it failed to make adequate inquiry as to the circumstances giving rise to the proposal that the applicants execute a second mortgage of their home, and consequently failed to advise the applicants of the commercial unwisdom of the proposal. Recent High Court authorities establish that a duty of care arises in negligence at common law only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage (Sutherland Shire Council v Heyman & Anor (1984) 157 CLR 424; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340; Gala & Ors v Preston (1991) 172 CLR 243; Bryan v Moloney (1995) 182 CLR 609). As to the requirement of proximity, Deane J said in Sutherland Shire Council v Heyman at 497-498 that:- "... [it] is directed to the relationship between the parties in so far as it is relevant to the allegedly negligent act or omission of the defendant and the loss or injury sustained by the plaintiff. It involves the notion of nearness or closeness and embraces physical proximity (in the sense of space and time) between the person or property of the plaintiff and the person or property of the defendant, circumstantial proximity such as an overriding relationship of employer and employee or of a professional man and his client and what may (perhaps loosely) be referred to as causal proximity in the sense of the closeness or directness of the causal connexion or relationship between the particular act or course of conduct and the loss or injury sustained. It may reflect an assumption by one party of a responsibility to take care to avoid or prevent injury, loss or damage to the person or property of another or reliance by one party upon such care being taken by the other in circumstances where the other party knew or ought to have known of that reliance." Similarly, Mason CJ, Deane, Gaudron and McHugh JJ in Gala v Preston at 253 said:- "The requirement of proximity constitutes the general determinant of the categories of case in which the common law of negligence recognizes the existence of a duty to take reasonable care to avoid a reasonably foreseeable and real risk of injury." Deane J pointed out in Hawkins v Clayton & Ors (1988) 164 CLR 539 at 576 that:- "[i]n the more settled areas of the law of negligence involving direct physical injury or damage caused by negligent act, the reasonable foreseeability of such injury or damage is, of itself, commonly an adequate indication that the relationship between the parties possesses the requisite element of proximity [citations omitted]. That cannot, however, be said of cases in the area where the plaintiff's claim is for pure economic loss. In that area, the categories of case in which the requisite relationship of proximity is to be found are properly to be seen as special in that they will be characterised by some additional element or elements which will commonly (but not necessarily) consist of known reliance (or dependence) or the assumption of responsibility or a combination of the two ..." The concept of proximity causes no difficulties where the relationship between the parties is that of solicitor and client. In the words of Deane J in Hawkins v Clayton at 575 "there are no acceptable grounds for refusing to recognise the liability of a solicitor in tort for negligence in the performance of professional work for a client." However, in this case it is accepted on behalf of the applicants that they were not clients of the second respondent. Moreover, it is the applicants' case that they placed no reliance on anything Ms Green said to them. Neither of the applicants was willing to concede knowledge at any relevant time of Ms Green's professional calling. There are few examples in the authorities of lawyers being held liable in tort for negligence to persons not their clients where reliance on the solicitor to the knowledge of the solicitor has not been established. Counsels' researches and mine have not disclosed examples outside of the area of wills and probate where a solicitor has been held liable in tort to a non-client for negligence in the absence of reliance (see, for example, Hawkins v Clayton, Ross v Caunters [1980] Ch 297; Van Erp v Hill (trading as R F Hill & Associates) [1995] ATR 81-317; see also Debra Rolph: Solicitors' Liability to Non-Clients in Negligence (1993) 15 Advocates Quarterly 129). Nonetheless, I agree with the submission of counsel for the applicants that I am not compelled by authority to hold that in the circumstances of this case the second respondent did not owe a duty of care to the applicants. As Gibbs CJ made clear in Sutherland Shire Council v Heyman at 441:- "In deciding whether the necessary relationship [of proximity] exists, and the scope of the duty which it creates it is necessary for the court to examine closely all of the circumstances that throw light on the nature of the relationship between the parties." In this case there was an assumption of responsibility by the second respondent to the applicants. In addition there was a contract