Lauvan Pty Limited & Anor v Bega & Ors

STD acquires the Allure Apartments land

1. In or around June 2012, STD acquired the Allure land from JHD Property for about $1.1 million. Mr Mullins and Mr Stathakis, the then-directors of STD, both gave evidence that they acquired this land on the instructions of Peter Bega (Affidavit of Ross Stathakis at [6] and [12]; Ex U par 3). That purchase was funded entirely by vendor finance. It seems that the loan owing by STD to JHD Property was never repaid.
2. On 12 September 2012, mortgages were registered on the title to the Allure land by R S Projects Pty Ltd and N Q Projects Pty Ltd. Mr Stathakis and Mr Mullins both gave evidence that they held their respective shares in RS Projects and NQ Projects for Peter Bega, and that they caused the mortgages to be registered on the title on his instructions (T129, 41-50; T130, 13-19; T131, 13-18; T298-299; T307, 7-15). I accept this evidence. The instructions which were later given by Mr Mullins to Mr Delaney, solicitor, on 23 July 2013 (Ex 5) to prepare agreements recording the terms on which those companies had purportedly provided services to STD were never executed. Both Mr Stathakis and Mr Mullins gave evidence that no amount was secured by those mortgages (T130, lines 13-19; T298-299). I accept that evidence.
3. Peter Bega denied that he controlled STD or that the shares in STD were held by Mr Mullins and Mr Stathakis in trust for him or the Bega family. I do not accept that evidence. I find that Peter Bega controlled STD, and that the directors of STD acted in accordance with his instructions. The evidence establishes that Peter Bega asked Mr Mullins and Mr Stathakis to register STD and be its directors, and to hold their shares for the Bega family. Mr Mullins said that Peter Bega told him that they held the shares in STD on trust for Peter Bega's sons, Matthew and Aidan. Mr Mullins and Mr Stathakis acted at Peter Bega's direction, including Mr Mullins' resignation as a director of STD in May 2015. Peter Bega then installed Mr Napoleon Tsanis as a director of STD. Peter Bega requested that Mr Mullins and Mr Stathakis incorporate companies and register mortgages over the Allure land. Those mortgages were plainly a device to protect the equity in the Allure Apartments development for the benefit of the Bega family. Peter Bega arranged on behalf of STD the construction loan from the plaintiffs and negotiated each variation of that loan. He arranged for his son Aidan Bega to give a guarantee of the construction loan. That STD was, in reality, a Bega family company directed and controlled by Peter Bega is also confirmed by the content of the text messages sent by Peter Bega to Mr Danesi and Mr Mullins (Ex W).

Construction loans to STD

1. On 21 June 2013, the plaintiffs entered into a facility agreement with STD for $9,500,000 to fund construction of the Allure Apartments (the construction loan). The construction loan was guaranteed by Mr Mullins and Aidan Bega and secured by a mortgage over the Allure land and also over each of the apartments once the strata plan was registered. The parties entered into five variations of the facility agreement between October 2013 and August 2014.
2. Construction was completed in about August 2014. It is common ground that sales were slow and STD experienced difficulty in selling the apartments on the open market at prices that would enable the construction loan to be fully repaid. Peter Bega was frustrated with how long it was taking to pay out the construction loan.
3. On 19 September 2014, the plaintiffs issued a notice of default to STD for failing to repay the principal sum and capitalised interest totalling $10,700,000. Interest on the loan was being charged at 20 per cent per annum, and the plaintiffs reserved the right to charge a higher rate of 30 per cent per annum on default. STD sought to refinance the construction loan, but this was apparently refused by the plaintiffs in about October 2014.
4. STD adopted a number of strategies to generate sales and reduce the debt owed to the plaintiffs. One strategy was to sell some units to interests associated with Mr Danesi. Another strategy was to sell the units "off market" to friends and relatives. This resulted in a number of sales of individual units. Units were sold to Bega family members and associates at a discount on market-value, including by way of offsets and rebates. Those sales at a discount included the sale of two units (unit 602 in October 2014 and unit 702 in February 2015) to Causidicus Fessus, the service company associated with Sarvaas Ciappara. A third strategy involved the remaining units being "refinanced". STD had proposed to the plaintiffs that the refinance of the balance of the units would occur at the very end of the sales process.
5. As part of the second strategy, STD entered into a contract of sale on 20 February 2015 with AB Veritas (guaranteed by Aidan Bega) for seven units in the Allure Apartments at a total purchase price of $3,080,000. Settlement of that sale was due to take place at the end of March 2015. AB Veritas obtained mortgage finance approval from Arch Finance Pty Ltd (Arch Finance) for $1,820,000 on 20 March 2015. This was substantially less than the purchase price.
6. Aidan Bega deposed that AB Veritas also entered into an offset deed with STD in relation to the purchase price. The offset deed in evidence was undated and executed only by Aidan Bega on behalf of AB Veritas (Ex B, tab 46). Recital C to the offset deed recorded an agreement that the buyer may offset on the settlement date against its obligation to pay the purchase price, the amount of the financial liabilities incurred by the developer (STD), or parties related to or associated with the developer, to the buyer (AB Veritas) an amount of $1,795,000.
7. On 10 March 2015, Mr Cook sent an email to Mr Danesi advising that, taking into account the estimated net proceeds available to the plaintiffs from the upcoming and recent settlements (as advised by Mr Mullins on 9 March 2015), the "current LVR excluding the Commercial Unit is $296k prior to today's settlement". The reference to the "current LVR" was a reference to a calculation of the balance of STD's outstanding debt divided by the number of unsold units (excluding the Commercial Unit). Mr Cook advised Mr Danesi that, assuming the units settled as planned, the debt reduction would result in a loan balance of $4,353,000, excluding interest of about $20,000 per week. His email continued: There are 15 Units remaining excluding the Commercial Unit (not sure of the current value on this asset) therefore Dominic would need to achieve around $295k per Unit on the refinance to clear the debt. It will be interesting as to how this pans out and if they can achieve the funding sufficient to clear the debt, looks close to me.

The discussions leading to the facility agreement and mortgage

1. Mr Danesi deposed that he had a telephone conversation with Mr Mullins on 23 March 2015 concerning the sale to Aidan Bega. It is more likely however that this conversation occurred on or about 19 March 2015. The difference in dates is not significant. According to Mr Danesi, Mr Mullins informed him that STD was looking to transfer seven units to Aidan Bega for approximately $200,000 per unit "early next month" (that is, April 2015). Mr Danesi responded that he was not comfortable as those amounts were below his LVR (of $295,000). Mr Danesi told Mr Mullins that if Peter Bega wanted him to consent to those transfers, additional security would be required. Mr Mullins responded that he would talk to Peter Bega, and advised that STD may need the plaintiffs to make available further funds on the day of settlement to make up the shortfall in the purchase price so as to allow settlement to go through. He indicated that there would be no risk to Mr Danesi as he would simply need to draw a bank cheque payable to himself on settlement. Mr Mullins said: You will then take that away from settlement with the $200k net sale proceeds for each unit.
2. Mr Danesi replied that he would discuss the matter with Mr Cook and think about it, and would depend on the position regarding the additional security.
3. Peter Bega deposed that Mr Mullins informed him of his conversation with Mr Danesi during a telephone call on about 23 March 2015. The conversation may have occurred earlier than this date. According to Peter Bega, Mr Mullins told him that Mr Danesi was not prepared to permit the sale to AB Veritas to settle without further security to support the construction loans to STD, and Mr Mullins suggested that he put up the (Bega) house as temporary short-term security, and also said: "It will only be a short period". Peter Bega deposed that he responded to Mr Mullins that, on the basis that there was no risk as the sales would pay out the loan from Mr Danesi in full and the additional security was only required for a short period, he would ask Helen (Bega) to agree to provide the security on that basis.
4. On 24 March 2015, Peter Bega telephoned Mr Danesi concerning the proposed transfer of seven units to Aidan Bega. According to Mr Danesi, Peter Bega said that he would talk with his wife and that they would use the family home as additional security, that it was in the family's interest to transfer the units to Aidan, and that they needed to act urgently as Aidan was running out of time to draw down on his loan approval, which he would not get back if allowed to expire. This was a reference to the loan approval from Arch Finance for $1,820,000, which expired on 31 March 2015.
5. Peter Bega accepted that he spoke to Mr Danesi on or about 24 March 2015 and told him that he would ask Helen (Bega) whether she would be agreeable to the family home being used as security until the settlements of other sales had completed. He deposed that he said to Mr Danesi: It will only be security for a short time as those settlements are to take place I am told by Dominic in April and will provide sufficient capital reduction. I will ask Helen to provide the house as security until then and that Mr Danesi responded that he was agreeable to that.

25 March 2015 meeting

1. On the following day, 25 March 2015, Mr Danesi met with Peter Bega and Mr Mullins at his office in Erskineville. Mr Danesi deposed that a conversation to the following effect took place: PB: I've spoken to Helen. She has agreed to grant a mortgage over the family home. Will $1 million be sufficient security? SD: Yes, I think so but I will confirm with you. PB: Ok, I'll leave it to you guys to sort it out.
2. Peter Bega agreed that he met with Mr Danesi and Mr Mullins on 25 March 2015, but denied having raised the $1 million security. He deposed that he told Mr Danesi: Helen is agreeable to providing her home as additional security in the short-term on the basis as we agreed yesterday. The property is unencumbered. There is sufficient value in the property to provide the additional security to cover the temporary LV are shortfall. Is that acceptable? and that Mr Danesi replied "yes".
3. In her first affidavit, Mrs Bega deposed that, a few days before signing the facility agreement (on 2 April 2015), she had a conversation with her husband at their Alexandria home to the following effect: Peter: Helen, I know we have always said we would never do this, but we need to put a mortgage over the house for $1 million, but it will be only for a couple of weeks. Nothing to worry about. Helen: How does that work - just for a couple of weeks? It's a bit odd. I had never heard of a mortgage which was to last for 2 or 3 weeks. Peter: We're in a tight spot. It's just to get us over the line and it will only be for a couple of weeks. It's fine, you don't have to worry. Because they can't get any money without your say so. Helen: Ok. I was a bit alarmed but trusted Peter to manage the matter so that our home was not put at risk. Peter: You're going to have to sign some documents with Charles. (Charles Ciappara who was at that stage our family solicitor.)
4. Mrs Bega also deposed that she understood that the documents were necessary to provide security for the Allure Apartments in Townsville (First affidavit, par 20).

26 March 2015 meeting

1. On 26 March 2015, Mr Danesi met with Mr Mullins, Mr Cook and Mr Roth at the offices of Independent Legal. There was a discussion of the three tranches of sales that were to occur including to AB Veritas. Mr Mullins confirmed that, following discussions with Peter Bega, the Bega family home would be offered as additional security. Mr Mullins indicated that the purchase price of the seven units to be transferred to AB Veritas was approximately $3,000,000, from which there would be net funds available for Mr Danesi of approximately $1,450,000. Mr Mullins explained the detail of the two other tranches of sales to related parties.
2. Tranche 2 involved the sale of five units (units 306, 406, 504, 506 and 605) to Matab Investments Pty Ltd (Matab), a company owned and controlled by Matthew Bega, another son of Peter and Helen Bega, with net funds of approximately $1,345,000 available to the plaintiffs. These transactions were to be financed by Arch Finance.
3. Tranche 3 involved the sale of three units (units 201, 402 and 502) to Balis Properties Pty Limited (Balis), a company owned and controlled by George Balis, the brother of Mrs Bega, with net proceeds of approximately $1,125,000. These transactions were to be financed by National Australia Bank Limited.
4. Mr Mullins also outlined the proposed sale prices and settlement dates for the remaining units: Lot 303, within seven days ($390,000); Lot 707, within two to three weeks ($455,000); Lot 504, within two to four weeks ($365,000); and Lot 305, within two to four weeks ($375,000).
5. The meeting then turned to the question of what form the security might take. Mr Mullins explained that Mrs Bega owned the Denham Court property solely in her name. Mr Roth asked how much money was to be secured by that property. Mr Danesi indicated that Peter Bega had requested a loan for $1,000,000. Mr Roth gave advice that asking Mrs Bega to guarantee the construction loan might be too complicated given the number of variations of that loan that had occurred, and suggested instead that the plaintiffs lend money to Mrs Bega secured by the Denham Court property, which money she could on lend to AB Veritas. According to Mr Danesi, the conversation between Mr Roth and Mr Mullins was in the following terms: AR: Is the mortgage from Helen to be used as security for the existing debt of South Townsville Developments? That would require a guarantee from Helen. Given all of the variations that have occurred to date in the South Townsville Developments loans, I'm not very keen on the idea of bringing Helen in at this late stage as a guarantor, it's too complicated. Given that the mortgage is proposed to assist Aidan complete the purchase, it would make more sense to lend the money to Helen and she can on-lend to Aidan to complete the purchase. If we do it that way, the million dollar loan to Helen plus the monies from Arch will be paid out to South Townsville Developments as vendor who will need to pay to Shadd as mortgagee. What will then occur is Helen Bega's loan will be drawn down and South Townsville's debt will reduce by the corresponding amount. It would also make sense to have South Townsville, Aidan and his company guarantee the loan to Helen. DM: Yes that makes sense, can you please start preparing the loan and security documents as this needs to happen in a hurry.

Events of late March 2015

1. Mr Danesi gave evidence that on or about 28 March 2015, Mr Mullins telephoned him and said: Shadd, Helen is okay to proceed and enter into the agreement to borrow $1M and grant a mortgage over Denham Court. Can you instruct your lawyer urgently to prepare the docs as we need to get this settled in the next few days or Aidan may lose his funding.
2. The defendants did not challenge this part of Mr Danesi's evidence, nor did Mr Mullins dispute in his witness statement having such a conversation with Mr Danesi.
3. Mr Mullins gave evidence in his statement (Ex U, par 17) that Peter Bega said that he was willing to give security over the Denham Court property: Because I am exchanging $1 million of equity in the house for $3 million of equity in the units.
4. Peter Bega deposed that he telephoned Mr Ciappara on 30 March 2015 and informed him of the proposed transaction in the following terms: PB: The lender to STD requires additional security to allow the sale to Aidan's company to go through. I have convinced Helen to provide the title deed and a mortgage over her home at Denham Court. The mortgage security will only be in place until the sales to MATAB Pty Ltd, Balis Properties Pty Ltd and possibly Andrew Hourigan go through. At worst, the mortgage will be in place for a month. I will need you to witness the mortgage documents. Is that ok? CC: Yes. PB: I shall call you to arrange
5. Mr Ciappara denied having a telephone conversation with Peter Bega concerning the matter before receiving Mr Mullins' email at 12.42pm on 31 March 2015 (referred to at [68] below).
6. On 31 March 2015 at 10.57am, Mr Hustler, a solicitor from Independent Legal, sent a letter by email to Mr Mullins headed "Lauvan/Mittabell Loan to Helen Bega", enclosing a covering letter from Mr Roth of Independent Legal dated 31 March 2015, the mortgage over the Denham Court property and a number of ancillary documents, including declarations and acknowledgment of legal advice for Mrs Bega and Aidan Bega. The facility agreement was not attached to this email.
7. The covering letter from Mr Roth dated 31 March 2015 noted his understanding that Mr Mullins represented the borrower, Mrs Bega, and that Mr Mullins would provide the enclosed documents to and discuss them with the borrower. The letter stated that a precondition to the plaintiffs advancing funds under the facility was that the borrower and the individual guarantor obtain legal advice and complete and make the declaration in accordance with the New South Wales Solicitors' Rules 45.7. (It seems, however, that the applicable rule at the time was r 58: see NSW Professional Conduct and Practice Rules (2013).)
8. Mr Mullins gave evidence that upon receipt of the loan documents by email, he telephoned Peter Bega and told him that he had received the documents and asked what he should do with them. Peter Bega replied that he should send them to Mr Ciappara who would advise Mrs Bega and look after her interests. Mr Mullins did so and forwarded Mr Hustler's email together with its attachments, by email to Mr Ciappara, copied to Peter Bega, at 12.42pm on 31 March 2015 also headed "Lauvan/Mittabell Loan to Helen Bega", and requested that Mr Ciappara urgently review the documents, noting that "Peter will contact you with further details".
9. Peter Bega sent an email to Mr Ciappara, copied to Mr Mullins, on 31 March 2015 at 1.28pm advising that Mrs Bega needed to execute the documents "so Aidan can settle his unit purchases on Thursday". That email was also headed "Lauvan/Mittabell Loan to Helen Bega". There were further emails between Peter Bega and Mr Ciappara on 31 March 2015 concerning arrangements for Mr Ciappara to meet Mrs Bega at Bitton café at Alexandria the following morning.
10. In her first affidavit, Mrs Bega explained the circumstances in which she signed the facility agreement on 2 April 2015, but did not refer to signing the mortgage on 1 April 2015. That was dealt with in her second affidavit dated 3 May 2017. Mrs Bega also swore a third affidavit on 1 June 2017 in response to Mr Ciappara's affidavit of 22 May 2017.
11. Mrs Bega deposed in her first affidavit that, on the evening before signing the documents, her husband informed her that Mr Ciappara was coming the following morning for the signing of the documents and that she and their son, Aidan, needed to be at home and that Mr Mullins would also be there. Mrs Bega described Mr Ciappara as the Bega family's solicitor who had acted for both her and Peter Bega on a number of matters, including conveyancing transactions and mortgages given by Mrs Bega over various properties owned by her and in relation to legal disputes involving Peter Bega. Mr Mullins was also known to Mrs Bega both socially and as a person who had done some work with her husband and she had met him on a number of occasions in Townsville.
12. Mr Ciappara deposed that he had a telephone conversation with Mrs Bega on the evening of 31 March 2015 to the following effect: I said: "Hi Helen. I've received some documents from Dominic. I haven't had the chance to review them in detail but what is it about?" Mrs Bega: "Dominic has arranged a loan for me as I want to help Aidan purchase an investment unit." I said: "Okay, how much is the loan for?" Mrs Bega: "$1 million." I said: "I'll have a look at the documents tonight. I can meet you at Bitton Café tomorrow morning at say 8.30am before I drive to work if you're free. Does that work for you?" Mrs Bega: "That will be great that way I won't have to come into the city, thanks Charles."
13. In her reply affidavit, Mrs Bega did not deny the telephone conversation to which Mr Ciappara referred in his affidavit. Her evidence was that she did not recall that conversation. She proffered as a possible explanation that, at the time, her son, Aidan, was unwell and that both her parents were also very ill, and she was spending most of her time visiting the nursing home and medical clinics and caring for her mother. Mr Ciappara's evidence of this conversation was not challenged in cross-examination by counsel for Mrs Bega.

1 April 2015

1. Mr Ciappara said he received an email sent by Peter Bega at 8.04am on 1 April 2015, on forwarding Mr Mullins' email to him attaching a document entitled "100-Point Identification document". Mr Ciappara arrived at the Bitton café in Alexandria at approximately 8.45am. Peter Bega and Mrs Bega were sitting at a table outside the café. After a short discussion regarding the health of their son, Aidan, Peter Bega left the table and went into the café. Mr Ciappara deposed that he then had a conversation with Mrs Bega to the following effect: I said: "I have read the documents that Dominic sent me, but there is only a mortgage and no loan facility. Do you have the loan document?" Mrs Bega: "No, I don't have the loan." I said: "What are those documents?" Mrs Bega: "Those are the proof of identification documents that the financier needs."
2. According to Mr Ciappara, after reviewing the identification documents he had a further conversation with Mrs Bega to the following effect: I said: "So you're getting a loan for $1 million to help Aidan purchase a unit and you're prepared to give a mortgage over your house at Denham Court. Is that right?" Mrs Bega: "Yes, that's correct." I pointed to the Mortgage that I had in front of me and I said words to the following effect to Mrs Bega: "This is the mortgage that will secure payment of the $1 million that will be advanced to you. If you default under any finance agreement you enter into with the lender then the lender will be entitled to repossess and sell your house in order to repay the loan, interest, costs and expenses and anything else you owe under the finance agreement. Do you understand that?" Mrs Bega: "Yes, I understand." I said: "Okay. I'll need to get onto Dominic to see what's happening with the finance agreement." Mr Ciappara said that he then witnessed Mrs Bega's signature on the mortgage and the Declaration and he completed and signed the 100-Point Identification Confirmation.
3. Mr Ciappara's handwritten file note dated 1 April 2015, recorded the following: Advised Helen that I had only received mortgage and not finance document. She said she was borrowing $1 million and was prepared to give security over Denham Court. She was borrowing $1 million to help Aidan with a unit investment. I advised Helen that by giving the mortgage if she defaulted under finance agreement then the lender had security over Denham Court and could take her house to repay any amounts owed under finance agreement and costs and expenses. Sighted Helen's ID and witnessed her signature on mortgage and Declaration.
4. Mr Ciappara deposed that he did not recall whether he made his file note at the meeting with Mrs Bega on 1 April 2015 or within a day of that meeting. He gave evidence of his practice of making file notes of meetings. He said that his practice was to make the file note either during the meeting or back at the office within a day of the meeting. He also said that he did not recall departing from this practice.
5. In her second affidavit, Mrs Bega deposed that she had a very limited recollection of signing the mortgage, but that it might have occurred at a coffee shop. In her reply affidavit, Mrs Bega did not dispute the conversation with Mr Ciappara on 1 April 2015 except to say that her recollection was that she had provided the proof of identity documents to Mr Mullins on the afternoon of 1 April 2015, rather than to Mr Ciappara in the morning of 1 April 2015. That evidence is unreliable. It is contradicted by Mr Ciappara's file note, which I regard as accurate. The file note records that Mr Ciappara sighted Mrs Bega's proof of identity, including her birth certificate, passport and driver's licence.
6. Following execution of the mortgage, Mr Ciappara received an email from Peter Bega at 1.26pm on 1 April 2015 requesting that he email and courier Mrs Bega's documents to the lenders' lawyer, Mr Alex Roth. Mr Ciappara did not do so. Shortly after receiving Peter Bega's email, Mr Ciappara informed Mr Mullins in a telephone conversation that he had received the mortgage, but not the loan agreement. He told Mr Mullins that he had seen Mrs Bega that morning and she had signed the mortgage and enquired as to where the loan agreement was. Mr Mullins responded that he would "chase up the lender". He also asked Mr Ciappara to email the documents that Mrs Bega had signed. Mr Ciappara replied that he would email Mr Mullins a copy of the signed documents, but would hold on to the original mortgage until Mrs Bega had signed the loan agreement.
7. Mr Ciappara sent an email to Mr Mullins at 3.09pm on 1 April 2015 attaching copies of the signed mortgage, Declaration, 100-Point Identification and various identification documents.
8. Later on 1 April 2015, Mr Ciappara received a copy of the email sent by Mr Mullins to Mr Bega (at 5.14pm) attaching the loan agreement, various declarations and an authority and undertaking. Mr Ciappara had a telephone conversation with Peter Bega that evening and agreed to visit the Bega family house at Alexandria the following morning at 9am so that the documents could be signed.
9. According to Peter Bega's affidavit evidence, his next contact with Mr Ciappara (after 30 March 2015) was on 1 April 2015, when he asked him to come to the family home at Alexandria the following morning (2 April 2015) "because everyone is getting together to sign the documents". Peter Bega's affidavit elided reference to his email communications with Mr Ciappara on 31 March and 1 April 2015, and the signing of the mortgage by Mrs Bega on 1 April 2015 at the Bitton café in Alexandria.
10. Aidan Bega deposed to a conversation with his father Peter Bega on 1 April 2015 during which his father told him that Mr Danesi would not settle the sale to AB Veritas unless more security was provided and that Mr Danesi wanted to take Denham Court as additional security for the balance of the South Townsville loan until some further apartments settled in six weeks' time. Aidan Bega deposed that his father explained: The deal is that there will be a mortgage against Denham Court securing a facility but no monies will be drawn down under the facility. That way Shad gets his loan to value ratio up until other sales go through. My solicitor, Charles Ciappara, is coming around the documents tomorrow morning you will need to sign as guarantor.
11. Aidan Bega also deposed that he had a close relationship with his father and trusted that what he told him was truthful and accurate. He said that as a result of this conversation with his father, he understood that in order for the plaintiffs to discharge their mortgage over the Allure Apartments to enable AB Veritas to complete the purchase of seven units, the lenders required a mortgage to be given over the family home at Denham Court which would provide them with further security for the loan they had made to STD.
12. Mr Delaney deposed to a telephone call with Mr Mullins late in the afternoon of 1 April 2015. He said Mr Mullins advised him that there were was a change of plans and it had been agreed that the offset deed would no longer apply (to the sale to AB Veritas) and that he had arranged for STD's financier (the plaintiffs) to attend settlement with a cheque for the sum of $1,395,000 instead. Mr Mullins told Mr Delaney that a representative of the plaintiffs would be flying up from Sydney with the cheque and that that person would attend settlement in Brisbane and would do a 'round-robin' at settlement whereby the person would also leave the settlement with the same cheque for $1,395,000. Mr Delaney said that he responded that this was not necessary and he would prefer for the offset deed to proceed, but Mr Mullins advised that it was something that they required on behalf of STD and that the financiers would prefer it to be done this way.

2 April 2015

1. On the morning of 2 April 2015, Mr Mullins arrived at the Bega family home in Alexandria before Mr Ciappara. Mr Mullins gave evidence that he attended at Peter Bega's request. Mr Mullins said that when Mr Ciappara arrived, he (Mr Mullins) went into the courtyard through the glass doors as the mobile phone reception was poor in the house. Mr Mullins said that he knew that the documents needed to be executed that day in order for the settlement of the units to AB Veritas to proceed. He said that Peter Bega told him: You have got to get it done, and get the documents back to Alex Roth's office today.
2. Mr Mullins gave evidence that Peter Bega also said to him that Mr Danesi would not permit settlement to proceed until he had confirmation from Alex Roth's office that the loan documents had been properly executed and returned to him with the certificate of title to the Denham Court property.
3. Mrs Bega deposed that her son, Aidan, was present when Mr Ciappara arrived at her Alexandria home at about 8.30am or 9am on 2 April 2015, at which time Mr Mullins also arrived. She said that her husband was also at home when Mr Ciappara and Mr Mullins arrived, but was not present when she had a conversation with Mr Ciappara. She said that she made coffee for Mr Ciappara, Mr Mullins and her son, Aidan. When she came into the dining room there were documents on the table. She deposed to the following conversation with Mr Ciappara: Charles: You understand that this is a loan document over Fox Valley Road? Helen: Yes I do.
4. Mrs Bega said that she then proceeded to sign the documents. She said that she did not recall Mr Ciappara reading through the documents to himself, that he did not read the documents to her nor did he provide her with any explanation as to its terms. She said that Mr Ciappara did not explain the risks associated with her signing the documents and entering into the agreement. She said that she felt a sense of urgency about signing the documents because of her conversation with her husband. She said that she had not seen the documents before signing them and had no opportunity to read them. She said that she signed the facility agreement in the presence of Mr Mullins and her son, Aidan, and she felt pressure from Mr Mullins to sign the documents. Mr Ciappara witnessed her signature. She said that the meeting with Mr Ciappara took about 10 to 15 minutes.
5. Mr Ciappara gave a very different account of this meeting. He deposed that he arrived at Mrs Bega's house at approximately 9am. He said Mrs Bega walked him to the dining room at the rear of the house and he sat at her dining table. He said that Mr Mullins was also present and handed him copies of the documents that had been attached to Mr Mullins' email at 5.14pm the previous day. Mr Ciappara cross-checked the documents to ensure that they were the same as those attached to Mr Mullins' email; he observed that Mr Mullins was on his mobile phone wandering or pacing while speaking and came in and out of the room, though he was not close enough to hear his conversation with Mrs Bega. Mr Ciappara deposed that Mrs Bega sat across the dining table directly opposite him and they had a conversation to the following effect: I said: "We have now received the loan and some other documents. Have you read the loan, it's called a Facility Agreement?" Mrs Bega: "No, I haven't. It's to help Aidan buy an investment property." I said: "I'll take you through the Agreement but the interest rate is very high it's 20% per annum." Mrs Bega: "That's fine, we'll be repaying the loan shortly within a few weeks." I said: "Okay, I'll take you through the Agreement."
6. Mr Ciappara deposed that he flicked through a copy of the facility agreement that was in front of him and advised Mrs Bega in words to the following effect: I said: "The facility is for $1 million and the money must be used to assist family members to purchase investment opportunities. The loan must be repaid within 6 months and interest is 20% per annum. If it's not paid within 6 months then you will be in default under the facility and the lender can take action against you to recover the $1 million including taking possession of your house at Denham Court and selling your home. Also interest rises to 30% per annum if it is not repaid within 6 months. An interest amount of $104,000 is payable even if it is repaid in 6 months. If you default, the lenders can take your house and sell the house and also sue you for any outstanding amounts including any interest and charges payable under the agreement. Mrs Bega: "I understand." I said: "The facility says that Consumer Credit Protection Act does not apply which means you won't have certain protection under the Code like hardship notices and the lender having to issue you certain notices prior to enforcement if you default under the loan." Mrs Bega: "I'm not worried about that because I'm going to repay it shortly." I said: "Helen, I am not giving you any financial advice. You should see an accountant for that. Do you have any questions?" Mrs Bega: "I don't have any questions."
7. Mr Ciappara further deposed that he had a copy of the mortgage in front of him and he advised Mrs Bega in words to the following effect: "This is the mortgage document you signed yesterday, for you giving a mortgage over Denham Court. Denham Court can be repossessed and sold if you default under the facility agreement to repay any money owing under the facility agreement."
8. Mr Ciappara's file note of 2 April 2015 recorded: Went through facility agreement and discussed it with Helen in general terms. Advised Helen:

• Loan was for $1 million. She said it was for an investment in unit for Aidan. I said the money must be used for the investment purpose.
• Facility states Consumer Credit Protection that does not apply. I said she doesn't have certain protections of code like hardship notices and notices that must be issued prior to enforcement. General discussion of code. Helen said not concerned and okay because she will repay loan shortly.
• Loan is for 6 months at 20% per annum interest. Advised her that loan must be repaid in 6 months otherwise interest would jump to 30% per annum.
• An interest amount of $104,000 is payable even if it is repaid in 6 months.
• If she defaults the lenders can take her home and sell home and also sue her for any outstanding amounts including any interest and charges payable under agreement. She said she understood.
• I told Helen I was not giving her any financial advice and she should see an accountant.
• She said she did not have any questions.
• Went through mortgage again with Helen and reiterated that she is giving mortgage over Denham Court which can be repossessed and sold if default under facility.
• I witnessed Helen's signatures on document.

1. According to Mr Ciappara, the meeting lasted about half an hour.
2. In her reply affidavit, Mrs Bega did not dispute Mr Ciappara's affidavit evidence of their 2 April 2015 conversation, nor was there any serious challenge in cross-examination to the accuracy of Mr Ciappara's file note of that meeting.
3. In addition to signing the facility agreement, Mrs Bega signed other documents on 2 April 2015, including an Authority and Undertaking. She also signed a Declaration stating that she had received independent legal advice regarding the loan and security documents before freely and voluntarily signing the facility offer "in relation to a facility of $1,000,000". The Authority and Undertaking was addressed to the plaintiffs and directed and authorised them to complete and make fully effective any instrument or document relating in any way to the financial accommodation provided by the plaintiffs to Mrs Bega.
4. As indicated, there was conflicting evidence as to whether Mr Mullins was present during Mr Ciappara's conversation with Mrs Bega. I prefer the evidence of Mr Ciappara, which was largely consistent with the evidence given by Mr Mullins, that Mr Mullins was on his mobile phone wandering in and out of the room.
5. Aidan Bega deposed that he was present when his mother signed the facility agreement (Affidavit 14/10/2016, par 12). He gave evidence of a conversation with Mr Ciappara as follows: … Mr Chippara [sic] said words to the effect of: "I have only just picked these documents up and have not had time to familiarise myself with them to explain them in any detail but, in essence, there is a mortgage over this property and a facility agreement, which you, Aidan, need to sign as guarantor." I said words to the effect of: "These are the documents my father wants us to sign, is that right?" Mr Chippara [sic] said words to the effect of: "Yes, that's right.".
6. Mr Ciappara disputed Aidan Bega's evidence. He said that after Mrs Bega had signed the documents, Aidan Bega joined him and Mrs Bega. I accept Mr Ciappara's evidence on this topic. Mr Ciappara deposed that he had a brief conversation with Aidan Bega to the following effect: Aidan Bega "This relates to the loan for my mother." I said: "Yes. I can't advise you because I advised your mother." Aidan: "Okay. I understand."
7. Aidan Bega also signed an Authority and Undertaking and a Declaration that he had received independent legal advice regarding the loan and security documents and had freely and voluntarily signed the facility agreement incorporating guarantee and indemnity "in relation to a facility of $1,000,000".
8. Peter Bega arrived back at the Alexandria house after the documents had been signed. According to Mr Mullins, Peter Bega asked Mr Ciappara to take the executed documents to Mr Roth's office, but Mr Ciappara declined on the basis that he did not have time. Peter Bega then asked Mr Mullins if he could take the documents to Mr Roth, to which Mr Mullins responded: I can't. I have to get to Erskineville to meet Shadd and Ross to get the settlement cheque. Peter Bega then took the executed documents to the plaintiffs' solicitors. Mr Mullins rang Mr Hustler and left a message confirming that the documents had been signed and were on the way to the offices of Independent Legal.

Completion of sale to AB Veritas

1. Settlement of the sale of the units to AB Veritas took place in Brisbane later on the afternoon of Thursday 2 April 2015 at about 4.30pm. The bank cheque in favour of Lauvan in the sum of $1,395,000 was handed over by Mr Stathakis on settlement, although he could not recall the person to whom he gave the bank cheque. It may be inferred that he provided the bank cheque to Mr Delaney who was present as the solicitor for AB Veritas. As I have said, Mr Delaney had been told the previous day by Mr Mullins of the intended 'round-robin' of cheques to be provided by the plaintiffs, instead of reliance on an offset deed to make up the shortfall in the purchase price. Although Mr Delaney deposed that the passing of cheques was simply a matter between STD and the plaintiffs, he acknowledged that the settlement statements prepared by STD's solicitors and Ms Pukallas of his firm were changed to reflect the request by Mr Mullins that the plaintiffs would attend settlement with a cheque for $1,395,000. Mr Delaney noted in his evidence that settlement proceeded even though there was a shortfall of $146,847.54 in the purchase price provided by AB Veritas.
2. At the conclusion of the settlement, Mr Stathakis received two bank cheques payable to Lauvan, one being the bank cheque for $1,395,000 (which he had provided on settlement) and the other being a bank cheque for $1,450,000 (provided by the incoming mortgagee). Mr Stathakis was unable to bank the cheques in Brisbane as the bank had already closed and the next day was a public holiday. Upon returning to Sydney, he gave the bank cheques to Mr Danesi. The two cheques were subsequently banked by Lauvan after the Easter long weekend.

Events after 2 April 2015

1. The mortgage over the Denham Court property was subsequently registered.
2. On 5 April 2015, Mr Cook sent an email to Mr Danesi, copied to Mr Roth, with an updated schedule of unit sales and the current debt and interest for STD as at 4 April 2015. In his email, Mr Cook stated that he had updated the schedule for the settlement of Lot 3 and what he described as the Arch tranche No 1 refinance, being a reference to the sale of seven units to AB Veritas (and a small penalty interest charge over the four-day Easter break for the cheques which had not been banked). Mr Cook set out a calculation of the current debt and interest figure as at 4 April 2015 of $3,139,177.72 to which he added the $700,000 interest monthly loans, amounting to a total debt of $3,839,177.22. After taking into account the remaining three on-market sales, the NAB refinance of three units and Arch tranche No 2 refinance (five units to Matab Investments Pty Ltd) and the deduction of an agreed interest rebate of $100,000, Mr Cook calculated a total anticipated debt of $129,177.72. Mr Cook enquired as to whether Mr Danesi agreed with these figures. He added: Therefore the reliance on Helen Bega's security and subject to any other requests from the borrower should be less than $200k.
3. Mr Danesi deposed that following the completion of the sales to AB Veritas, the construction loan to STD was reduced by $2,845,000. However, that did not happen immediately. Mr Cook was responsible for maintaining the ledger in relation to the construction loan. Mr Cook accepted in cross-examination that he did not immediately update his loan schedule to record a reduction in the construction loan of $1 million for the round-robin cheque advance by the plaintiffs to Mrs Bega. That did not occur until later in May 2015, after a dispute had arisen between Mrs Bega and the plaintiffs concerning the alleged advance to her of $1 million.

1 May 2015 meeting

1. On 1 May 2015, Peter Bega and Mr Danesi had a conversation, the content of which is disputed. Peter Bega deposed that Mr Danesi told him that he had organised a loan of $1.5 million for Helen (Bega) and that he would transfer the last two units in the Allure Apartments to her and provide the Bega family with $600,000 for cash flow so as to give Mr Danesi the $900,000 he needed. Peter Bega further deposed that he told Mr Danesi that he would not ask Helen (Bega) to borrow any monies against the house. Mr Danesi denied having a conversation in these terms with Peter Bega.

Events later in May 2015

1. Later in May 2015, Mr Tsanis, who had been recently appointed as a director of STD in place of Mr Mullins, sent letters to Mr Roth concerning the amount of the debt owed by STD to the plaintiffs. The letters were "created" out of emails Peter Bega had sent to Mr Tsanis (Ex W). Both letters attached a schedule of STD's calculations of the advance outstanding. The schedule attached to the 23 May 2015 letter calculated the outstanding debt at $518,190.45, before certain "further adjustments". A reduction on the discharge of the mortgage in respect of the seven units sold to AB Veritas on 2 April 2015 was shown as $1,831,220. The schedule attached to the letter of 24 May 2015 recorded a debt of $504,653.98, before the "further adjustments". That schedule included the reductions on 2 April 2015 consequent upon the sale of the seven units to AB Veritas - $1,831,220 and $1,000,000. The covering letter of 24 May 2015 asserted: Following further review of the company records and the loan documents we have become aware that an amount of $1 million was drawn by Mrs Helen Bega and applied to this loan as a principal reduction on 2 April 2015. As you will see from the attached amended loan calculation the loan to this company was fully repaid on 23 April 2015.
2. Mrs Bega deposed that, after signing the facility agreement, she started to wonder when it would be terminated because it was her understanding that it was a mortgage for a limited time only.
3. On or about 26 May 2015, Mr Ciappara met with Peter Bega at a coffee shop in the QVB in Sydney. Mr Ciappara said that they had a conversation to the following effect: Peter Bega: "There is a problem with Helen's loan. We don't know what's happened to the $1 million as it wasn't paid to her." I said: "What do you mean? There must be a trail of the funds. The monies were either lent to Helen or they weren't. Did Aidan buy a unit? I have to go." Peter Bega: "It's a lot more complicated than that. This is urgent, Helen needs your help." I said: "I'm happy to help her, just send me an email explaining the problem"."
4. Later on 26 May 2015, Mr Ciappara received two emails from Peter Bega, one at 9.55am and the other at 1.42pm. In response to those emails, Mr Ciappara prepared a draft letter to Independent Legal which he forwarded to Peter Bega that day, requesting that it be forwarded to Mrs Bega and that she confirm her instructions for the letter to be sent. Peter Bega sent an email to Mr Ciappara at 5pm on 26 May 2015, indicating Mrs Bega's approval of the draft and providing her instructions to send the letter to Independent Legal.
5. Mrs Bega agreed that she gave instructions to Mr Ciappara to send the letter of 26 May 2015 on to Mr Roth. In that letter, Mr Ciappara sought certain information and documents, including the date upon which the facility was activated, a copy of any completed drawdown notice provided by Mrs Bega, and queried whether the plaintiffs had received any direction from any person or any entity to pay any loan monies to a third party and if so, who provided that direction, the name of the person or entity to whom the monies were paid and in what amounts.

Events in June and July 2015

1. On 2 June 2015, Mr Roth replied to Mr Ciappara stating, among other things, that a drawdown notice was not provided by Mrs Bega and that this requirement was dispensed with by the plaintiffs, along with the two-business day notice requirement, due to the urgent nature of the proposed settlement. Mr Roth's letter also stated that a direction was received from Mr Mullins who purported to represent Mrs Bega and that the advance of $1 million was paid to STD on 2 April 2015 as part consideration of the purchase price for the seven units purchased by AB Veritas.
2. In her reply affidavit Mrs Bega deposed (par 9) that she had a conversation with Mr Ciappara around 2 June 2015, in which she said that she did not how this could happen, and Mr Ciappara responded: We'll sort it out, it was never a loan, they've made a mistake, the whole thing is ridiculous.
3. Mr Ciappara denied having a conversation with Mrs Bega in those terms. He accepted that he may have said it was "ridiculous" that the lender could not say where the funds had gone, but he denied saying to Mrs Bega that there was never a loan.
4. On 25 June 2015, Mr Ciappara sent a letter to Mr Roth (on behalf of Mrs Bega) asserting that the payment of the advance of $1 million to STD on 2 April 2015 was not authorised by Mrs Bega and was unlawful and constituted a fundamental breach of the facility agreement.
5. On 2 July 2015, the plaintiffs' solicitors issued a default notice to Mrs Bega stating that the claims in Mr Ciappara's letter of 25 June 2015 amounted to: a claim that a "Transaction Document" is void, voidable or otherwise unenforceable constituted an event of default under clause 8(d) of the mortgage; a "Material Adverse Effect" and an event of default under clause 8(j) of the mortgage; and created a "Material Adverse Effect" under the facility agreement which, in turn, triggered an event of default under clause 11.1(l) of that agreement.
6. The notice allowed 10 business days for Mrs Bega to confirm in writing that there was no such dispute as to the advance having been made or her liability, that there was no claim that a Transaction Document is void, voidable or otherwise unenforceable and sought an acknowledgement that the advance was made to assist Mrs Bega's son or an entity controlled by Aidan Bega to purchase units in Allure Apartments at South Townsville, the intended purpose of the advance. Mrs Bega did not comply with that demand.
7. On 22 July 2015, the plaintiffs' solicitors issued a letter of demand to Mrs Bega claiming the principal sum of $1 million plus interest to 21 July 2015 of $30,136.99. Letters of demand were also sent on the same date to STD and Aidan Bega demanding payment of that sum as guarantors. No payment was made in response to those demands.