between the second respondent and a third party for the second respondent to provide legal advice to the applicants. It was thus within the direct contemplation of the second respondent that the applicants were persons likely to be closely and directly affected by Ms Green's conduct. They could reasonably foresee that the applicants would be likely to be injured by negligent conduct on Ms Green's part. The situation is in this regard comparable to that considered by Sir Robert Megarry VC in Ross v Caunters. In that case the Vice Chancellor at 309 stated:- "When a solicitor undertakes to a client to carry through a transaction which will confer or benefit on a third party, it seems to me that the duty to act with due care which binds the solicitor to his client is one which may readily be extended to the third party who is intended to benefit." I find that the second respondent did owe to the applicants a duty of care. However, the scope of the duty owed by the second respondent to the applicants is to be ascertained by reference to the circumstances surrounding the relationship between the applicants and the second respondent. The most significant of these, in my view, are the instructions given to Ms Green, in her capacity as an employee of the second respondent, by Mr Creese. The evidence in chief of Mr Creese on this topic, which I accept, is as follows:- "I told Jill that I acted for the Krambousanos' who obviously were looking to secure funds over their parents' title and that we needed at the request of Murdock Clarke Cosgrove and Drake and myself independent legal advice on the signing of that particular mortgage document and that would she be good enough to agree to doing that for me of which she said, "Yes, that wouldn't be a problem", and I again I think explained that it was a fairly urgent matter, that we needed this to be sorted out as soon as possible ...". In cross-examination Mr Creese agreed that he did not ask Ms Green to advise the applicants on the wisdom of their entering into the mortgage. He agreed that he did not provide her with any information about the background of the transaction. Indeed, Mr Creese stated that:- "[f]rom my memory, the only discussion was that I had told her that I had been there myself on a previous occasion for a Trust Bank mortgage and I now needed her to be there for the second mortgage." Ms Green's evidence, which, as is mentioned above, I accept in its entirety, was consistent with that of Mr Creese. She stated that he told her, in effect, that his clients were borrowing money and that as the parents of the borrowers were providing the security of their house an independent person was required to explain the mortgage to the parents. It was the task so described to her by Mr Creese that Ms Green agreed, on behalf of her employer, to undertake. The scope of the duty of care of the second respondent to the applicants is, in my view, to be measured against that task. The second respondent was under no duty, in my view, independently to check on the appropriateness of the instructions given to Ms Green by Mr Creese, or, leaving aside blatantly obvious error, to check on the accuracy of Mr Creese's description of the proposed transaction. Ms Green gave evidence of a conversation which she had with Mr John Krambousanos whilst he was driving her to his parents' home. She asked him how much English his parents spoke. He replied that "[m]y mother's English is poorer than my father's but they can understand simple explanations." I find that this is an accurate description of the applicants' English language skills. Ms Green gave evidence that if she had not been satisfied that the applicants understood what she said to them she would not have allowed them to sign the mortgage. I accept her evidence in this regard and find that she was satisfied, on reasonable grounds, that the applicants had understood her explanations. I find, on the balance of probabilities, that they did indeed understand the salient points of her explanation and the nature and extent of the obligations which they were undertaking. Mr Creese had earlier explained a mortgage document to the applicants and I note that he also was satisfied that they understood his explanation. In my view, the second respondent was not in breach of its duty to the applicants as a consequence of Ms Green not using an interpreter to translate her explanation to the applicants. Nor, in my view, was any breach of duty involved in Ms Green's agreement to see the applicants in their home at a time when their son Mr John Krambousanos was present in the house. Ms Green's evidence as to her conversation with the applicants is referred to above. In my view the applicants have not made out their case that the second respondent did not give to them advice or adequate advice as to the nature of the document which they were being asked to sign or as to its legal effect. In any event, as is mentioned above, I am satisfied that the