Sale of two units

1. AB Veritas subsequently sold two of the units in the Allure Apartments (Lots 203 and 606). Lot 203 was sold in September 2015 and it seems that AB Veritas received $165,827.85 from the proceeds of sale (Ex T). The evidence does not reveal the details of the net proceeds of sale of Lot 606. Although Mrs Bega received a deposit of $220,702.62 into her CBA account on 29 September 2015 (Ex L), she was unable to recall the reason for this deposit; she speculated that it might have been from the sale of the Menangle Road property, but could not recall (T209, lines 45-48). The evidence does not clearly establish the source of this deposit into Mrs Bega's account.

Mr Danesi

1. Mr Danesi gave evidence that he formed the view that Peter Bega represented the Bega family, that he felt that if he was speaking to Peter Bega then that was sufficiently speaking to Mrs Bega and that he left it up to Peter Bega and Mr Mullins to make the arrangements to put the security in place (T49, lines 19-31).
2. Mr Danesi did not accept the proposition put to him by counsel for Aidan Bega that the facility agreement was put in place as security over the construction loan (to STD) or for a broader purpose that it was available to be drawn down to enable any one of the three refinance transactions to occur, including the two later transactions to Matab and Balis (T51, lines 1-18). I accept Mr Danesi's evidence rejecting that suggested different or broader purpose of the facility agreement.

Mr Cook

1. Mr Cook was cross-examined about the security provided by Mrs Bega. He rejected the proposition that the mortgage was only intended to cover the shortfall in the existing security on the STD loan. To the extent that his state of mind was relevant, I accept his evidence rejecting that proposition.

Mrs Bega

1. In cross-examination Mrs Bega gave evidence that she had previously been a director of a number of family companies (Ex M). She understood that her husband was involved in a multi-storey development in South Townsville (T145, line 49 - T146, line 1). She had visited the Solarus and Allure Apartments developments in Townsville in May 2014 (T147, lines 11-21). She considered the Allure Apartments development to be a family business and to be family assets (T148, lines 1-10). She agreed that STD was a Bega family company, controlled by her husband (T213, line 50-T214, line 5).
2. In June 2014, Mrs Bega received two amounts from STD which were deposited into her bank accounts: $100,000 and $88,000 (Exs H and I). She could not recall the details of these transfers; she said her husband would have arranged for them to occur (T206-207). A text phone message from Mrs Bega to Mr Mullins on 3 June 2014 indicates that she provided him with the details of her two bank accounts on that day (Ex G).
3. Mrs Bega gave evidence that she lived mostly at the Denham Court property and sometimes at the Alexandria family home (T149, lines 15-19). The Denham Court property was purchased in Mrs Bega's name in December 1992. Mrs Bega had given three earlier mortgages over that property, in respect of loans made to her at the request of her husband: in June 1994, the Commonwealth Bank of Australia (CBA) securing a loan of $100,000 advanced to her (Ex B, Tab 21); in March 1998 to the CBA securing a loan of $50,000 (Ex B, Tab 24); and in December 2007 to Allco Managed Investments Ltd securing a loan of $1.5 million (Ex B, Tab 25), which was on-lent to Glen Alpine Properties Pty Ltd, an entity controlled by her husband. Mrs Bega had also given a mortgage to CBA in April 1996 over a property she owned at Menangle Road, Campbelltown (Ex B, Tab 22). That property was the family home before moving to the Denham Court property.
4. Mrs Bega agreed that the money borrowed went to something associated with her husband and that she never received any money from the mortgages she gave (T161, lines 14-19). Her evidence was that her husband was responsible for repayment of the monies borrowed by her and secured by mortgages over the Denham Court and Menangle Road properties (T153, lines 32-40; T155, lines 34-37).
5. Mrs Bega accepted that she understood in March 2015 that her husband was asking her to obtain a loan. She considered it unusual that she would be obtaining a loan for a short period of time (T163, lines 13-23; T172, lines 1-7). She later claimed in her evidence that there was no loan involved (T187, lines 25-31).
6. Mrs Bega understood in March 2015 that her husband was involved in some kind of business, that there was a need to raise some money, and that there was some kind of temporary cashflow problem that needed to be addressed (T163, lines 41-48). She gave evidence that, as he had done in the past, her husband said to her, "We need to raise some money over the family home". She agreed that she was content on this occasion to do the same as she had done in 1994, 1998 and 2007 (T163, line 50-T164, line 3).
7. Mrs Bega accepted that her husband was in charge of everything, specifically legal and business matters, and that she left it to him to decide whether it was in the family interest to enter into the documents (T482, line 35 - T483, line 5). She said that she was told what to do by her husband and that she needed to sign the documents to help her son Aidan. She initially said that Peter Bega did not mention the Allure Apartments, but then conceded that he "possibly" might have (T471, line 39 - T472, line 10).
8. As to the circumstances in which the documents were signed, Mrs Bega could not recall the conversation with Mr Ciappara, or signing the mortgage in four places at the café on 1 April 2015 (T183 -186). She said that she could not recall that the purpose of the meeting with Mr Ciappara on 1 April 2015 was to sign a mortgage (T188, line 40). She did not recall telling Mr Ciappara that she was borrowing $1 million and was prepared to give security over the Denham Court property (T186, lines 3-34). She later said that she had "absolutely zero recollection" of going to the Bitton Café at Alexandria on 1 April 2015 and sitting at a table with Mr Ciappara and going through a mortgage document (T170, lines 30-35). She said she remembered signing the facility agreement on 2 April 2015, before adding that "it's a bit of a blur, sorry" (T169, lines 43-44).
9. When asked to explain how she could recall with clarity in her first affidavit (par 19) her meeting with Mr Ciappara on 2 April 2015, but not their meeting the previous day, Mrs Bega responded that she had never heard of a loan for two to three weeks and that is why she remembered the conversation on 2 April 2015 (T172, lines 5-7).
10. Despite being taken to the mortgage executed by her, and her signature appearing on various pages, Mrs Bega maintained that she had no recollection of signing the document (T184, line 20). That evidence is difficult to reconcile with her affidavit evidence that she was reluctant to give a mortgage over the family home.
11. When confronted with the contents of Mr Ciappara's file note of the 1 April 2015 meeting, Mrs Bega's response was to the effect that she did not remember being told of those matters by Mr Ciappara, nor did she remember informing him that she was borrowing $1 million and was prepared to give security over the Denham Court property. The exchanges in cross-examination included the following: Q: That you were borrowing $1 million to help Aidan with a unit investment? A: No, I wasn't borrowing a million dollars, I was merely getting a mortgage, a short-term mortgage. (T186, lines 42-44)
12. When confronted with the email dated 31 March 2015 from Peter Bega to Mr Ciappara, copied to her (Ex B, Tab 67), Mrs Bega responded that she did not notice the heading "Lauvan/Mittabell loan to Helen Bega" (T187, line 10).
13. Mrs Bega asserted that she was just signing a mortgage, but there was no loan involved (T187, lines 25-28). Mrs Bega agreed that she understood the significance of the earlier 1994 mortgage was that it was a security being given in relation to a sum of money that a bank or lender had provided (T188, lines 25-28). She also understood that if the money the subject of the mortgage was not repaid, the house could be taken (T188, lines 30-32).
14. Mrs Bega asserted that no one told her she could lose her house "over this" (T189, line 18). She was insistent that "it wasn't a loan, it was a mortgage" (T189, line 30) and that "this was a mortgage that was unaccompanied by a loan" (T189, lines 32-35). The following exchange occurred in cross-examination: Q: But you don't recall signing the mortgage on the 1st? A: No. Q: If there was just a mortgage to be signed, are you able to explain to his Honour what you understood the document was that you signed on 2 April? A: Not really. Q: As compared to the 1st, that is a meeting that you seem to recall with a considerable amount of detail, correct? A: Yes. I've explained what I know about that already when you asked me.
15. When taken to the execution page of the facility agreement, Mrs Bega said that she did not notice the words just above her name describing her as "The Borrower". She said, "I just signed where I was asked. I didn't even notice what it was." (T191, lines 25-26). Curiously, a little later in cross-examination, Mrs Bega conceded that Mr Ciappara said to her at the 2 April 2015 meeting, "This is, you understand, this is a loan document" and that she responded, "Yes" (T192, lines 9-11).
16. In answer to the proposition that she knew that the mortgage she signed was for the purpose of providing security in relation to a $1 million loan, Mrs Bega responded (T214, lines 9-10): That's providing security, I didn't know that it was for that amount of money, technically.

Aidan Bega

1. Aidan Bega accepted in cross-examination that he had signed three guarantees on earlier occasions. One was the guarantee of the construction loan between the plaintiffs and STD in 2013. Although he said he could not recall signing this document, he accepted that he would have understood that he signed as a guarantor (T221, lines 29-37). Next, he guaranteed the sale contract with STD in February 2015 for the purchase of the seven units by AB Veritas. He also guaranteed the third-party finance arranged by Arch Finance for AB Veritas with respect to that purchase. He accepted that he was content to sign these guarantees for many millions of dollars (T241, lines 1-4). He also accepted that, by 2013, he understood what a guarantee was (T221, lines 39-46).
2. Aidan Bega said that Mr Mullins approached him to purchase units in the Allure Apartments, and that this was to reduce the debt of STD and in turn get rid of the guarantee they had given for STD's debt (T234, lines 6-8). He understood that Mr Mullins organised the finance through Arch Finance. He could not recall when he signed the offset deed to which he referred in his affidavit (T235, lines 12-24), nor could he recall whether AB Veritas had a bank account from the time it was registered in September 2014. He agreed that AB Veritas did not engage in any trading or other activity (T236, lines 1-12). He said he understood that AB Veritas was getting a discount on the purchase of the units. He referred to the discount as "this was created" when he could only borrow a certain amount as arranged by Mr Mullins through Arch Finance (T238, lines 1-13).
3. Aidan Bega asserted that he did not need to pay the difference between the purchase price and the third-party finance arranged by Arch Finance to settle the purchase of the units (T251, line 4). When it was put to him that the offset deed was not signed by STD, Aidan Bega said he was "not sure" (T251, line 8).
4. Although acknowledging that he had forgotten a lot of matters and had a hazy recollection of a number of events in the years 2013, 2014 and 2015, Aidan Bega maintained that he recalled the conversation with his father on 1 April 2015 concerning the giving of the mortgage over the family home at Denham Court (T241, lines 44-T242, line 1).
5. Aidan Bega said that he did not remember signing the Declaration that he had received independent legal advice regarding the loan and security documents (T247, line 23). He accepted that when he signed the Declaration on 2 April 2015 he would have had no difficulty understanding the contents of the document at that time and that when he signed the Declaration he believed the contents of it to be true (T248, lines 30-40).
6. When confronted with the Declaration he had signed on behalf of AB Veritas (Ex B, Tab 83), referring to a facility agreement with the plaintiffs described as lender and Mrs Bega as the borrower in relation to the facility of $1 million, Aidan Bega accepted that he understood he was guaranteeing "something" by signing that document (T249, lines 22-24). When pressed as to the sum of money he was guaranteeing, Aidan Bega responded: There was a one million facility attached to that mortgage, so I was guaranteeing that. (T250, lines 4-5)
7. Aidan Bega identified the borrower on the $1 million facility as his mother (T250, lines 9-10), before adding that he did not understand the nature of the documents he signed or the obligations they created with "great clarity" (T250, line 22). He then accepted that he understood that the additional security being provided to Mr Danesi related to the purchase by AB Veritas of the units in the Allure Apartments (T250, line 37). He also accepted that the facility agreement that he signed as guarantor made it perfectly plain that his mother was the borrower and did not suggest that STD was the borrower (T252, lines 6-12).
8. When he was re-called for cross-examination by counsel for Mr Ciappara, Aidan Bega gave evidence that he paid no attention to what documents he was signing on 2 April 2015 (T386, line 31). At first he said that he believed that Mr Ciappara was giving him legal advice (T387, line 44). When asked to say what advice he was given, Aidan Bega replied: "None" (T388, line 2), before proffering the following explanation: I didn't think that it needed legal advice that morning. (T388, line 9)
9. When pressed by the cross-examiner that he knew that Mr Ciappara was not advising him, Aidan Bega responded: I don't think that I realised that it needed strict legal advice so I don't think that I would have needed him to give legal advice specifically. (T388, lines 21-23)

Peter Bega

1. In cross-examination, Peter Bega denied that he was the controlling mind of STD (T319, line 23). He agreed that he had been the director of approximately 60 companies, the majority of which were placed into administration or liquidation (T319, line 30 - T320, line 2). He accepted that his bankruptcy commenced on 29 August 2012 and had been extended on the application of his trustee until 30 August 2020 on the grounds that he had deliberately provided false or misleading information (T320, lines 4-26; Ex DD).
2. Peter Bega asserted that he was only a consultant to STD and not a director of the company (T323, lines 21-22). When asked whether he had some basis to give instructions to Mr Stathakis and Mr Mullins as to how they would govern STD, Peter Bega responded: We had a relationship, we had a friendship, of course we would be in a situation where if I could help them improve the performance of the company I would do so. (T325, lines 4-6)
3. Peter Bega denied that his family had any beneficial ownership of any shares in STD (T326, line 43).
4. When confronted with the transcript of evidence he had given on 3 and 4 February 2015 in earlier criminal proceedings (in the matter of R v Bosganas), Peter Bega conceded that Mr Jon Dounbos was acting at his direction at the time that the Allure site was purchased by JHD Property (T332, line 1). Mr Dounbos was a director of JHD Property.
5. Peter Bega said that in July 2014, "the project was in a disaster", being a reference to the Allure Apartments development (T328, line 8). He accepted that he was involved with STD in organising the sale of units in the development after the plaintiffs rejected a refinancing in August 2014 (T341, lines 14-16). He denied that he had any role in making decisions on behalf of STD and said that he was just trying to organise sales (T342, line 7).
6. Peter Bega denied that he had a conversation with Mr Mullins in which Mr Mullins asked whether he was sure he wanted to give security over the Denham Court property, rather than waiting for the other units to settle and that he replied that he was exchanging $1 million of equity in the house for $3 million of equity in the units (T351, lines 9-14).
7. Peter Bega said that his recollection was that the facility agreement was not attached to Mr Hustler's email of 31 March 2015 and did not arrive at Mr Ciappara's office until 5:15pm on 1 April 2015 (T352, lines 24-26). He described the facility agreement as "the main document at all of this" (T352, line 33). He agreed that he understood that the transaction involved two central documents, a mortgage and a facility agreement (T355, line 5). In response to the cross-examiner's proposition that the mortgage was being provided to secure an amount that was being loaned to his wife, Peter Bega: No, it was never going to be a loan, it was only to be security. (T355, line 30)
8. Peter Bega accepted that Mr Mullins told him at his home on the morning of 2 April 2015 that there was an urgency to get the documents back (to the plaintiffs' solicitors) before the cheque was drawn (T357, lines 10-11). He identified that cheque as "the $1,395,000 cheque that Ross Stathakis was taking up" (T357, line 14). Peter Bega denied that he asked Mr Mullins if he could take the executed documents to Mr Roth's office or that Mr Mullins said that he could not because he had to meet Mr Danesi and Mr Stathakis to get the settlement cheque (T358, line 5).
9. Peter Bega accepted (in the context of questions directed to the offset deed) that, as at the end of March 2015, STD had not incurred debts or liabilities directly to AB Veritas (T358, line 46).
10. After giving evidence that he did not read the mortgage and facility agreement, the following exchange occurred in cross-examination by counsel for Mr Ciappara: Q: Why not? You don't want Helen to lose the home, do you? A: Helen was never going to lose the home. How would she lose the home? We're not talking about a $1 million loan here, we're talking about a $1 million line of credit that someone's gone in and nicked the money, okay. It's a $1 million line of credit with a draw down certificate that some went in and grabbed it (sic). She can only draw $1 and she wouldn't lose the home. (T401, lines 19-24)
11. A little later, Peter Bega gave evidence that he had never had a conversation with his wife after she had signed the documents concerning Recital A in the facility agreement (T405, line 40). When pressed by the cross-examiner, Peter Bega became angry and the following exchange occurred in cross-examination: Q: I'm asking you, Mr Bega, about your response when you learned that was what she did? A: Yes, yes, yes, yes, that's correct, yeah, I pushed her into it, that's correct. Q: You what, sorry? A: I pushed her into it. (T405, line 50-T406, lines 1-5)
12. In response to the proposition that he knew perfectly well what happened to the $1 million, Peter Bega responded, "Couldn't possibly go to AB Veritas. Couldn't possibly go there" (T412, line 36). He later gave a very lengthy non-responsive answer seeking to explain why AB Veritas could not have accepted a liability for $1 million, in addition to the mortgage facility of $1.8 million arranged by Arch Finance, because it would have affected its solvency. This was an example of Peter Bega arguing the case for the Bega family (T413, line 37-T414, line 4).
13. When confronted with a text message which he sent to Mr Mullins on 22 April 2015 at 8:12pm (Ex W) directing Mr Mullins to fake Aidan Bega's signature on a document, Peter Bega's response was, "That's how it reads". He was not prepared to concede that was what he was asking Mr Mullins to do (T344, lines 1-2).
14. Peter Bega described the 2 April 2015 transaction as "a round-robin by the lender" (T344, line 23). He was insistent that there was no loan on Mrs Bega's documents (T344, lines 31-32). He accepted that he gave Mr Tsanis, the newly appointed director of STD, a direction to create letters out of emails he had sent him (T345, lines 1-13; Ex W). He also requested Mr Mullins to send various emails to Mrs Bega in June 2015 to deny the role he had played in obtaining Mrs Bega's loan (T347, lines 21-25; Ex W).

Mr Mullins

1. In his examination-in-chief, Mr Mullins gave evidence that he resigned as a director of STD at the direction of Peter Bega given in about April 2015 (T270, line 20).
2. In relation to an email which Mr Mullins sent to Mrs Bega dated 9 June 2015 (Ex B, Tab 120), Mr Mullins gave evidence that Peter Bega had told him that he was going to take action in relation to the loan to Mrs Bega, that he had been asked to provide an email to Mrs Bega, that he was generally uncomfortable with it and that he would have preferred not to have provided any form of email (T273, lines 10-33).
3. Mr Mullins gave unchallenged evidence that the proposal that the plaintiffs provide a bank cheque on settlement for the difference between the contract price and the funds available to AB Veritas and that such funds would be received back by the plaintiffs, was initially made to the plaintiffs by Peter Bega. Mr Mullins said that he also confirmed that proposal to Mr Danesi and Mr Cook (T290, lines 18-33).
4. Mr Mullins agreed it was likely that he gave instructions for the preparation of the offset deed to the solicitors acting for STD and said that ultimately it was not put into effect (T294, lines 30-36).
5. Mr Mullins said that Peter Bega often relayed instructions to him on behalf of either Aidan Bega or Matthew Bega (T295, lines 6-7).

Resolution of disputed factual matters

1. Before turning to the issues, it is appropriate to set out my findings in relation to the significant factual disputes arising from the evidence.
2. I accept Mr Danesi's evidence that Peter Bega raised the suggestion of $1 million security in their conversation on 25 March 2015, although it is common ground that Mr Danesi did not mention a loan during this conversation. The evidence by Peter Bega that he offered additional security over the family home owned solely by Mrs Bega, without specifying any monetary limit, is unconvincing. It is also inconsistent with Mrs Bega's evidence of what Peter Bega had discussed with her.
3. I accept that it is likely Peter Bega initially described the transaction to Mrs Bega in about mid-March 2015 as the provision of security over the Denham Court property as "additional security for $1 million for a couple of weeks". That is consistent with the early discussions between Mr Danesi and Peter Bega, which did not descend into the detail of how the transaction would be structured.
4. Although Peter Bega did not attend the 26 March 2015 meeting at the plaintiffs' solicitors offices at which the structure of the transaction was determined, it may be inferred that Mr Mullins informed Peter Bega of this structure shortly after that meeting and prior to his conversation with Mr Danesi on about 28 March 2015 when he advised that Mrs Bega had agreed to proceed to borrow $1 million and grant a mortgage over the Denham Court property.
5. I find that Mr Mullins communicated that position to Mr Danesi after first speaking with Peter Bega and receiving his agreement to the structure of the transaction agreed upon at the 26 March meeting. That is consistent with Peter Bega's evidence that the transaction involved a facility agreement with Mrs Bega and a mortgage. I infer that Peter Bega obtained that understanding from speaking with Mr Mullins. Peter Bega was in frequent contact with Mr Mullins during this period in relation to the sale of units in the Allure Apartments. Mr Mullins had no reason or interest to withhold that information from Peter Bega, particularly as the structure of the transaction would be apparent on the face of the documents which would need to be signed by Mrs Bega, Aidan Bega, and AB Veritas.
6. I do not accept Peter Bega's evidence as to his belief that the transaction was merely additional security for STD's debt and that no monies would be drawn down under the facility agreement. That asserted understanding is inconsistent with Mr Mullins' evidence that Peter Bega had initially put the cheque round-robin proposal to Mr Danesi, and that Mr Mullins had told Peter Bega on the morning of 2 April 2015 that he would accompany Mr Danesi to his bank to collect the bank cheque for the $1 million advance and drive Mr Stathakis to the airport to travel to Brisbane with that cheque to be handed over on settlement that afternoon.
7. Peter Bega's asserted understanding is also inconsistent with the assertions in the letter of 24 May 2015 sent by Mr Tsanis on behalf of STD to Mr Roth, the plaintiffs' solicitor. That letter, which was created from emails sent by Peter Bega to Mr Tsanis, asserted that an amount of $1 million was drawn by Mrs Bega and applied as a principal reduction to the STD loan on 2 April 2015. That was plainly a reference to the cheque round-robin at settlement on that day.
8. I find that Mrs Bega understood the nature and effect of the documents she signed. I do not accept her evidence that she received no advice from Mr Ciappara on 1 and 2 April 2015. Since she had no recollection of signing the mortgage on 1 April 2015, she was not in a position to dispute Mr Ciappara's evidence with respect to their conversation and the advice given by him on that day.
9. I accept Mr Ciappara's evidence of his conversations with Mrs Bega on the evening of 31 March and on 1 and 2 April 2015, including that she told him that Mr Mullins had arranged for her a loan of $1 million to help Aidan with the purchase of an investment unit. That evidence has the support of Mr Ciappara's contemporaneous file notes. That evidence also supports the inference that Peter Bega had told Mrs Bega that the mortgage would secure a $1 million facility for Mrs Bega which monies would be used by her to assist Aidan in purchasing an investment unit. There is no compelling reason why Peter Bega would withhold that information from his wife, particularly as she was required to obtain independent legal advice before signing the documents.
10. I find that Mrs Bega understood when she signed the mortgage on 1 April 2015, that she was granting a mortgage to secure a loan to her of $1 million and that she would also need to sign a loan document, which she did the following day after receiving further advice from Mr Ciappara. I find that Mrs Bega knew that the $1 million was required to be borrowed by her to assist her son Aidan to purchase an investment unit.
11. I find that Mr Ciappara explained to Mrs Bega on 2 April 2015 the nature of the facility agreement and mortgage, their main features and the risk associated with executing those documents, including the consequences of default. Among other things, Mr Ciappara highlighted that the interest rate at 20% per annum was very high, he pointed out that the facility was for $1 million, that the money must be used to assist family members to purchase investment opportunities and that the loan must be repaid within six months. He explained that if the loan was not paid within six months, then Mrs Bega would be in default under the facility and the lender could take action against her to recover the $1 million, including taking possession of, and selling, her house. He also identified the higher interest rate of 30% per annum if the loan was not repaid within six months. After he advised Mrs Bega that he was not providing financial advice and that she should see an accountant, Mrs Bega informed him that she would be repaying the loan shortly. She also acknowledged the advice given by Mr Ciappara that if she defaulted, the lenders could take her home and sell it in addition to suing her for any outstanding amounts, including interest and charges payable under the agreement.
12. I reject Mrs Bega's evidence that in June 2015 Mr Ciappara told her that the transaction "was never a loan, they've made a mistake". I prefer Mr Ciappara's evidence on this conversation.
13. I find that Aidan Bega understood on 2 April 2015 that he and his company, AB Veritas, were giving a guarantee of a loan of $1 million to be advanced by the plaintiffs to his mother for the purpose of on-lending to him to assist his company in purchasing units in the Allure Apartments. I do not accept Aidan Bega's affidavit evidence of his conversation with Peter Bega on 1 April 2015. That evidence is inconsistent with the concessions he made in cross-examination that he understood his mother was the borrower under the facility agreement and that he was guaranteeing the $1 million facility attached to the mortgage. I reject Aidan Bega's evidence that his father told him that no monies would be drawn under the facility.
14. I prefer Mr Ciappara's evidence that Aidan Bega only joined him and Mrs Bega on 2 April 2015 at the dining table, after Mrs Bega had signed the documents. I also prefer Mr Ciappara's evidence as to the content of their conversation on that occasion. Mr Ciappara's retainer was with Mrs Bega. He had no retainer with Aidan Bega. I do not accept that he would have given advice to Aidan Bega concerning the documents absent any retainer from him, let alone of the perfunctory nature as asserted by Aidan Bega.
15. I accept the plaintiffs' submission that the offset deed signed by AB Veritas was a confected document given by AB Veritas to Arch Finance to satisfy them that the balance of the proceeds of the purchase price would be provided. I do not accept that Aidan Bega could have genuinely believed that AB Veritas could rely on the offset deed on settlement of the sale of the units. He could not identify, when asked, what financial liabilities (as referred to in Recital C to the offset deed) had been incurred by STD as the developer (or parties related to, or associated with the developer) to AB Veritas between the time of its incorporation in September 2014 and March 2015 (T236 -237). Nor could he identify any trading or other activities of AB Veritas since its registration in 2014. Peter Bega's evidence confirmed that STD did not have any liabilities to AB Veritas. I also find that Aidan Bega had no basis for thinking that the offset deed had been executed by STD or exchanged.
16. I do not accept that Aidan Bega could have understood or believed that Recital A to the offset deed was true. He undoubtedly understood that, absent the offset deed, the shortfall between the amount to be financed by Arch Finance (of $1,820,000) and the purchase price on the contract (of $3,080,000) was in the order of $1,260,000. He had no basis for thinking that he could rely on the offset deed that had been "created" to address the shortfall between the purchase price owing to STD and the third-party finance arranged by Mr Mullins through Arch Finance. Aidan Bega understood when he signed the guarantees on 2 April 2015 that his mother was borrowing $1 million from the plaintiffs for the purpose of on lending to him to assist him to complete the purchase of the units in the Allure Apartments through AB Veritas.

A: ISSUES BETWEEN THE PLAINTIFFS AND DEFENDANTS

1. The plaintiffs' list of issues raised multiple issues as against the defendants. It is convenient to deal with these issues (with some grouping) in the following order: 1. Whether the plaintiffs advanced $1 million to Mrs Bega under the facility agreement on 2 April 2015? In particular, was a drawdown notice required before any advance could be made under the facility agreement? 2. Whether the National Credit Code applies to the transaction and, if so, what is the appropriate relief? 3. Whether the facility agreement and the mortgage given by Mrs Bega should be set aside as unjust or unconscionable? 4. Whether the guarantee given by Aidan Bega and AB Veritas in the facility agreement should be set aside for misrepresentation or unconscionability? 5. If the facility agreement and mortgage are set aside, is the sum of $1 million had and received by Mrs Bega or AB Veritas, and would either of them be obliged to repay it to the plaintiffs? 6. If the facility agreement and mortgage are set aside, does AB Veritas hold all or some part of its interest in the Allure Apartments on constructive trust for the plaintiffs, or do the plaintiffs have an equitable charge over the Allure Apartments? 7. Whether there was any default under the facility agreement and mortgage?

Issue A.1: Whether the plaintiffs advanced $1 million to Mrs Bega?

1. The primary issue in the proceeding is whether $1 million was advanced by the plaintiffs to Mrs Bega on 2 April 2015 pursuant to the facility agreement. It was common ground that Mrs Bega did not sign or deliver any drawdown notice under the facility agreement. In the particulars given of their claim, the plaintiffs asserted that a direction was given to them orally by Mr Mullins and Peter Bega in respect of the advance to Mrs Bega.
2. The plaintiffs contended that the absence of a drawdown notice is not determinative, because the obligation imposed by cl 4.1(a) of the facility agreement (that the borrower must deliver a drawdown notice two days before the drawdown date) was for the benefit of the plaintiffs and could be waived by the plaintiffs alone.
3. The defendants contended that the requirement of a drawdown notice under cl 4.1(a) of the facility agreement was for the benefit of both the plaintiffs and Mrs Bega and could not be waived by the plaintiffs alone. The defendants further contended that neither Mr Mullins nor Peter Bega were authorised to give any direction to the plaintiffs (or their agents) on behalf of Mrs Bega to pay the $1 million "advance" to either Aidan Bega or AB Veritas. On the defendants' case, the facility agreement was never utilised by Mrs Bega, no monies are secured by the mortgage, and Aidan Bega and AB Veritas are not liable to the plaintiffs as guarantors.
4. It is convenient to begin with the defendants' contention that a drawdown notice is mandatory for an advance under the facility agreement, as this exposes the relevant provisions of the facility agreement.

Relevant provisions of facility agreement

1. Recital A to the facility agreement provided: A. The Borrower has requested the Financier to provide the Facility to the Borrower for the purpose of assisting with short term on lending to family members for proposed commercial investment opportunities in the sum of $1,000,000.00.
2. Clause 1.1 of the facility agreement contained various definitions, including:

• "Advance" means the principal amount of the advance to be made under the Facility.
• "Authorised Representative" means, in relation to the Borrower, as a director or secretary or a person notified in writing to the Financier to be an Authorised Representative, of the Borrower.
• "Drawdown Notice" means a notice in a form acceptable to the Financier.
• "Facility Limit" means $1,000,000 or such other amount as agreed between the Financier and the Borrower from time to time, as reduced or cancelled in accordance with the agreement.
• "Finance Documents" includes this agreement, and each Security.
• "Purpose" means assisting with short-term on lending to family members for proposed commercial investment opportunities.
• "Security" means, among others, the Mortgage, which in turn was defined to mean the first registered mortgage over the Denham Court property.

1. Clause 2.2(a) provided that the net proceeds of all Advances provided under the Facility must be used by the Borrower for the Purpose.
2. Clause 3 is headed "Borrower Conditions precedent". Clause 3.1, headed "Conditions Precedent to the Advance", provided that the Financier may fund the Advance once it has received all of the documents and information as specified in Sch 1, in the form and substance satisfactory to it. The required documents in Sch 1 included (in par 4) originals of each Finance Document duly executed by all parties and, where applicable, duly stamped and in registrable form.
3. Clause 3.2, headed "Conditions precedent to all Advances" relevantly provided: The Financier is not obliged to fund an Advance unless the following conditions are fulfilled to the Financier's satisfaction: (a) (Drawdown Notice): the Borrower has delivered a Drawdown Notice to the Financier requesting a single Advance of the total amount of the Facility available to be drawn by the Borrower, in accordance with this agreement; (b) (Drawdown Date): the Drawdown Date for the Advance is a Business Day within the relevant Availability Period; …
4. Clause 3.4 deals with the benefit of conditions precedent and provided: A condition in this clause 3 is for the benefit of the Financier and only the Financier may waive it.
5. Clause 4.1 deals with drawdown notices and provided: (a) To utilise the Facility the Borrower must deliver to the Financier a duly completed Drawdown Notice not later than 10.00am two Business Days before the proposed Drawdown Date. (b) Each Drawdown Notice delivered to the Financier must be in writing. (c) A Drawdown Notice once given may not be withdrawn or revoked, unless withdrawn or revoked by written notice to the Financier at least one Business Day prior to the proposed Drawdown Date specified in the relevant Drawdown Notice.
6. Clause 19.6 provided that the agreement may only be amended or varied in writing and signed by the parties. Clause 19.8, dealing with waivers, provided under subclause (c): Waiver of any right arising from a breach of the Finance Documents or of any power arising on default under any Finance Document must be in writing and signed by the party granting the waiver.

The mortgage

1. The mortgage given by Mrs Bega over the Denham Court property did not record the receipt of any monies advanced by the plaintiffs. The mortgage incorporated a memorandum of common provisions, which stated the consideration for the mortgage in cl 2 as follows: CONSIDERATION The Mortgagor enters into this document for value or consideration from the Mortgagee and receipt of the consideration is acknowledged.

Is a drawdown notice a mandatory condition precedent?

1. The defendants submitted that cl 4 is a mandatory pre-condition, with the consequence that no advance can be made under the facility agreement unless the borrower delivers a drawdown notice as defined. The defendants emphasised that cl 4.1(a) uses the word "must" and contains the specific requirement that the drawdown notice be in writing. It was submitted that cl 4 should be construed as being for the benefit of all parties to the facility agreement in contrast to cl 3, which is expressed to be for the benefit of the Financier.
2. The plaintiffs responded that, read in context, cl 4.1 does nothing more than impose an obligation on the borrower to issue a drawdown notice. It was submitted that cl 3.2 makes plain that the drawdown notice was for the benefit of the financier and that cl 3.1 and Sch 1 to the facility agreement establishes that the financier's power and entitlement to fund the advance is not dependent upon the receipt of such a notice.

Legal principles - construction of contracts

1. The rights and liabilities of parties under a contractual provision are to be determined objectively, by reference to its text, context (the entire text of the contract, as well as any contract, document or statutory provision referred to in the text of the contract) and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 (Mount Bruce Mining) at [46] (French CJ, Nettle and Gordon JJ); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656; [2014] HCA 7 at [35].
2. Most recently, in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 (at [16]), the High Court (Kiefel, Bell and Gordon JJ) summarised the approach to construction of contracts as follows: It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656 [35] and the cases at fn 58; [2014] HCA 7). In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it (Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] and the cases at fn 60).
3. In construing a written contract, the court is to have regard to all the words used "so as to render them all harmonious with one another": Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109 (Gibbs J).

Drawdown notice not required

1. The starting point is to consider the commercial purpose underlying the requirement that the borrower deliver a drawdown notice under the facility agreement. Three features of cl 4.1 warrant emphasis. The first is the requirement for writing. The second is the temporal specification of two business days' notice. The third is the borrower's ability to withdraw a drawdown notice once delivered, by giving at least one business days' notice prior to the proposed drawdown date. Plainly, the giving of a drawdown notice by the borrower to the financier is directed to providing the financier with reasonable notice of the amount to be drawn under the facility. The giving of such notice is one of the conditions precedents specified in cl 3.2(a) to the financier's obligation to provide a single advance of the total amount of the facility available to be drawn by the borrower.
2. Nonetheless, cl 3.4 makes plain that the conditions precedent in cl 3.2, including cl 3.2(a) with respect to the giving of a drawdown notice, are for the benefit of the financier, and that only the financier may waive the conditions precedent. The evident commercial purpose of cl 3.4 is to permit the financier flexibility in providing an advance under the facility when requested by the borrower, without the need for giving two business days' notice of the proposed drawdown by the borrower.
3. While cl 4.1(a) uses the language of command ("must") when specifying the time by which the borrower is required to deliver a duly completed drawdown notice to the financier, its terms are not inconsistent with the flexibility provided by cl 3.4 that the requirement of a drawdown notice is for the benefit of, and may only be waived by, the financier.
4. Similarly, that cl 4.1(b) requires any drawdown notice to be in writing does not indicate an intention that the financier is unable unilaterally to waive that requirement. That the financier can waive the requirement for a drawdown notice is readily understandable. It affords the parties with the flexibility that the financier may dispense with the requirement in appropriate circumstances as determined by the financier.
5. I reject the defendants' construction of the facility agreement that cl 4.1(a) is a mandatory precondition to an advance under the facility agreement. That Mrs Bega did not execute a drawdown notice is not determinative of whether or not the plaintiffs made an advance of $1 million to her under the facility agreement.

Did Mr Mullins and Peter Bega give an oral direction to pay to the plaintiffs (on behalf of Mrs Bega)?

1. In closing argument the plaintiffs' first submission was that the facility agreement does not require any request or direction to be given by Mrs Bega to pay the advance of $1 million.
2. In support of this argument, the plaintiffs pointed to the purpose of the loan stated in Recital A to the facility agreement, and submitted that it would be a triumph of form over substance to assert that the facility agreement required a further direction to pay the advance before it could be effected. The plaintiffs emphasised that Mrs Bega was aware of the purpose of the facility agreement and submitted that the short timeframe suggested that a direction was not required.
3. I do not accept this submission. It is not sufficient to impose liability on Mrs Bega for the repayment of an advance of $1 million simply by pointing to the fact the facility agreement she signed contained executory promises to advance that sum for the stated purpose in cl 2.2, as well as an acknowledgment in Recital A that the advance was to be on-lent by Mrs Bega to assist a family member with a proposed commercial investment opportunity.
4. Next, the plaintiffs submitted that the executed mortgage contained an acknowledgment of receipt of the $1 million advance. This was a reference to the terms of cl 2 of the memorandum of common provisions which were incorporated into the mortgage: see [200] above. However, the consideration stated in cl 2 of the memorandum is not an acknowledgement of receipt of any monies. The reference in cl 2 to the receipt of "value or consideration" only refers to the executory promises given by the plaintiffs under the facility agreement to advance $1 million to Mrs Bega.
5. Next, the plaintiffs submitted that if a direction to pay were necessary, Peter Bega and Mr Mullins had authority to give that direction to the plaintiffs. The plaintiffs submitted that in circumstances of urgency, Mrs Bega deployed Mr Mullins and Peter Bega to facilitate the transaction on her behalf. The plaintiffs further submitted that Mr Mullins could be viewed as either having the ostensible authority of Mrs Bega, or acting as a subagent of Peter Bega. Senior counsel for the plaintiffs acknowledged that the evidence did not go so far as to establish any actual authority conferred upon Mr Mullins (T511, lines 1-2).
6. Counsel for Mrs Bega objected that the authority case was outside the plaintiffs' case as pleaded and particularised. I do not agree. In my view, the particulars given by the plaintiffs at par 11 of the statement of claim sufficiently raised a case of authority reposed in those persons to make an oral request on behalf of Mrs Bega for an advance of $1 million by payment to AB Veritas.

Legal principles - authority

1. The notion of ostensible or apparent authority is described by the authors of Bowstead and Reynolds On Agency (P Watts and FMB Reynolds), 21st ed (2018), Sweet & Maxwell at [3-004], in the following terms: Under this doctrine, where a principal represents, or is regarded by the law as manifesting, that another has authority, he may be bound as against a third party by the acts of that other person within the authority which that person appears to have, though he had not in fact given that person such authority or had limited the authority by instructions not made known to the third party. 'Ostensible or apparent authority is the authority of an agent as it appears to others'. (Footnotes omitted. Citing Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583 per Lord Denning MR.)
2. The difference between actual and apparent authority was addressed by Clarke and Cripps JJA in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132 as follows: Actual authority arises where a principal grants, and an agent accepts, authority for the agent to perform specific tasks on behalf of the principal - in short there must be a consensual agreement between the principal and agent. Notwithstanding the absence of an express agreement, the parties, that is, the principal and agent, may conduct themselves in such a way that it is proper to infer that the relevant authority has been conferred on the agent. Accordingly, where the question is whether the agent has implied authority to act in a particular way the court directs its attention to the conduct of the parties in order to decide whether the inference of authority should be drawn. Ostensible authority is quite different. The question then is whether the principal has held out the agent as having authority to act on its behalf. Obviously a principal may expressly hold out a person as its agent to act on his or her behalf in a specific transaction but usually where this occurs there will have been a grant of actual authority. On the other hand there may be no evidence of a grant of actual authority and yet the principal may have so acted as to hold out the agent as having the requisite authority. In many instances the circumstances which give rise to ostensible authority may also provide a basis for inferring an actual grant of authority.
3. Clarke and Cripps JJA continued (at 132-133), noting that the principles are clearly explained by Diplock LJ in Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502: It is necessary at the outset to distinguish between an 'actual' authority of an agent on the one hand, and an 'apparent' or 'ostensible' authority on the other. Actual authority and apparent authority are quite independent of one another. Generally they co-exist and coincide, but either may exist without the other and their respective scopes may be different. As I shall endeavour to show, it is upon the apparent authority of the agent that the contractor normally relies in the ordinary course of business when entering into contracts. An 'actual' authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the 'actual' authority, it does create contractual rights and liabilities between the principal and the contractor …. An 'apparent' or 'ostensible' authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract."
4. With respect to implied actual authority, Clarke and Cripps JJA emphasised (at 133) that the authority impliedly granted by the principal to the agent must be such as could be validly granted by express agreement. Their Honours remarked (at 134) that whether authority is to be implied and, if so, the scope of such authority is to be found in a close analysis of the evidence before the court upon which the case for implication relies.
5. Feldman v GNM Australia Ltd [2017] NSWCA 107 involved the question of whether a solicitor had ostensible authority to bind his client to a contract. Beazley P emphasised that whether or not a person has ostensible authority is a question of fact. Her Honour said at [99]-[100]: [99] Whether or not a person has ostensible authority (also described at times as 'apparent authority') is a question of fact: see Geissler v Accro Motors Pty Ltd (1955) 73 WN (NSW) 31; CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 9 ANZ Insurance Cases ¶61-232 at 75,554. It usually involves an inference based upon a representation or representations made by the principal that the agent has authority to contract within the ambit or scope of the 'apparent authority': Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 503. [100] The jurisprudential basis of ostensible authority is traditionally described in terms of estoppel by representation. Reliance is a necessary element of the estoppel: Freeman & Lockyer v Buckhurst Park Properties at 503; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 200; G E Dal Pont, Law of Agency (3rd ed, 2014, LexisNexis) 460 [20-7]. In a case such as the present, the party seeking to enforce the contract must prove a change of position to its detriment.
6. It has been said that a person with no actual, but only ostensible authority, to do an act or make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49 (Crabtree-Vickers) at 80 (Gibbs, Mason and Jacobs JJ).
7. However, an agent's assertion of authority is not entirely irrelevant to the issue of ostensible authority. There may be cases where the actual representation of authority may be made by the agent. In Crabtree-Vickers their Honours said at 78: There are circumstances where the actual representation of authority may be made by the agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct. It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority).
8. Haira v Burbery Mortgage Finance & Savings Ltd (In Receivership): Koya v Haira [1995] 3 NZLR 396 involved an assertion by a mortgagor (Mrs Haira) that she did not receive the loan monies and accordingly there was a total failure of consideration. The New Zealand Court of Appeal upheld the decision of the trial judge that the evidence established both receipt by Mrs Haira's solicitor, Mr Koya, of the mortgage monies under her authority, and his subsequent application of that sum for her benefit. The case was one of actual authority. In the judgment of the Court delivered by Richardson J, his Honour remarked (at 402): What must be established is that the advance was made to the mortgagor. That may be proved in various ways. Where payment is not made directly to the mortgagor but to a solicitor or other agent, specific authority to the mortgagee to pay an agent will obviously suffice. Equally, if the solicitor is entitled under the authority given to him or her for that purpose to receive the mortgage monies, a receipt by the solicitor under that authority will bind the mortgagor. And whether such an authority was given is a question of fact (Viney v Chaplain (1858) 2 De G & J 468,481). Further as Somers J and Gallen J observed in Sims v Lowe (p622), it is also sufficient if the mortgagors (there Mr and Mrs Sims) receive the money "or, what is the same thing if they had the benefit of it by its application by their solicitors in accordance with their instructions."