applicants, quite independently of anything said to them by Ms Green, well understood the concept of borrowing money against the security of their home and also understood the risks involved in doing so. I further find that nothing that Ms Green could have said to the applicants as to the nature of the document which they were being asked to sign, or as to its legal effect, would have dissuaded them from executing the mortgage. They were intent on signing the mortgage to assist their son, Mr John Krambousanos. I turn to the second broad allegation of negligence made against the second respondent, namely of failure to advise as to the commercial unwisdom of the proposed transaction. At no time was Ms Green given instructions to advise on the propriety of the transaction. She was not advised of a relationship between the mortgage concerning which she was to advise the applicants and the caveat registered on the title of their property. The courts have consistently held that where a solicitor's retainer does not impose a duty, whether express or implied, to give commercial advice and advice about the propriety of a transaction, he or she will not be negligent in failing to do so (Brusewitz v Brown [1923] NZLR 1106; Hogan & Anor v Howard Finance Limited & Anor (1987) ASC 55-594; Orszulak & Anor v Hoy & Anor [1989] ATR 80-293; Gallagher & Anor v Carman [1990] ATR 81-011; Bowdage v Harold Michelmore & Co Vol 106 The Solicitor's Journal at 512; Tarzia & Anor v NAB). The Full Federal Court in Tarzia & Anor v NAB stated that:- "It is not generally the task of solicitors to explain the financial result or prudence of the transactions involved in documents they are merely asked to explain. Unless they undertake the task of doing so, or are specifically retained to perform it and supplied with the necessary information and documentation, they will not be negligent in failing to do so ..." It was argued on behalf of the applicants that the cases of McNamara & Ors v Commonwealth Trading Bank of Australia (1984) 37 SASR 232 and Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 demonstrate that the second respondent was under a duty to provide more extensive advice to the applicants than that provided by Ms Green. In the case of McNamara the Full Court of the Supreme Court of South Australia made observations as to the duty of legal practitioners in relation to the execution of documents in their presence pursuant to s44 of the Consumer Transactions Act 1972-1980 (SA). I do not find the case of McNamara of assistance in the circumstances of this case. Bester v Perpetual Trustee Co Ltd is an undue influence case in which Street J held that the plaintiff, a 21 year old person with no experience of business, did not thoroughly comprehend, and deliberately and of her own free will carry out, the transaction embodied in a settlement, notwithstanding that the settlement deed was read to her word for word and she replied "No" when asked if she had any questions. The issue with which I am presently concerned was not required to be considered in Bester v Perpetual Trustee Co Ltd. Moreover, the facts there under consideration are significantly different from the facts of this case. I do not find the case of assistance on the issue of the extent of the duty of care to the applicants undertaken by the second respondent. I find that, in the circumstances of this case, the second respondent was under no duty to the applicants to make enquiries as to the circumstances surrounding the giving of the mortgage, or as to the caveat or the judgment debt upon which the caveat was based, or as to the general commercial wisdom of executing the mortgage. I find that the second respondent was not in breach of its duty of care to the applicants in not providing to them advice as to the amount in fact secured by the caveat or as to alternative methods of causing the caveat to be removed from their title. I find that the second respondent was not in breach of its duty of care to the applicants in taking instructions from Mr Creese, and relying on such instructions in its dealings, through Ms Green, with the applicants. I find that there was no breach of such duty in their failing to ensure that the applicant Mrs Krambousanos was advised independently of her husband. The applicants' case against the second respondent must fail. I will hear counsel as to the precise terms of the orders to be made and as to costs. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Branson. Associate: Dated: Counsel for the Applicants : Mr P W Tree and Cross-Respondents with him Mr D Wallace Solicitors for the Applicants : Wallace Wilkinson and Cross-Respondents & Webster Counsel for the First Respondent : Mr P L Jackson and Cross-Claimant Solicitors for the First : Griffits and Respondent and Cross-Claimant Jackson Counsel for the Second Respondent: Mr P Evans Solicitors for the Second : Butler McIntyre Respondent and Butler Hearing Dates : 20, 21, 22, 23, 24, 28 and 29 November 1995