Mrs Bega authorised the request for the $1 million advance

1. In my view, the evidence establishes that Peter Bega had the actual authority of Mrs Bega to request the $1 million advance under the facility agreement for the purpose of on-lending by Mrs Bega to Aidan Bega to assist his company, AB Veritas, complete the purchase of the units in the Allure Apartments. Further, I am satisfied that Mr Mullins was acting as a subagent of Peter Bega in his actions in requesting the plaintiffs to provide the bank cheque for $1,395,000, which included the $1 million advance under the facility agreement. The evidence which supports these findings is as follows.

Actual authority of Peter Bega

1. The oral evidence of Mrs Bega makes plain that she entrusted Peter Bega with legal and business matters. Critically, at the request of her husband, Mrs Bega had previously provided three mortgages over the Denham Court property (and also a mortgage over the Menangle Road property) to secure loans made to her with the loan monies being applied for the benefit of Peter Bega or his companies. On no occasion had she received any of the monies secured by the mortgages, and it was her evidence that she regarded it the responsibility of Peter Bega to arrange for their repayment. The inference to be drawn is that her husband had the implied, if not express, authority of Mrs Bega to deal with lenders on her behalf in all matters concerning the borrowing of money on the security over the Denham Court property. That is consistent with the course of conduct within the Bega family where authority to make decisions of significance in respect of family-related matters was conferred by family members (including Mrs Bega and Aidan Bega) upon Peter Bega.
2. The value of the loans secured by the prior mortgages over the Denham Court property increased from $100,000 and $50,000 (in June 1994 and March 1998, respectively) to $1.5 million in December 2007, which sum was on-lent to an entity controlled by Peter Bega. Mrs Bega was not concerned with the precise details of business ventures undertaken by Peter Bega for the benefit of the family. That she was aware of and agreed to the loans for which she was providing security, however, demonstrates her acquiescence to Peter Bega's decisions.
3. On my findings, Mrs Bega agreed with her husband's request in March 2015 to borrow $1 million from the plaintiffs on security over the Denham Court property. She understood that she would not personally receive any money as she was on-lending the $1 million advance to her son, Aidan, to assist him to purchase a unit investment. She knew that there was a sense of urgency in the signing of the documents on 2 April 2015. It can be inferred that she understood that the urgency related to the impending settlement of Aidan's purchase and for that to occur, the advance of $1 million would need to be made to her with the monies being applied towards Aidan's purchase.
4. Mrs Bega also knew that Mr Mullins was dealing with the lenders on her behalf; she knew that he had arranged a loan for her of $1 million; she had told Mr Ciappara this when they first discussed the matter during their telephone conversation on 31 March 2015. That remained her understanding when she discussed the transaction with Mr Ciappara on 1 April 2015 and again on 2 April 2015. She knew that her husband and Mr Mullins were assisting her in organising the execution of the documents, the delivery of the title deed to the lenders and the advance by the lenders of $1 million to her for the stated purpose in the facility agreement. Knowing that Mr Mullins was dealing with the lenders on her behalf, Mrs Bega did not remonstrate about his role in organising the loan for $1 million.
5. Peter Bega instructed Mr Mullins to ensure that the sale of the units to AB Veritas completed on 2 April 2015, knowing that the shortfall in the purchase price was to be met (at least substantially) by the plaintiffs' advance of $1 million to Mrs Bega which was to be on-lent to Aidan Bega to assist him to complete the purchase. Peter Bega understood when speaking to Mr Mullins, after the documents had been signed on 2 April 2015, that the cheque for the $1 million advance would not be drawn by the plaintiffs before the signed documents were returned to the plaintiffs' solicitors (which Peter Bega attended to that morning); he understood that Mr Mullins was to meet with Mr Danesi and Mr Stathakis to obtain the bank cheque in respect of the $1 million advance under the facility agreement, which Mr Stathakis was taking to the settlement in Brisbane to be provided to AB Veritas, and that the cheque would be used in a round-robin to discharge the outgoing mortgages held by the plaintiffs. I have rejected Peter Bega's evidence that he believed that the funds advanced under the facility agreement had been "nicked".
6. Peter Bega may be taken to have authorised Mr Mullins to request the plaintiffs to advance $1 million to Mrs Bega by means of the bank cheque which the plaintiffs provided to AB Veritas on the settlement of the purchase of the units in the Allure Apartments.
7. I reject the submission of counsel for Aidan Bega and AB Veritas that the conversation between Mr Mullins and Mr Danesi on the morning of 2 April 2015 did not constitute an oral direction to pay, given by Mr Mullins to Mr Danesi. The sale of the units from STD to AB Veritas could not settle without the loan of $1 million from the plaintiffs to Mrs Bega, which funds were to be provided by her to Aidan Bega. Consistently with the bank cheque round-robin arrangement, the settlement statement prepared by STD's solicitors and agreed to by Mr Delaney on behalf of AB Veritas, recorded that after taking into account the mortgage advance from Perpetual Trustee Company Limited (arranged by Arch Finance), the amount required from AB Veritas to complete settlement was $1,395,000 (Ex B, tab 91). That is the amount of the cheque to which Mr Mullins was referring when he told Mr Danesi that he would take him to his bank to get the $1.395 million bank cheque. That bank cheque included the $1 million advance to Mrs Bega.
8. In my view, the scope of Peter Bega's actual authority from Mrs Bega included agreeing to the transaction with the plaintiffs by which Mrs Bega would borrow $1 million from the plaintiffs on security over the Denham Court property for the purpose of on-lending to Aidan Bega to assist him with the purchase of units in the Allure Apartments. Peter Bega's authority extended to agreeing to the bank cheque round-robin at settlement of the purchase by AB Veritas using, in part, the $1 million advance to Mrs Bega and authorising Mr Mullins to request that the advance be provided to AB Veritas on settlement of its purchase. That is what Mr Mullins did on 2 April 2015.
9. The general rule is that an agent has no authority to appoint a subagent except with the express or implied authority of the principal: John McCann & Co v Pow [1974] 1 WLR 1643 at 1647. Here, there was at least implied authority, if not express authority, given by Mrs Bega to her husband to appoint Mr Mullins to attend to requesting the drawdown of the $1 million advance under the facility agreement for on-lending to her son, Aidan, to assist with the purchase of a unit investment. Mrs Bega knew that Mr Mullins was arranging the $1 million loan to her for that purpose. She knew that the purchase of the unit investment by Aidan Bega could not proceed without the lenders making the advance of $1 million to her under the documents she had signed. She knew that the monies to be advanced to her would be applied to Aidan's purchase. She was content for her husband and Mr Mullins to attend to the mechanics of obtaining the $1 million advance on her behalf and applying those monies to Aidan's purchase.
10. Plainly, Mrs Bega had the benefit of the advance of $1 million under the facility agreement by its application by the plaintiffs in accordance with the instructions given by her agent, Peter Bega, via Mr Mullins. That was consistent with the arrangement that had been put to Mr Danesi, and which Mr Mullins had confirmed with Mr Danesi, for the bank cheque round-robin at settlement of the purchase by AB Veritas of the units in the Allure Apartments.

Ostensible authority of Mr Mullins

1. Alternatively, if it were necessary to decide, I would find that Mr Mullins had ostensible authority to request the drawdown of $1 million under the facility agreement. This is a case in which there was a holding out of Mr Mullins to the plaintiffs by both the principal and a person to whom the principal had given actual authority.
2. Knowing that Mr Mullins was arranging a $1 million loan from the lenders, Mrs Bega permitted Mr Mullins to deal with the plaintiffs on her behalf in relation to that transaction. She allowed Mr Mullins to act in a position of dealing with Mr Danesi to obtain the $1 million advance for the intended purpose, namely applying those monies to the investment unit purchase by Aidan Bega. That conduct involved a representation by silence: that Mr Mullins had authority to act on her behalf in respect of the loan, including requesting the $1 million advance under the facility agreement be applied for the intended purpose.
3. Further and in any event, since Peter Bega had actual authority from Mrs Bega to request the $1 million advance under the facility agreement be applied for the intended purpose (the investment unit purchase by Aidan Bega), he had actual authority to hold out Mr Mullins to make that request. That is, Peter Bega had actual authority to make the representation which would give Mr Mullins ostensible authority: Crabtree-Vickers at 80. And that is what Peter Bega did in his dealings with Mr Danesi of the plaintiffs.
4. Peter Bega expressly held out Mr Mullins to Mr Danesi at their 25 March 2015 meeting (see [52] above) as the person representing Mrs Bega with respect to the transaction. Mr Mullins confirmed to Mr Danesi on about 28 March 2015 that Mrs Bega had agreed to borrow $1 million and grant a mortgage over the Denham Court property (see [61] above). Peter Bega was aware of and agreed to the cheque round-robin arrangement with respect to the $1 million advance under the facility agreement; Mr Mullins confirmed this arrangement with Mr Danesi; and Peter Bega understood that the cheque for the $1 million advance would not be drawn by the plaintiffs without their solicitors receiving the signed documents (which he returned to those solicitors on the morning of 2 April 2015) and that Mr Mullins would meet Mr Danesi and Mr Stathakis to get the settlement cheque which Mr Stathakis would take to the settlement in Brisbane (see [168], [176], and [101] above). Peter Bega allowed Mr Mullins to act in a position of dealing with Mr Danesi with respect to the application of the $1 million advance for the intended purpose, by requesting that the $1 million advance under the facility agreement be provided to AB Veritas at the settlement of its purchase of the units in the Allure Apartments. That is what Mr Mullins did on 2 April 2015. On this analysis, Mr Mullins had ostensible authority to give the direction to the plaintiffs to pay the $1 million advance under the facility agreement for the purpose intended by Mrs Bega, namely, Aidan Bega's purchase (through AB Veritas) of the units in the Allure Apartments.
5. The plaintiffs, through their solicitors, believed that Mr Mullins was representing Mrs Bega in relation to the loan. Mr Roth said so expressly in his letter to Mr Mullins dated 31 March 2015, which attached the mortgage and other documents. Mrs Bega knew that the $1 million advanced by the lenders would not be received by her personally; the monies advanced to her would be applied towards the purchase of a unit investment by her son. She was content to leave it to her husband and Mr Mullins to deal on her behalf with the mechanics of obtaining the monies under the facility agreement which were to be provided to her son for the purchase by his company.
6. I accept that the plaintiffs acted to their detriment in providing the bank cheque for $1.395 million to AB Veritas on settlement.

Conclusion

1. In my view, the plaintiffs have established that the $1 million advance under the facility agreement was applied in accordance with the instructions given on behalf of Mrs Bega to the plaintiffs by Peter Bega and Mr Mullins.

Issue A.2 - Whether the National Credit Code applies

1. The defendants contended that the facility agreement was a "credit contract" within the meaning of s 6 of the NCCP Act and, that the plaintiffs were engaged in unlicensed credit activities contrary to s 29 of that Act. If that be established, the defendants seek to be relieved of any liability under the facility agreement and, in the case of Mrs Bega, also under the mortgage, pursuant to s 180 of the NCCP Act.
2. Alternatively, the defendants seek relief under ss 76-77 of the Code to reopen the transaction on the grounds that the facility agreement and mortgage were unjust. It is convenient to deal with this question under Issue A.3 below.

Whether plaintiffs engaged in unlicensed credit activity?

1. Section 29(1) of the NCCP Act provides: A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.
2. It is common ground that the plaintiffs did not hold a licence authorising either of them to engage in credit activity as defined in the Code.
3. Section 6(1) of the NCCP Act sets out the circumstances in which a person engages in a credit activity in relation to particular types of contract. Item 1(b) of the table in s 6 of the NCCP Act provides that a person engages in a credit activity if the person carries on a business of providing credit, being credit the provision of which the Code applies to. That definition picks up the definitions of "credit contract" and "provision of credit to which this Code applies" within ss 4 and 5 of the Code.
4. The Code is contained in Schedule 1 of the NCCP Act (s 3 of the NCCP Act). Sections 4 and 5 of the Code provide: 4 - Meaning of credit contract For the purposes of this Code, a credit contract is a contract under which credit is or may be provided, being the provision of credit to which this Code applies. 5 - Provision of Credit to which this Code applies (1) [Application to credit and related contract] This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into: (a) the debtor is a natural person or a strata corporation; and (b) the credit is provided or intended to be provided wholly or predominantly: (i) for personal, domestic or household purposes; or (ii) to purchase, renovate or improve residential property for investment purposes; or (iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and (c) a charge is or may be made for providing the credit; and (d) the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction. (2) [Application to all transactions despite jurisdiction] If this Code applies to the provision of credit (and to the credit contract and related matters): (a) this Code applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction; and (b) this Code continues to apply even though the credit provider ceases to carry on a business in this jurisdiction. (3) [Investment not a domestic purpose] For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose. (4) [Predominant purpose of providing credit] For the purposes of this section, the predominant purpose for which credit is provided is: (a) the purpose for which more than half of the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods are intended to be most used.
5. The requirements of s 5(1) of the Code are cumulative. There is no issue that the requirements in s 5(1)(a) and (c) are satisfied in the present case. Mrs Bega is a natural person (s 5(1)(a)) and the facility agreement contained a charge by way of interest for providing credit in the form of the $1 million advance (s 5(1)(c)). The dispute is whether the requirements in both s 5(1)(b) and (d) are satisfied. As to s 5(1)(b), the focus of argument turned to sub-pars (i) and (ii).
6. Under s 13(1) of the Code, where a party claims that a credit contract, mortgage or guarantee is one to which the Code applies, it is presumed to be such unless the contrary is established. Hence, the plaintiffs bear the onus of proof in establishing that the Code does not apply to the facility agreement and the mortgage.

Section 5(1)(b)

1. None of the parties directed submissions to the meaning or effect of s 5(1)(b)(i) of the Code, in particular whether the purpose is to be considered subjectively or objectively or by a combination of the two. Different views have been expressed by various courts on this question. In Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505, Young CJ in Eq remarked (at [342]): The legislation does not expressly indicate whether the purpose is to be considered subjectively or objectively or by a combination of subjective and objective considerations. Considering s 6, particularly with the contextual assistance of s 11 and the beneficial purpose of the legislation, it is apparent that the enquiry is into the use to which the funds are put or intended to be put by the debtor. The court may consider what the money was used for in order to determine the purpose of the credit. "The court must consider the substance and reality of the transaction": Linkenholt Pty Ltd v Quirk [2000] VSC 166 (Linkenholt) at [98] and [121] per Gillard J.
2. In Bank of Queensland Ltd v Dutta [2010] NSWSC 574, Davies J referred (at [117]) to the divergent views on what is meant by the credit being "provided or intended to be provided" for personal, domestic or household purposes. His Honour concluded (at [123] -[124]) in relation to the predecessor provisions in s 6(1)(b) of the Consumer Credit (NSW) Code 1995 (NSW Consumer Credit Code): 123 In my opinion, the test in Linkenholt should be applied. Given the structure of s 11 of the Code I do not consider there is unfairness to a lender for the Linkenholt test to be applied even in those circumstances. As McGill DCJ said in Dale v Nichols Constructions Pty Ltd [2003] QDC 453 (Dale) at [28]: … Subsection (2) provides a mechanism by which a credit provider can protect itself from a debtor who might not be frank about the true purpose of the loan, which will be effective unless, pursuant to subsection (3), the credit provider has actual knowledge that the declaration given by the borrower is false. If the credit provider does not follow that precaution, the credit provider runs the risk that a court will find that the true intention of the borrower was that the money borrowed be used for personal, domestic or household purposes, regardless of what was apparent to the credit provider. 124 It does not seem to me appropriate to approach the legislation from a different point of view dependent upon whether the borrower tells the truth to the lender. The legislation has a particular meaning which must be construed independently of the facts that give rise to the need to understand its meaning in any given case. In my view, Shaw J was right when he said in Jonsson v Arkway (2003) 58 NSWLR 451; [2003] NSWSC 815 (Jonsson v Arkway) at [28] that the legislation needs to be broadly and liberally interpreted as beneficial legislation.
3. In Bahadori v Permanent Mortgages Pty Ltd (2008) 72 NSWLR 44; [2008] NSWCA 150, the Court of Appeal (Tobias JA, Giles and Campbell JJA agreeing) accepted (at [184]), without needing to decide the question under s 6(1)(b) of the NSW Consumer Credit Code, that: the test most favourable to Permanent and Conway is an objective one based upon what a reasonable person would, in all the circumstances, consider to be the purpose for which the loans were intended to be provided. Such a person would be entitled to take into account all the objective circumstances which would otherwise fall for consideration under s 11(3).
4. The Queensland Court of Appeal also referred to the difficulties of construction in Shakespeare Haney Securities Limited v Crawford [2009] QCA 85, but without needing to resolve the question. Muir JA (Mullins and Douglas JJ agreeing) said (at [31]) in relation to s 6(1)(b) of the Queensland Consumer Credit Code: Plainly "the purpose" for which credit is provided or intended to be provided has nothing to do with the lender's general commercial purposes: the reference is to the use to which the credit is to be put. In the great majority of transactions there would be no difficulty in determining the relevant purpose by reference to the terms of the application for credit and of the approval. If the borrower requests credit for a stated purpose and the lender approves the request and makes the loan, there should be no difficulty in concluding that the purpose for which the loan was made was the purpose for which it was requested.
5. In Knowles v Victorian Mortgage Investments Ltd & Anor [2011] VSC 611, Croft J concluded (at [47]) that the weight of authorities favour the Linkenholt test, particularly as explained and applied by Davies J in Bank of Queensland Ltd v Dutta.
6. It is not necessary to resolve the construction question in the present case. The same outcome would follow adopting either approach to s 5(1)(b)(i). The relevant purpose of the provision of credit is that stated in Recital A and reiterated in the definition of "Purpose" and cl 2.1 of the facility agreement. The purpose for which the loan was made was the purpose for which it was requested by Mrs Bega; to be used for short term on lending to family members for commercial investment opportunities. The use for which the credit was provided was, as intended, a commercial purpose and not a personal, domestic or household purpose.
7. A reasonable person would, in all the circumstances, consider this to be the purpose for which the credit was intended to be provided (and was provided). To the extent that the test of purpose is the actual intention of the debtor (Mrs Bega), in light of the findings I have made concerning Mrs Bega, her intention with respect to the use to which the loan was to be put (and was put), was for a commercial purpose.
8. As to s 5(b)(ii), although the money was ultimately used by Aidan Bega (through AB Veritas) for the purpose of purchasing residential property for investment purposes, the credit was not provided or intended to be provided to Mrs Bega to purchase any residential property for investment purposes. The credit was provided wholly for commercial purposes of Mrs Bega consistent with that stated in Recital A to the facility agreement.
9. I find that the plaintiffs have established that when the facility agreement was entered into with Mrs Bega, the credit to which it referred was not provided or intended to be provided wholly or predominantly for personal, domestic or household purposes (s 5(b)(i)), nor was the credit provided or intended to be provided wholly or predominantly to purchase residential property for investment purposes (s 5(1)(b)(ii)). In my view, the plaintiffs have discharged their onus in rebutting the presumption in s 13(1) of the Code.
10. For completeness, I will consider the requirement in s 5(1)(d).

Section 5(1)(d)

1. Section 5(1)(d) of the Code has three limbs. The provision directs attention to whether the particular credit to which the Code purports to apply, is provided in the course of a business of providing credit carried on by the credit provider, or as part of another business carried on by the credit provider, or incidentally to another business carried on by the credit provider.
2. Whether a person carries on a business is a question of fact. The expression "in the course of a business carried on" should be given a similar meaning to the well-known expression "carrying on a business". That latter expression has been held to require "repetition, and continuity of the activities which characterise the business": Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703 at [70] (Ball J) and the cases cited therein.
3. Similar remarks were expressed by Muir JA in Shakespeare Haney Securities Limited v Crawford. His Honour said (at [43]) that, in the context of statutory or contractual provisions referring to the carrying on of a business, system, continuity and/or regularity are frequently identified as necessary features of a business, making reference to the comments in Hyde v Sullivan (1956) 56 SR (NSW) 113 at 119: Speaking generally, the phrase 'to carry on business' means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit and implicit in this idea are the features of continuity and system. Nonetheless, his Honour also acknowledged that a "one off" transaction or venture may have a business character, citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355 at 376-377 and 383; [1982] HCA 8.
4. The words "incidentally to" in s 5(1)(d) may be taken to be an expression of wide import but there must be some connection between another business of the credit provider and the particular loan that provides the credit which, in turn, involves questions of degree: Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463 (Avery v Saree Holdings) at [93], citing R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63 at 77 (Gibbs J); [1977] HCA 70.
5. In Mills v Commissioner of Taxation (2012) 250 CLR 171; [2012] HCA 51, a case involving s 177EA(3)(e) of the Income Tax Assessment Act, Gageler J (with whom French CJ, Hayne, Kiefel and Bell JJ agreed) considered the meaning of "an incidental purpose" in the context of the statutory taxation regime. His Honour said at [66] that "[p]urpose is a matter for inference and incidentality is a matter of degree".
6. In the present case, the evidence establishes that Lauvan's primary business is that of hotels through ARQ Nightclub in Darlinghurst. Mittabell is the trustee of a superannuation fund with property and share investments. On Mr Danesi's evidence, the plaintiffs have made six loans. All the loans were made to parties known to Mr Danesi or referred by parties known to him. One loan for $50,000 was made to Mr Danesi's ex-partner, Ms Naomi Travers, as she "needed some money"; and another loan was made to owners of the boarding house, next-door to a boarding house owned by a friend of Mr Danesi. The loans to the Bega family comprised a $700,000 loan for refurbishment of the South Townsville Tavern; a $700,000 loan secured by a mortgage to Camiera Nominees in respect of a property at Buckland Street, Alexandria; the construction loan to STD; and the loan to Mrs Bega.
7. The plaintiffs submitted that they were not in any business together. That may be accepted, albeit the construction loan to STD was made jointly by the plaintiffs and the evidence of Mr Danesi can be understood as indicating that the position in relation to the other loans was the same.
8. As to the first limb of s 5(1)(d), I do not consider that the activities of the plaintiffs were sufficiently systematic, continuous or repetitious to be characterised as a course of business of providing credit: Williams v ATM & CPA Projects Pty Ltd at [70]; Hyde v Sullivan at 119; Shakespeare Haney Securities Limited v Crawford at [43]. The loans provided to Mr Danesi's ex-partner and the boarding house owner may be taken as being made on an isolated and sporadic basis. Occasional and discrete loans made as a result of some personal relationship or an introduction by persons known to the credit provider do not have the character of a system or repetition or continuity to be characterised as a business. The same may be said of the loans to the Bega family interests, which were a result of the introduction by Mr Stathakis, a mutual friend, of Peter Bega to Mr Danesi.
9. As to the second limb of s 5(1)(d), I do not consider that the credit provided by the plaintiffs was made as part of another business of the plaintiffs, such as hotels or property development or share investment. The loans in question were unrelated to those businesses. The position in this case may be distinguished from the type of case where a retailer provides credit to customers as part of the business of selling goods to the customer.
10. As to the third limb of s 5(1)(d), the sporadic and occasional use of the plaintiffs' own funds (not otherwise required for the plaintiffs' business) to provide credit on six occasions over a number of years, does not seem to me to bear a sufficient degree of connection with the plaintiffs' respective businesses of hotels, property development and share investment for those loans, specifically the loan to Mrs Bega, to be made incidentally to the businesses of either or both the plaintiffs.
11. In my view, the plaintiffs have also established that the requirement in s 5(1)(d) of the Code does not apply in respect of the credit provided to Mrs Bega.
12. Since the plaintiffs have displaced the presumption in s 13(1) that the Code applies to the credit provided to Mrs Bega, the question of relief under s 180 of the NCCP Act does not arise. Nonetheless, I will briefly indicate my views on that issue against the possibility that my conclusions in relation to both s 5(1)(b) and (d) are wrong.

Should the Court grant any relief under s 180 of the NCCP Act?

1. Assuming (contrary to my conclusion) that the plaintiffs engaged in unlawful credit activities (because they did not hold a licence under s 29 of the NCCP Act), counsel for the defendants submitted that the Court should make orders under s 180 of the NCCP Act and set aside the facility agreement and mortgage in their entirety.
2. That section provides: 180 Orders in relation to unlawful credit activities Court may make orders in relation to unlawful credit activities (1) If: (a) a person (the defendant) engages in a credit activity in relation to another person (the plaintiff); and (b) the engaging in the activity contravenes any of the following: (i) section 29 (which requires the holding of a licence); (ii) section 124A (which prohibits the provision of credit assistance in relation to short‑term credit contracts); (iii) section 133CA (which prohibits credit providers from entering into short‑term credit contracts etc.); the court may make such order as the court considers appropriate against the defendant: (c) to prevent the defendant from profiting from the plaintiff by engaging in that activity; or (d) to compensate the plaintiff, in whole or in part, for any loss or damage suffered as a result of the defendant engaging in that activity; or (e) to prevent or reduce the loss or damage suffered, or likely to be suffered, by the plaintiff as a result of the defendant engaging in that activity. Note: An order may be made under this subsection whether or not a declaration of contravention has been made under section 166. (2) Without limiting subsection (1), examples of orders the court may make include: (a) an order declaring the whole or any part of a contract, deed or arrangement made between the defendant and the plaintiff to be void and, if the court considers it appropriate, to have been void from the time it was entered or at all times on and after a specified day before the order is made; and (b) an order varying such a contract, deed or arrangement in such manner as is specified in the order and, if the court considers it appropriate, declaring the contract, deed or arrangement to have had effect as so varied on and after a specified day before the order is made; and (c) an order refusing to enforce any or all of the terms of such a contract, deed or arrangement; and (d) an order directing the defendant to refund money or return property to the plaintiff; and (e) an order directing the defendant to pay to the plaintiff the amount of loss or damage the plaintiff suffered; and (f) an order directing the defendant, at the defendant's own expense, to supply specified services to the plaintiff. When order may be made (3) The court may make the order only if: (a) the plaintiff or ASIC (on behalf of the plaintiff) applies for an order under this section; and (b) the application is made within 6 years of the day the cause of action that relates to the contravention or commission of the offence accrued. Applications for order (4) For the purposes of paragraph (3)(a), ASIC may make an application on behalf of the plaintiff, but only if the plaintiff has given consent in writing before the application is made. Recovery of amount as a debt (5) If the court makes an order that the defendant pay an amount specified in the order to the plaintiff, the plaintiff may recover the amount as a debt due to the plaintiff.
3. In oral argument, counsel for Mrs Bega modified her position and submitted that the Court should impose terms preventing the recovery of any interest so as to disallow the plaintiffs from profiting from Mrs Bega by engaging in unlicensed credit activity. When pressed to explain why such relief was appropriate in the circumstances of this case, counsel for Mrs Bega submitted that it ought to be a consequence inherent to any finding that the plaintiffs engaged in unlicensed credit activity in contravention of s 29 of the NCCP Act. I do not agree.
4. It can be accepted that the discretion conferred on the Court under s 180 of the NCCP Act is a broad one with respect to remedial legislation. That, however, is not a sufficient basis, in my view, to justify relief disallowing the charge for interest under the facility agreement, nor refuse to enforce repayment of the principal sum.
5. Factors relevant to the exercise of the court's power under s 180 include whether any loss or damage was suffered by the borrower as a result of the credit provider engaging in that activity, relevantly on the present assumption, unlicensed credit activity (s 180(1)(d)). No loss or damage was identified by the defendants. Also relevant is whether there are any other breaches of the NCCP Act or the Code. None were identified. Insofar as Mrs Bega had relied in her submissions on ss 14 (form of credit contract) and 198 (orders of court) of the Code, these matters were not pressed in oral closing argument (T520).
6. In considering whether it is appropriate to disallow interest, of relevance is the fact that while the interest rates provided in the facility agreement are high, the loan was for a short term and importantly, the charges payable under the facility agreement were stated in writing in that agreement and had been specifically drawn to Mrs Bega's attention by Mr Ciappara. Mrs Bega was content to proceed with borrowing the money on those terms.
7. Beyond the (assumed) contravention of s 29 of the NCCP Act, counsel for the defendants did not point to any other factor or circumstance why the Court should refuse to enforce the borrower's obligation to pay interest under the facility agreement. If it were necessary to decide the question of relief, I would conclude that the defendants have failed to make out a case for relief under s 180 of the NCCP Act.

Issue A.3: whether the facility agreement and mortgage are unjust or unconscionable?

1. Mrs Bega contended that the facility agreement and mortgage are voidable for their unjust and/or unconscionable qualities and ought not to be enforced against her. She relied upon ss 7 and 9 of the Contracts Review Act, ss 12CB and 12CC of the ASIC Act and ss 76 and 77 of the Code. Mrs Bega did not advance any submissions relying upon s 21 of the ACL.

(1) Contracts Review Act

1. Section 7 of the Contracts Review Act provides: 7 Principal relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19.
2. Section 4(1) defines "unjust" to include "unconscionable, harsh or oppressive". Section 9 outlines a number of matters to which the Court may have regard, including the public interest: 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, ... (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract.
3. It may be accepted that one of the general legislative purposes of the Contracts Review Act is to protect persons who, for various reasons, are not able to look after their own interests, and who are preyed upon by dishonesty, trickery and other forms of predation: Kowalczuk v Accom Finance (2008) 77 NSWLR 205; [2008] NSWCA 343 at [102] (Campbell JA, Hodgson and McColl JJA agreeing); Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [7] (Allsop P, Sackville AJA agreeing); Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [270]).
4. However, it is also well-established that a contract will not be unjust merely because it was not in someone's interest to enter into it: Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA, Santow and Simos AJJA agreeing); or because it was inopportune or produced a loss Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [78] (Beazley JA, Santow JA and Campbell AJA agreeing); or because the party seeking relief was foolish, gullible or greedy: Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639 at [128] (Basten JA); or because the contract was burdensome, a hard bargain, strongly in the interests of the party against whom relief is sought, or in some sense unreasonable: Conley v Commonwealth Bank of Australia [2000] NSWCA 101 at [96] (Heydon JA, Handley JA agreeing).
5. The significance of the absence of independent legal advice will depend on the circumstances. It will be of particular significance if the party seeking to enforce the contract is actually aware that the advice has not been given or has not been understood: Esanda Finance Corporation Ltd v Tong at 491 (Handley JA, Santow and Simos AJJA agreeing), approving comments by Rolfe J in St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd (Supreme Court of NSW, 11 February 1994, unreported).
6. In Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198 the Court of Appeal (Gleeson JA, Meagher and Leeming JJA agreeing) referred to the well-known concepts of "procedural" injustice and "substantive" injustice (at [94] - [97]): [94] In the leading decision not long after the introduction of the Contracts Review Act, McHugh JA in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620 recognised that a contract can be unjust "because of the way it operates in relation to the claimant or because of the way in which it was made or both". He recognised (at 620) that a contract could be unjust because it contained "substantive injustice" - which arises "because its terms, consequences or effects are unjust" - or because of "procedural injustice" - which arises "because of the unfairness of the methods used to make it" - or both. [95] McHugh JA observed (at 621) that in an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust even though none of the provisions of s 9(2) (which are mostly concerned with matters of procedural injustice) can be invoked by the claimant. He also observed (at 621) that if a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, the contract could not be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. [96] In Provident Capital Ltd v Papa at [7], Allsop P recognised that the broad evaluation of unjustness under the Contracts Review Act involves the normative evaluation of the totality of relevant circumstances. His Honour observed at [7] that: "Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances." [97] In an application for relief under s 7 of the Act, the Court undertakes a three-stage process: Perpetual Trustee Co Ltd v Khoshaba (Khoshaba) at [99], per Handley JA; at [106], per Basten JA. The first stage is to make findings of primary fact. The second stage involves a finding that the contract is or is not unjust. The third stage is the exercise of the power to grant relief under the Act which may, but need not, follow from the conclusion that a contract is unjust.

Decision

1. No submissions were advanced by Mrs Bega with specific reference to any of the factors listed in s 9(2) of the Contracts Review Act.
2. Nonetheless, the premise of Mrs Bega's claim for relief is that she did not understand the nature of the transaction into which she entered (sub-pars (e), (h) and (l)). Reliance was placed on Mrs Bega's evidence that she understood the documents were only required as "security" and not for a loan, and that she was not aware that the loan had been purportedly drawn down. I have rejected her evidence on that topic. On my findings, Mrs Bega understood that the nature and effect of the transaction involved a $1 million loan to her to be used to assist her son in purchasing an investment unit, secured by a mortgage over the Denham Court property.
3. Complaint was also made that the plaintiffs did not take any steps to explain the transaction to Mrs Bega and that Mr Danesi had left it to Peter Bega to arrange the transaction (sub-pars (h) and (j)). That may be accepted, but I have found (contrary to Mrs Bega's evidence) that Mr Ciappara did provide an explanation of the nature and effect of the transaction to Mrs Bega (sub-par (h)). In addition, Mrs Bega herself conveyed an accurate understanding of the transaction to Mr Ciappara; she was borrowing $1 million to assist her son purchase an investment unit. The plaintiffs understood, based on the Declaration signed by Mrs Bega, that she had received independent legal advice from Mr Ciappara in respect of the transaction (sub-par (l)).
4. The defendants characterised Mrs Bega as a volunteer to the transaction; emphasising that she was required to sign the documents urgently; that she was required to sign the mortgage without having the facility agreement available; and that the transaction would benefit her son, her husband and Mr Mullins (sub-pars (b), (c) and (l)).
5. The characterisation of Mrs Bega as a volunteer disregards the evidence of both Mrs Bega and Aidan Bega that they regarded the Allure Apartments to be Bega family property. To that extent, Mrs Bega also stood to benefit as part of the Bega family from the acquisition of seven Allure units by AB Veritas.
6. It can be accepted that the documents were required to be signed urgently, but Mrs Bega had discussed the proposed transaction with Mr Ciappara briefly by telephone on the evening of 31 March 2015, and again during the two meetings with him on the following days at which he explained the documents to her.
7. It is not to the point that the mortgage was signed on 1 April 2015 without having the facility agreement available. Mr Ciappara explained to Mrs Bega on 2 April 2015 the material terms of the facility agreement and the nature and effect of the mortgage, which secured Mrs Bega's obligations under the facility agreement.
8. The only complaint by Mrs Bega with respect to the substantive terms of the transaction (sub-par (d)) is that if the plaintiffs are correct in their contention that they had the power to waive compliance with the drawdown notice procedure under cl 4 of the facility agreement, then the plaintiffs' actions in waiving compliance with cl 4 was unjust and unconscionable. I reject that contention since I have found that Mrs Bega authorised the $1 million advance under the facility agreement which was made on 2 April 2015.
9. There was no undue influence, unfair pressure or unfair tactics exerted on or used against Mrs Bega (sub-par (j)). Mrs Bega's interests in the transaction were reasonably able to be protected by her solicitor, Mr Ciappara, who represented her in the transaction (sub-par (e)). Mrs Bega was not a novice when entering into a transaction whereby she was the principal debtor and gave security over the family home to obtain monies for the benefit of the Bega family (sub-par (f)).
10. If it were necessary to decide, I am not satisfied that either the facility agreement or the mortgage were unjust at the time they were made. I would not grant Mrs Bega relief under the Contracts Review Act.

(2) Code

1. Section 76 of the Code provides that the court may reopen "unjust" transactions and s 77 provides for orders the court may make if it reopens a transaction under these provisions.
2. Under s 76(1) of the Code, the court has the power to reopen a transaction: if satisfied on the application of a debtor, mortgagor or guarantor that, in the circumstances relating to the relevant credit contract … at the time it was entered into or changed (whether or not by agreement), the contract … was unjust.
3. The word "unjust" is defined for the purpose of s 76 of the Code by s 76(8) as including "unconscionable, harsh or oppressive".
4. Section 76(2) provides a number of factors to which the court may have regard: (2) In determining whether a term of a particular credit contract, mortgage or guarantee is unjust in the circumstances relating to it at the time it was entered into or changed, the court is to have regard to the public interest and to all the circumstances of the case and may have regard to the following: (a) the consequences of compliance, or non-compliance, with all or any of the provisions of the contract, mortgage or guarantee; (b) the relative bargaining power of the parties; (c) whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation; (d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change; (e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee; (f) whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition; (g) the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed; (h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor; (i) the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not the debtor, mortgagor or guarantor understood those provisions and their effect; (j) whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; (k) whether the credit provider took measures to ensure that the debtor, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures; (l) whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship; (m) whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider; (n) for a mortgage - any relevant purported provision of the mortgage that is void under section 50; (o) the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the annual percentage rate or rates payable in comparable cases; (p) any other relevant factor.
5. Under s 77(1)(c) of the Code, the court may, if it reopens a transaction, grant relief of varied nature, including an order to set aside either wholly or in part an agreement or mortgage given in connection with the transaction.
6. It has been said that the process of determining whether a transaction is unjust involves a process of weighing and balancing competing considerations, relevantly, the purpose of the Code as a consumer protection regime and the need to hold parties to their bargains: Knowles v Victorian Mortgage Investment Ltd at [64], referring to the views expressed by the authors of Annotated National Credit Code (Lexis Nexis, 4th ed 2011, A Beatty and A Smith) at 260, citing McKenzie v Smith; Lenehan v Smith (1998) ASC 155-025.
7. In Knowles v Victorian Mortgage Investment Ltd, Croft J accepted (at [65]) that some assistance may be gained from decisions concerning the meaning of "unjust" under the provisions of the Contracts Review Act, though regard must be had to the different legislative context. His Honour also observed (at [66]) that the court may find a transaction to be unjust independent to the applicability or otherwise of any factors in s 76(2).
8. In Evolution Lifestyles Pty Ltd v Clarke (No 3) [2016] NSWSC 1237, Wilson J (at [82]-[83]) proceeded on the basis that relief under ss 76-77 of the Code was to be approached in a similar manner to s 9 of the Contracts Review Act. That is a convenient approach, provided regard is had to the different legislative context: Knowles v Victorian Mortgage Investment Ltd at [65].

Decision

1. No submissions were advanced by Mrs Bega with particular to reference to any of the factors in s 76(2) of the Code. Mrs Bega relied upon the same matters which have been addressed above with respect to the claim under the Contracts Review Act.
2. Nonetheless, turning to the factors in s 76(2) of the Code, the consequences of compliance with all the provisions of the facility agreement and mortgage is that Mrs Bega would be liable to repay the $1 million advance made under the facility agreement on 2 April 2015 and her property would stand as security for that debt (sub-par (a)). It may be accepted that the plaintiffs were in a relatively stronger bargaining position compared to Mrs Bega (sub-par (b)), that there was no negotiation of the terms of the transaction (sub-par (c)) and that it was not reasonably practicable for her to negotiate different terms (sub-par (d)).
3. Importantly, however, Mrs Bega was not suffering from any relevant disability (sub-par (f)). Mrs Bega received an explanation of the transaction from an independent solicitor (sub-par (h)) and the provisions of the facility agreement and the mortgage were accurately explained to her (sub-par (i) and (k)). She signed a Declaration that she had received independent legal advice in relation to the transaction. The plaintiffs were entitled to rely upon that Declaration.
4. There was no unfair pressure, undue influence or unfair tactics employed against Mrs Bega (sub-par (j)).
5. There is no evidence that the plaintiffs knew or could have ascertained by reasonable inquiry that Mrs Bega could not repay, let alone that she could not repay without substantial hardship (sub-par (l)). On the evidence of Peter Bega, the loan was only required for a short period until other sales in the Allure Apartments were completed.
6. The commercial purpose of the transaction, as Mrs Bega well knew, was to enable her to assist her son Aidan purchase a unit investment. She understood the obligations attaching to her undertaking in the documents she signed, and the implications she would face in the event of default, including that she could lose her home and be personally liable for any shortfall in the debt.
7. If it were necessary to decide, I am not satisfied that either the facility agreement or the mortgage was unjust. I would not reopen the transaction under s 76 or grant relief under s 77 of the Code.

(3) ASIC Act

1. Sections 12CA and 12CB of the ASIC Act provide: 12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories (1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 12CB. 12CB Unconscionable conduct in connection with financial services (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of financial services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of financial services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. (5) In this section: listed public company has the same meaning as it has in the Income Tax Assessment Act 1997.
2. The provisions of ss 12CA and 12CB have alternative application: see s 12CA(2).
3. The provision of a "financial service" is defined in s 12BAB of the ASIC Act to include dealing in a "financial product". In turn, dealing in a financial product is defined in s 12BAB(7)(b) to include issuing a financial product. The definition of "financial product" in s 12BAA(7)(k) includes "a credit facility (within the meaning of the regulations)". That is a reference to cl 2B of the Australian Securities and Investment Commission Regulations 2001 (Regulations) which broadly defines the expression "credit facility". It is unnecessary to set out that definition. The plaintiffs did not contend that the facility agreement failed to answer the description of a credit facility as defined in cl 2B of the Regulations.
4. Section 12CC provides a number of factors to which the court may have regard for the purposes of s 12CB: 12CC Matters the court may have regard to for the purposes of section 12CB (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; and (b) whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and (e) the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the service recipient was consistent with the supplier's conduct in similar transactions between the supplier and other like service recipients; and (g) if the supplier is a corporation - the requirements of any applicable industry code (see subsection (3)); and (h) the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the service recipient: (i) any intended conduct of the supplier that might affect the interests of the service recipient; and (ii) any risks to the service recipient arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and (j) if there is a contract between the supplier and the service recipient for the supply of the financial services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and (l) the extent to which the supplier and the service recipient acted in good faith. … (3) In this section: applicable industry code, in relation to a corporation, has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010. industry code has the same meaning as it has in subsection 51ACA(1) of the Competition and Consumer Act 2010.
5. The submissions in support of Mrs Bega's claim for relief under the ASIC Act relied upon s 12CB rather than s 12CA. It is appropriate therefore to proceed upon that basis.

Legal principles - unconscionability

1. The meaning of unconscionability in provisions such as s 12CB of the ASIC Act has attracted judicial comment in an attempt to explain the statutory concept of unconscionability. A useful summary highlighting the various views that have been expressed by courts is contained in PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 (Sackville AJA, McColl and Leeming JJA agreeing) (at [99] - [106]): [99] In A-G v World Best Holdings, Spigelman CJ (at [121]) distinguished "what is unconscionable from what is merely unfair or unjust". His Honour suggested, obiter, that even if the concept of unconscionability in s 62B of the RL Act is not confined by equitable doctrine (as the cases suggest): restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. [100] This language has influenced the approach taken in some later decisions: see, for example, Body Bronze International Pty Ltd v Fehcorp Pty Ltd [2011] VSCA 196; 34 VR 536 at [90]-[91], [96], per Macaulay AJA (with whom Harper and Hansen JJA agreed); Violet Homes Loans Pty Ltd v Schmidt [2013] VSCA 56 ; 300 ALR 770, at [58], per curiam; Canon Australia Pty Ltd v Patton [2007] NSWCA 246; 244 ALR 759, at [41]-[43], per Campbell JA (with whom Harrison J agreed). [101] Two comments should be made about Spigelman CJ's observation. First, as Santamaria JA (with whom Neave and Osborn JJA agreed) pointed out in Director v Scully, at [45], explanatory phrases used to elucidate the meaning of a statutory provision cannot substitute for the statutory language. The task of statutory construction must focus on the text of the statute. The text of s 62B includes the criteria in sub-section (3). It is clear enough that a number of these criteria do not necessarily involve dishonesty, sharp practice or conscious wrongdoing by the lessor: see, for example, s 62B(3)(a), (b), (c), (e), (f), (g), (h), (j). [102] A second but related observation is that made by Basten JA in Canon Australia v Patton, a case that was concerned with s 51AC of the TP Act. Basten JA said (at [4]): Whether reference to the range of factors will give rise to some different concept of unconscionability from that established under the general law will then be a matter of statutory construction. However, to treat the word "unconscionable" as having some larger meaning, derived from ordinary language, and then to seek to confine it by such concepts as high moral obloquy is to risk substituting for the statutory term language of no greater precision in an attempt to impose limits without which the court may wander from well-trodden paths without clear criteria or guidance. That approach should not be adopted unless the statute clearly so requires. (Most of this passage was cited with approval in Director v Scully, at [45].) [103] Basten JA's observation has particular force when one appreciates that the expression "moral obloquy" is itself ambiguous. The principal meanings of the word "obloquy" are "the discredit or disgrace resulting from public blame or revilement" (Macquarie Dictionary) or "verbal abuse directed against a person; detraction, calumny, slander" (Oxford English Dictionary). These meanings do not necessarily imply that the discredit or abuse is well-deserved. Perhaps more importantly, they do not necessarily indicate that the "discredit" or "detraction" flows from dishonesty, sharp practice or conscious wrongdoing. The addition of the word "moral" to produce a compound phrase suggests conduct that is worthy of discredit or detraction, if not disgrace. But the compound expression does not necessarily provide any clearer guidance to the resolution of a particular case than the word "unconscionable" itself. [104] Conduct involving dishonesty, sharp practice or conscious wrongdoing is no doubt unconscionable and, equally, is clearly deserving of discredit or detraction. Other less heinous conduct may be more difficult to characterise. For example, the refusal by a large corporation to honour a public (but non-binding) promise made in good faith to a local community by the corporation's previous management may not involve dishonesty or conscious wrongdoing, but might still be regarded as unconscionable or deserving of discredit or detraction. It is doubtful whether substituting a test of "a high level of moral obloquy" for the standard of "unconscionability" assists in determining whether the statutory prohibition has been contravened. [105] Perhaps for these reasons, in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; 15 BPR 29,699, Allsop P (with whom Bathurst CJ and Campbell JA agreed) suggested (at [293]) that Spigelman CJ in A-G v World Best Holdings may have stated a "too stringent" test, although Allsop P left the issue open. His Honour said that: What is required is some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party. In a subsequent case, the Full Federal Court (Allsop CJ, Jacobson and Gordon JJ) said that the word "unconscionability" means "something not done in good conscience" or "conduct against conscience by reference to the norms of [the] society that is in question": Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, at [41]. The formulations in Tonto v Tavares and Lux Distributors have the advantage of adhering closely to the statutory language. [106] The difficulty of imposing a definitive constraint on the meaning of "unconscionability" is illustrated by other comments made by Allsop P in Tonto v Tavares, at [291]: Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 at [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226 at [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301; [2002] FCA 62 at [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the [Contracts Review Act 1980] are relevant: Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923; [2009] NSWCA 206 at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances. (Emphasis added.) (Tonto v Tavares involved ss 12CB and 12CC of Australian Securities and Investments Commission Act 2001 (Cth). The text of ss 12CB and 12CC was borrowed from s 51AC of the TP Act.)
2. In Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 (Paciocco Full Court), Allsop CJ (at [262] made the same point that while moral obloquy has a role to play in the assessment of whether conduct is unconscionable within ss 12CB and 12CC of the ASIC Act, it is not to be used as a substitute for the statutory words. Allsop CJ also referred to the various matters and circumstances which inform the evaluation of conduct for the purposes of determining whether it is unconscionable within ss 12CB and 12CC of the ASIC Act (at [296]): … It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon. (See also Commonwealth Bank of Australia v Kojic and Ors (2016) 249 FCR 421; [2016] FCAFC 186 at [57]-[61] (Allsop CJ); [71]-[72] (Besanko J); and [85]-[88] (Edelman J).
3. In Paciocco and Anor v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; [2016] HCA 28 (Paciocco High Court), Keane J (French CJ and Kiefel J agreeing) said (at [293]) with reference to the factor listed in s 12CC(1)(a) that a mere disparity in bargaining power does not take the matter very far. This is because s 12CB(1) of the ASIC Act did not proscribe the existence of a disparity of bargaining power as opposed to the manner of its exercise. See also Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd and Ors (2003) 214 CLR 51; [2003] HCA 18 at [11] (Gleeson CJ).
4. Gageler J said in Paciocco High Court (at [185]) that the concern of s 12CB(2)(b) of the ASIC Act is not, in its primary operation, with the substantive content of a condition with which a consumer was required to comply but rather with conduct on the part of the supplier as a result of which the consumer was required to comply with that condition.

Decision

1. Mrs Bega's written submissions emphasised in bold the factors mentioned in s 12CC(1)(a), (b), (i) to (l) of the ASIC Act, but again no submissions were advanced with respect to those factors beyond the submissions mentioned above in relation to ss 7 and 9 of the Contracts Review Act and s 77 of the Code.
2. Turning to the specific sub-pars of s 12CC(1) identified by Mrs Bega. That the plaintiffs had a relatively stronger bargaining position can be accepted (sub-par (a)), however, as mentioned, a mere disparity in bargaining power does not take the matter very far: Paciocco High Court at [293].
3. Mrs Bega's reliance on sub-par (b) is misplaced: see the remarks of Gageler J in Paciocco High Court at [185]. Sub-par (b) is not concerned with the substantive content of a condition with which a consumer is required to comply but rather with conduct on the part of the supplier as a result of which the consumer is required to comply with that condition. No conduct of the plaintiffs' beyond reliance upon their legal rights was identified by Mrs Bega.
4. As to sub-par (i), Mrs Bega did not identify any failure by the plaintiffs to disclose to her any intended conduct that might affect her interest. She had received legal advice from Mr Ciappara that if the loan was not repaid in six months the plaintiffs could take her home and sell it and that she would be personally liable for any shortfall in the debt.
5. As to sub-par (j), it can be inferred that the plaintiffs were not willing to negotiate terms and conditions with Mrs Bega, but the terms and conditions were not in themselves unusual, albeit the loan was for a short-term and the interest rates were high. Upon Mrs Bega's failure to comply with the terms of the contract, the plaintiffs have simply sought to enforce their legal rights.
6. It was not suggested that sub-par (k) was relevant here.
7. As to sub-par (l), there is no suggestion that the plaintiffs did not act in good faith. In addition, Mrs Bega had the assistance of independent legal advice. Although advised to obtain financial advice, she chose to proceed without such advice, preferring instead to rely upon the judgement of her husband as to the wisdom of the transaction.
8. This is not a case involving any proven predation on the weak or poor, any real vulnerability requiring protection, or any financial or personal compulsion or pressure to enter into the transaction. If it were necessary to decide, I am not persuaded that the plaintiffs engaged in conduct that, in all the circumstances, was unconscionable within ss 12CB and 12CC of the ASIC Act.

Aidan Bega and AB Veritas

1. If it were necessary to decide, the claim by Aidan Bega and AB Veritas in the first cross-claim for relief under ss 76 and 77 of the Code must fail. First, I have found that Aidan Bega understood the obligations the subject of the guarantees. Second, I have concluded under Issue A.4 below that the claim that the guarantees were procured by misrepresentations by Peter Bega should be rejected.
2. That reasoning also applies insofar as Aidan Bega and AB Veritas pressed their alternative claims for relief under the Contracts Review Act and the ASIC Act or s 21 of the ACL. The business behaviour of the plaintiffs, viewed as a whole, does not warrant the characterisation of unjust or unconscionable.
3. For completeness, it should be noted that no point was taken by the plaintiffs as to the exclusion on the grant of relief to corporations in s 6 of the Contracts Review Act.

Issue A.4 - Whether the guarantee in the facility agreement was procured by misrepresentation?

1. The first cross-claim of Aidan Bega and AB Veritas pleaded that the guarantee in the facility agreement was procured by misrepresentations of Peter Bega as agent for the plaintiffs, and that the guarantee should be set aside in equity. Two representations were pleaded.
2. First that the plaintiffs would not advance any monies under the facility agreement without a written drawdown notice being given by Mrs Bega. Second, that the plaintiffs only needed the facility agreement and mortgage to be in place for six weeks as their loan to STD would be completely repaid from the proceeds of the sales of the remaining units in the Allure Apartments that would settle within that period.
3. Aidan Bega and AB Veritas also pleaded that the guarantee was void, or voidable, or should be set aside on a number of alternative bases: that the guarantee was unconscionable because it was obtained by the plaintiffs through their agent, Peter Bega, making unconscientious use of his superior position and that they were in a position of special disadvantage; that the guarantee was obtained by the plaintiffs by the undue influence of their agent, Peter Bega; that the guarantee was unjust for the purposes of the s 7 of the Contracts Review Act or unconscionable for the purposes of 21 of the ACL, or procured by misleading and deceptive conduct of the plaintiffs contrary to s 18 of the ACL.

Submissions

1. Aidan Bega and AB Veritas submitted that Peter Bega informed Aidan Bega of two matters on 1 April 2015: first, that the plaintiffs wanted to take the Denham Court house as additional security for the balance of the South Townsville loan only until the sale of some further apartments in the Allure development settled in six weeks; and second, that the proposed transaction involved a mortgage over the Denham Court property to secure a facility, but that no monies would be drawn down under the facility.
2. It was submitted that the representations by Peter Bega to Aidan Bega were false and misleading, and that Aidan Bega and AB Veritas relied upon these representations in giving the guarantees.
3. It was further submitted that the misrepresentations by Peter Bega must be taken to have been made on behalf of the plaintiffs, as they entrusted to Peter Bega the task of obtaining further security from the Bega family. It was also submitted that the plaintiffs knew, or ought reasonably to have known upon making proper enquiries, that Aidan Bega had not received independent legal advice.
4. Insofar as reliance was placed on unconscionable conduct, the guarantors' case was put by reference to the principles in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48, and Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3.
5. It was submitted that Aidan Bega reposed trust and confidence in his father on matters of property business development and that the plaintiffs should have understood that Peter Bega might not fully and accurately explain the purport and effect of the proposed transaction to Aidan Bega. It followed, the argument ran, that although the plaintiffs were in a position where they should have recognised the necessity for independent legal advice to be given to Aidan Bega, they took the guarantee in circumstances where they failed to take reasonable steps to ascertain whether an explanation had been given by a competent third party.
6. No additional argument was advanced in support of the alternative claims made in the first cross-claim.
7. The plaintiffs responded that Peter Bega was not their agent and that he was acting for the Bega family entities in respect of the transaction; that Aidan Bega was not subject to any relevant disadvantage by reason of the trust and confidence he reposed in his father; that Aidan Bega had given three guarantees prior to executing the facility agreement, and he knew and understood that he was agreeing to repay $1 million in the event that his mother defaulted. Nor was there any evidence, it was submitted, that Aidan Bega through youth, inexperience or disadvantage was incapable of applying, or failed to apply, his independent scrutiny to the transaction by which the company he then owned obtained seven units in the Allure Apartments.

Legal principles

1. Whilst there is an overlap in the factual matters upon which Aidan Bega and AB Veritas rely in challenging the guarantee, it is necessary to have regard to the discrete matters of law arising from the first cross-claim.

Misrepresentation

1. The legal principles upon which a contract such as a guarantee is voidable for misrepresentation are well-known and do not require explanation.
2. Insofar as Aidan Bega and AB Veritas submitted that the plaintiffs were under a duty to disclose the nature of the transaction the subject of the guarantee, the position was explained by Barwick CJ in Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 at 175 (citations omitted): The transaction between the appellant and the respondent was not of a class calling for the fullest disclosure - it was not uberrimae fidei. But it is settled law that a bank in the position which the respondent occupied in relation to the appellant is only bound to disclose to the intending surety anything which has taken place between the bank and the principal debtor "which was not naturally to be expected", or as it was put by Pollock MR, in Lloyd's Bank Ltd v Harrison (1925) (unreported). cited in Paget's Law of Banking, 7th ed (1966), p 583 "the necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to the particular account which is to be guaranteed".

Unconscionable conduct

1. In Louth v Diprose (1992) 175 CLR 621, Deane J (with whom Dawson, Gaudron and McHugh JJ agreed) observed at 638 that: The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimization.
2. That point was repeated by the High Court in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [18], in the context of emphasising that the invocation of the conscience of equity requires "a scrutiny of the exact relations established between the parties" to determine "the real justice of the case". In Kakavas the High Court said (at [20], [117]-[118], [124] and [161] (citations omitted)): [20] .... equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position. …. [117] The absence of a reasonable equality of bargaining power by reason of the special disability of one party to a transaction, while not decisive, is important given that the concern which engages the principle is to prevent victimisation of the weaker party by the stronger. [118] Essential to the principle stated by both Mason J and Deane J in Amadio is that there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests. It may well be that an unconscientious taking of advantage will not always be manifest in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker; but the abiding rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction. …. [124] It does not accord with that approach to consider the appellant's "special disadvantage" separately, in isolation from the other circumstances of the impugned transactions which bear upon the principle invoked by the appellant. The issue as to special disadvantage must be considered as part of the broader question, which is whether the impugned transactions were procured by Crown's taking advantage of an inability on the appellant's part to make worthwhile decisions in his own interests, which inability was sufficiently evident to Crown's employees to render their conduct exploitative. We will return to this point in discussing the appellant's arguments about constructive notice. …. [161] Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.
3. That "victimisation" is no narrow concept was made clear in Wu v Ling [2016] NSWCA 322, where Leeming JA said (at [14]): Victimisation in this context is no narrow concept. I do not understand those references to the need to identify "victimisation" to qualify the breadth of what was said of the same term in the same context in Bridgewater v Leahy (to which reference was made in Kakavas at [14] and [22]). Indeed, the additional references to "exploitation" in the passage from Kakavas reproduced above tend to confirm the breadth of the notion underlying the principle. In Bridgewater, the minority (Gleeson CJ and Callinan J) framed as "the essence of the appellants' claim" whether the elderly uncle was a "victimised party" (at [35], citing a passage in the reasons of McTiernan J in Blomley v Ryan (1956) 99 CLR 362 at 386). The majority (Gaudron, Gummow and Kirby JJ) explained at [76] that: "It also should be noted that in Hart v O'Connor, an appeal from New Zealand, the Privy Council described unconscionable conduct which provided a basis for equitable relief as 'victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances'." [Original emphasis, citations omitted.]

Decision

1. The premise of the misrepresentation case and also the unconscionable conduct case is that Aidan Bega did not understand the purport and effect of the facility agreement containing the guarantees given by him and his company. I do not accept that premise.
2. Aidan Bega was aged about 30 years at the time of the facility agreement. He described himself in his affidavit as a musician and explained in his evidence-in-chief that he was involved in music production. Nonetheless, he was commercially sophisticated, university-educated, having attained a Bachelor of Commerce from the University of Sydney, and had previously worked as an analyst for a merchant bank, Investec, in respect of property finance deals and development. He was quite familiar with facility agreements of the type entered into by STD with the plaintiffs in June 2013, which he had also guaranteed. So too had he worked in the office of his father's business involving property development when he was younger.
3. Aidan Bega was experienced in giving a guarantee. He had signed three guarantees on earlier occasions. By no later than 2013, he understood what a guarantee was. He was content to sign the earlier guarantees for many millions of dollars.
4. I have found Aidan Bega's affidavit evidence to be unreliable. I do not accept his evidence of what Peter Bega told him about the transaction on 1 April 2015. As indicated, when pressed in cross-examination as to the sum of money he was guaranteeing, Aidan Bega accepted that he was guaranteeing the $1 million facility attached to the mortgage over the Denham Court property, and that the borrower was his mother, not STD. That understanding was inconsistent with his affidavit evidence that the facility agreement was in respect of STD's debt and that the mortgage was securing STD's debt to the plaintiffs.
5. Aidan Bega had no basis for thinking that he could rely on the offset deed to satisfy the shortfall between the purchase price and the third-party finance arranged by Mr Mullins through Arch Finance. He knew that settlement of the purchase could not take place without the $1 million loan from the plaintiffs to his mother, which monies were to be on-lent to him for the purpose of assisting him to complete the purchase.
6. Ultimately, Aidan Bega took the position in his evidence that he didn't need "strict legal advice" with respect to the giving of the guarantees. Plainly, he was content to proceed with giving the guarantees without legal advice, while declaring to the plaintiffs that he had received independent legal advice.
7. That the purchase of the seven units was of benefit to himself and the Bega family as an investment by the family held through AB Veritas was understood by Aidan Bega. He also knew that he personally would benefit in giving the guarantees to the plaintiffs, since completion of the purchase would reduce the debt owed by STD to the plaintiffs (which he and his company had guaranteed), and would also relieve him from the guarantee he had given to STD in respect of the contract for sale dated 20 February 2015.
8. I find that Aidan Bega and AB Veritas gave the guarantees in the facility agreement well understanding that the facility agreement embodied a loan to his mother for $1 million for short term on-lending to him to assist AB Veritas with the purchase of units in the Allure Apartments. I reject the contention that Aidan Bega and his company were induced to give the guarantees by misrepresentations by Peter Bega as to the nature and effect of the transaction.
9. There being no unusual features of the guarantee contained in the facility agreement, there was no duty to disclose to Aidan Bega and AB Veritas any particular features of the guarantee in the present case: Goodwin v National Bank of Australasia Ltd.
10. As to the unconscionability argument, Aidan Bega was not subject to any relevant disability at the time he and his company gave the guarantees. As I have said, he was commercially sophisticated, he understood the nature of a guarantor's obligations, he understood the primary obligations which he and his company were guaranteeing, namely that of his mother in respect of a loan of $1 million from the plaintiffs.
11. Aidan Bega did not display any attributes of a disadvantaged person, let alone someone under any special disadvantage. He was not in a comparable position to the wife who guaranteed her husband's debt in Yerkey v Jones, or the mother who guaranteed her son and daughter-in law's debt in Garcia. He was not a mistaken volunteer. He understood the nature and effect of the transaction he was guaranteeing. And, as I have said, there was a benefit attaching to him and his company in giving the guarantees.
12. Nor was there any element indicating victimisation of Aidan Bega. There was neither active extortion nor passive acceptance of a benefit in unconscionable circumstances: Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66 at [76].
13. The claim by Aidan Bega and AB Veritas to set aside the guarantees given by them in the facility agreement must fail.

Issue A.5 - Whether plaintiffs have an alternative claim against Mrs Bega or AB Veritas for money had and received?

1. In the event that the claim in contract were to fail, the plaintiffs claim in the alternative $1 million as money had and received by Mrs Bega or AB Veritas to the use of the plaintiffs. The claim is for money paid by the plaintiffs where consideration has failed. That is one of the recognised examples of the common indebitatus account for money had and received by the defendant for the use of the plaintiff: Roxborough & Ors v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516; [2001] HCA 69 (Roxborough).
2. It is not necessary to address this alternative claim for restitution in light of the conclusions reached above. Nonetheless, I will briefly record my views. The following analysis proceeds on the basis that a restitutionary remedy is not available in the face of a governing contractual regime: Trimis v Mina [1999] NSWCA 140 at [54] (Mason P).

Mrs Bega

1. The restitutionary claim is not well pleaded. In the statement of claim the plaintiffs plead that there has been a complete failure by Mrs Bega to perform her obligations under the facility agreement such that there has been a total failure of consideration. Accordingly, it was contended that the sum of $1 million constitutes money had and received by Mrs Bega to the use of the plaintiffs. But that is not so. A breach of the borrower's obligation to repay is a breach of contract. The plaintiffs would have a liquidated claim against Mrs Bega.
2. Assuming the plaintiffs have no claim in contract against Mrs Bega because she did not receive any monies under the facility agreement, there would be no basis for any restitutionary claim against Mrs Bega for money had and received. So much was conceded by counsel for the plaintiffs in closing argument (T517, lines 39-46). That is, if (contrary to my conclusion), there has been no receipt by Mrs Bega of the sum in question, it cannot be said that she has been unjustly enriched.

AB Veritas

1. The plaintiffs also pleaded that the conduct of AB Veritas in failing or refusing to perform its obligations as guarantor resulted in a total failure of consideration, and that the sum of $1 million is money had and received by AB Veritas to the use of the plaintiffs. Again, that is not so. Non-performance of the terms of the guarantee also amounts to a breach of contract.
2. In closing submissions the plaintiffs contended that AB Veritas received the benefit of the sum of $1 million which was used on settlement of its purchase of seven units; that AB Veritas knew, through its director Aidan Bega, that the sum of $1 million was being provided by the plaintiffs; and that such knowledge arose because Aidan Bega guaranteed the facility agreement pursuant to which that advance was to be made. The plaintiffs submitted that they only agreed to release their outgoing mortgages because this further loan was to be made and that AB Veritas has been unjustly enriched at the expense of the plaintiffs as the ultimate recipient of the $1 million. Accordingly, it would be unconscionable for AB Veritas to retain the benefit of that sum reflected in the units in the circumstances of this case.
3. In Roxborough, the High Court examined the nature of the common indebitatus count for money had and received by the defendant to the use of the plaintiff. Gleeson CJ, Gaudron and Hayne JJ explained the meaning of the term "failure of consideration" in the restitutionary context at [16]: Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds (1985) 160 CLR 583 at 619-620, show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared (see Birks, An Introduction to the Law of Restitution (1985), p 223). Deane J, referring to "the general equitable notions which find expression in the common law count", gave as an example "a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it" (Muschinski v Dodds). In the case of money paid pursuant to a contract, it would involve too narrow a view of those "general equitable notions" to limit failure of consideration to failure of contractual performance.
4. Similarly, Gummow J remarked (at [101]) that the term "failure of consideration" is used in the law to mean several things, referring to the remarks of Stoljer in "The Doctrine of Failure of Consideration" (1959) 75 Law Quarterly Review 53 at 53. After observing (at [104]) that Roxborough neither concerned a failure by Rothmans to perform any promise it made nor was there any question of repudiation by Rothmans of its contractual obligations, Gummow J accepted that the question for determination was that stated by Deane J in Muschinski v Dodds (1985) 160 CLR 583, namely, is it unconscionable for Rothmans to enjoy the payments in respect of the tobacco license fee in circumstances in which it was not specifically intended or specially provided that Rothmans should enjoy them? Gummow J answered that question in the affirmative, as did Gleeson CJ, Gaudron, Hayne and Callinan JJ (Kirby J dissenting). Gummow J explained at [104]: Here, "failure of consideration" identifies the failure to sustain itself of the state of affairs contemplated as a basis for the payments the appellants seek to recover.
5. In the present case, the state of affairs contemplated as the basis for the payment of $1 million on 2 April 2015 was that this sum would be secured by the mortgage over the Denham Court property and Mrs Bega's liability would be supported by a guarantee given by, among others, AB Veritas.
6. If (contrary to my conclusion), Mrs Bega did not receive the $1 million advance under the facility agreement, with the consequence that AB Veritas has no liability to the plaintiffs under the facility agreement qua guarantor, the plaintiffs nonetheless contributed the benefit of that money to the acquisition by AB Veritas of seven units in the Allure Apartments, in circumstances in which it was not specifically intended or specifically provided that AB Veritas should enjoy such benefit. It would be unconscionable for AB Veritas to retain the benefit of that money. In those assumed circumstances, the plaintiffs would be entitled to restitution of the sum of $1 million from AB Veritas plus interest thereon.
7. Interest would be payable on this sum from 2 April 2015 calculated, not at the rates provided for under the facility agreement (which, on the present assumption, has no application), but at the rates provided for interest up to judgment under the Civil Procedure Act 2005 (NSW), s 100.

Issue A.6 - Whether plaintiffs entitled to a constructive trust or equitable charge or lien over the Allure Apartments?

1. In the event that the mortgage or facility agreement are unenforceable, the plaintiffs make a further alternative claim against AB Veritas that the remaining five units in the Allure Apartments are subject to either an equitable charge or lien, or constructive trust to the value of $1 million plus interest. The plaintiffs contended that one of these remedies is available to recognise beneficial interests in property arising from contributions made by the plaintiffs to that property.
2. The particulars given of the constructive trust claim acknowledged that it was not alleged that AB Veritas received any direct monetary benefit from the plaintiffs as a result of the plaintiffs' conduct in advancing the sum of $1 million to Mrs Bega pursuant to the facility agreement. The benefit obtained by AB Veritas from the plaintiffs' conduct was said to be the sum advanced to AB Veritas by Mrs Bega after the plaintiffs had advanced that sum to Mrs Bega pursuant to the facility agreement.
3. AB Veritas submitted that the plaintiffs made no contribution to the purchase of the units by AB Veritas. The argument was put that the monies provided by the plaintiffs by the bank cheque "round-robin", was provided under a common intention that they were a conditional gift which required AB Veritas to pay the monies to STD. It was further submitted that any consideration provided by the provision of such monies to AB Veritas was purely illusory as the monies were returned to the plaintiffs under the cheque round-robin as was intended by the parties.
4. Again it is not necessary to address this alternative claim for proprietary relief in light of the conclusions reached above. Nonetheless, I will record my views.

Decision

1. Although the claim for equitable relief against AB Veritas was also not well pleaded, no objection was taken by AB Veritas to the way in which the claim was advanced in the plaintiffs' written submissions.
2. At a factual level, it can be accepted that the plaintiffs provided $1 million (as part of the bank cheque for $1,395,000) towards the purchase price owing by AB Veritas to STD on the settlement of the sale on 2 April 2015, and that sum was included in the larger amount of $2,845,000 paid by STD to the plaintiffs to obtain a discharge of their outgoing mortgages over the seven units sold by STD to AB Veritas.
3. That the plaintiffs were to receive two bank cheques on settlement from AB Veritas in favour of Lauvan - for $1,395,000 and $1,450,000 - was noted on the settlement statement prepared by STD's solicitors, which Mr Delaney agreed to as the solicitor acting for AB Veritas. Without the bank cheque for $1,395,000 (including the sum of $1 million) settlement of the sale could not have occurred.
4. The plaintiffs sought to draw an analogy to cases involving the principles of proprietary estoppel based on acquiescence or encouragement, such as Plimmer v Mayor of Wellington (1884) 9 App Cas 699 at 714. The plaintiffs referred to Chalmers v Pardoe [1963] 1 WLR 677 at 681 - 682 as authority for the proposition that: where an owner of land has invited or expressly encouraged another to expend money upon part of his land upon the face of an assurance or promise that that part of the land will be made over to the person so expending his money, a court of equity will prima facie require the owner by appropriate conveyance to fulfil his obligation; and when, for example for reasons of title, no such conveyance can effectively be made, a court of equity may declare that the person who has expended the money is entitled to an equitable charge or lien for the amount so expended.
5. There are two answers to the claim for a constructive trust based on principles of proprietary estoppel. First, no claim of proprietary estoppel was pleaded. Second, and in any event, this is not a case in which the plaintiffs were invited or encouraged by AB Veritas to provide money towards the purchase price on the faith of an assurance or promise that part of the Allure Apartments would be made over to the plaintiffs. The only promise given by AB Veritas was the provision of the guarantee contained in the facility agreement.
6. Next, the plaintiffs sought a constructive trust on the basis that this is a remedy which equity imposes regardless of actual or presumed intention in the agreement of the parties, to preclude the retention of beneficial ownership of property to the extent that such retention would be contrary to equitable principles. Reference was made to Baumgartner v Baumgartner (1987) 164 CLR 137 at 146-147; [1987] HCA 59. The plaintiffs also claimed an equitable lien by analogy with the principles in Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78.
7. The plaintiffs submitted that an equitable charge or lien over the remaining five units in the Allure Apartments is a remedial device which would protect the plaintiffs against the inequitable loss that will flow from an inability to recover the $1 million used by AB Veritas to acquire the units. It was submitted that the plaintiffs contributed that sum towards the purchase of the units under an "endeavour" which would require repayment, and that if the facility agreement cannot be enforced, such that the endeavour fails, then the contribution has been made in circumstances in which it was not intended that AB Veritas should enjoy that benefit, thus rendering it unconscionable for AB Veritas to retain it.
8. As to the imposition of a constructive trust, the relevant principle is stated by Deane J in Muschinski v Dodds (at 620) as follows: The circumstances giving rise to the operation of the principle were broadly identified by Lord Cairns LC, speaking for the Court of Appeal in Chancery, in Atwood v Maude, supra, at p 375 where "the case is one in which, using the words of Lord Cottenham in Hirst v Tolson (1850) 2 Mac and G 134 ; 42 ER 52 , a payment has been made by anticipation of something afterwards to be enjoyed [and] where … circumstances arise so that future enjoyment is denied". Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do (cf Atwood v Maude at pp 374-5 and per Jessel MR, Lyon v Tweddell (1881) 17 Ch D 529 at 531 ).
9. The remedies to which the principle in Muschinski v Dodds gives rise, are imposed in order to satisfy the demands of justice and good conscience. However, Deane J warned in Muschinski v Dodds (at 621) against invoking unconscionability in an unprincipled manner, merely by reference to what is fair and just, as: Notions of what is fair and just are relevant but only in the confined context of determining whether conduct should, by reference to legitimate processes of legal reasoning, be characterised as unconscionable for the purposes of a specific principle of equity whose rationale and operation is to prevent wrongful and undue advantage being taken by one party of a benefit derived at the expense of the other party in the - special circumstances of the unforeseen and premature collapse of a joint relationship or endeavour.
10. Earlier, in Muschinski v Dodds (at 615-6), Deane J emphasised that " … there is no place in the law of this country for the notion of 'a constructive trust of a new model' which, 'by whatever name it is described, ... is ... imposed by law whenever justice and good conscience' (in the sense of fairness' or what 'was fair') 'require it' ... Under the law of this country as, ... proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion ..., subjective views about which party 'ought to win' and 'the formless void of individual moral opinion."
11. Apart from the flexibility of relief afforded by a remedial constructive trust in appropriate circumstances, it has been recognised that the concept of unconscionability allows for the relief to be moulded so that it affords no more than the minimum equity necessary in the circumstances: Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 115-116; [1995] HCA 14.
12. In the present case, assuming (contrary to my conclusion) that there was no receipt by Mrs Bega of the advance of $1 million, it can be accepted that the plaintiffs provided a substantial part of the purchase price to AB Veritas on settlement of its purchase of units in the Allure Apartments. The plaintiffs did not intend to make a gift to AB Veritas, let alone a conditional gift as submitted by AB Veritas. The plaintiffs intended to advance money to Mrs Bega for the purpose of short-term on-lending to family members, relevantly, to assist her son with the purchase of the units by AB Veritas.
13. However, I do not accept the plaintiffs' submission that the relationship between the plaintiffs and AB Veritas should be characterised as a "joint relationship or endeavour" with respect to the acquisition by AB Veritas of the units in the Allure Apartments. Their relationship was that of lender (to Mrs Bega) and guarantor. If it be assumed that no monies were advanced by the plaintiffs to Mrs Bega under the facility agreement, it would not be the case that the relationship has failed; rather, AB Veritas would have no liability to the plaintiffs under the guarantee contained in the facility agreement. I note that there is no claim in restitution based on mistake.
14. If it be assumed that the facility agreement was set aside on one of the grounds relied upon by the defendants, then although the relationship between the plaintiffs and AB Veritas would have failed, what the plaintiffs anticipated enjoying by reason of their payment was relevantly a guarantee from AB Veritas, not any part of the units acquired by AB Veritas.
15. Upon that hypothesis, the question that would arise is whether the assertion by AB Veritas that the units in the Allure Apartments, the acquisition of which were financed in part through the plaintiffs' funds, are its property and solely its property held beneficially to the exclusion of any interest of the plaintiffs, amounts to unconscionable conduct sufficient to attract the intervention of equity? And, if so, what is the relevant equity that would attract the grant of proprietary relief in circumstances where the plaintiffs never intended to acquire any interest in the Allure Apartments: see Baumgartner v Baumgartner (at 149).
16. The plaintiffs' submissions did not identify any relevant equity which might support the grant of proprietary relief. If it were necessary to decide, I am not persuaded that the plaintiffs have established any basis for the grant of proprietary relief.

No reliance on subrogation

1. One further matter should be mentioned. No claim has made by the plaintiffs for subrogation to the vendor's (STD) unpaid lien over the Allure Apartments: Hewett v Court (1983) 149 CLR 639; [1983] HCA 7. The plaintiffs did not seek to rely upon the line of authority in England that if money is advanced to pay a vendor without any agreement or discussion regarding security, the third party paying the money may be subrogated to the unpaid vendor's lien if there are no circumstances which show that a lien should not arise: Boodle Hatfield & Co v British Films Ltd [1986] PCC 176 (Nicholls J). It should be observed that this decision has not been followed in Australia: Cid v Cortes (1987) 4 BPR 97,276 (Young J).
2. Nor did the plaintiffs claim to be subrogated to the security which was discharged by the application of the monies paid by AB Veritas to STD (which included the plaintiffs' $1 million advance to Mrs Bega), being the outgoing mortgages held by the plaintiffs.

Issue A.7 - Whether any default under the facility agreement and mortgage?

Facility agreement

1. With respect to the facility agreement, the plaintiffs rely upon cl 11.1(l) which provides that an event of default arises if "any event occurs or exists which, in the reasonable opinion of the Financier has or is likely to have a Material Adverse Effect".
2. The term "Material Adverse Effect" is defined in cl 11.1 as: any "effect, event or matter … which is materially adverse to: … (b) the ability of the Borrower to perform any of its material obligations under any Finance Document; or (c) the validity or enforceability of the whole or any material part of any Finance Document …".
3. The plaintiffs contend that Mrs Bega defaulted under the facility agreement by claiming in her solicitor's letter dated 25 June 2015 that the mortgage and facility agreement was void, voidable or unenforceable.
4. In her amended defence (par 24), Mrs Bega admitted that she caused a letter to be sent by Mr Ciappara to the plaintiffs' solicitor on 25 June 2015 claiming that the mortgage and facility agreement were void, but that it did not admit any event of default by her. The letter asserted that the payment of the advance of $1 million was not authorised by Mrs Bega and was unlawful and constituted a fundamental breach of the facility agreement. The letter also denied any liability of Mrs Bega to a fully drawn down facility and demanded delivery of the certificate of title to the Denham Court property, together with a duly executed discharge of mortgage and a written acknowledgement of no indebtedness.
5. In closing submissions on behalf of Mrs Bega, it was not disputed that she had defaulted under the facility agreement (or the mortgage). Her position was that she was not liable to the plaintiffs because there had not been any drawdown under the facility agreement, and thus there was no liability for her to repay any sums. That contention has already been rejected.
6. The guarantors, Aidan Bega and AB Veritas, raised the issue in their pleadings and submissions of whether there had been a default by Mrs Bega under the facility agreement. They denied that Mrs Bega's solicitor's letter of 25 June 2015 claimed that the mortgage and facility agreement were void, voidable or unenforceable. They also denied that there was an event of default under cl 11.1(l) of the facility agreement.
7. The plaintiffs contended that the assertions by Mrs Bega in the 25 June 2015 letter were, in the plaintiffs' opinion, materially adverse to Mrs Bega's ability to perform her obligations under the facility agreement, relevantly, to repay the loan, and to the validity or enforceability of that agreement. It was submitted that the plaintiffs plainly held that opinion because their very next action was to issue a default notice on 2 July 2015 identifying the 25 June 2015 letter as constituting an event of default. It was further submitted that the plaintiffs' opinion was reasonable, given the matters asserted and demanded in Mrs Bega's solicitor's letter.
8. The plaintiffs acknowledged that Mrs Bega did not, in express terms, assert that the facility agreement was voidable or unenforceable, but submitted that that was the effect of the letter. I agree. The substance of the contentions in Mrs Bega's letter was that the facility agreement was void, voidable or unenforceable because it had been breached by the plaintiffs and was unlawful and could not be enforced with respect to the alleged loan of $1 million. Further, the demand by Mrs Bega for return of the title deed and a discharge of mortgage amounted to a claim that the mortgage was unenforceable. In my view, the plaintiffs established an event of default under cl 11.1(l) of the facility agreement.
9. The consequences of an event of default are specified in cl 11.2 of the facility agreement. Relevantly, cl 11.2(a) provided that, except in relation to an insolvency event, the financier will allow the borrower 10 business days to rectify an event of default. Clause 11.2(b) provided that if an event of default occurs and is subsisting, the financier will, by notice to the borrower, do any or all of the following: (i) declare that the commitment of the Financier to provide a Facility is cancelled; (ii) declare that the Money Owing is immediately due and payable: or (iii) enforce and exercise any of its rights under any Security.
10. "Security" is defined to include the mortgage over the Denham Court property: cl 1.1.
11. The plaintiffs contended that the default by Mrs Bega was not rectified within 10 business days of the default notice being given to Mrs Bega on 2 July 2015. That may be accepted.
12. By letter of demand dated 22 July 2015, the plaintiffs also demanded payment by Mrs Bega of the total money owing to them including interest up to 21 July 2015, that being $1,030,136.99. Mrs Bega failed to comply with that demand.
13. By letters of demand dated 31 July 2015, the plaintiffs then demanded payment by the guarantors, relevantly Aidan Bega, AB Veritas and STD, of the sum of $1,030,136.99. They each failed to comply with those demands.
14. I reject the contentions of Aidan Bega and AB Veritas that there was no default by Mrs Bega under the facility agreement or default by them qua guarantor.

Mortgage

1. With respect to the mortgage, the plaintiffs rely upon the events of default specified in cl 8 of the memorandum of common provisions to the mortgage, in particular, cl 8(d) and (j) which provide [emphasis added]: Each of the following is an event of default: … (d) (void document) a Transaction Document is void, voidable or otherwise unenforceable by the Mortgagee or is claimed to be so by any Transaction Party; … (j) (Material Adverse Effect) an event or series of events whether related or not, including any material diverse change in the property or financial condition of any Transaction Party, occurs which has or is likely to have a Material Adverse Effect; …
2. It is common ground that Mrs Bega was a "Transaction Party", being the mortgagor. The definition of "Transaction Document" included, relevantly, "any other document or agreement under which Secured Money is or may become payable at any time". Here, the "Secured Money" was payable under the facility agreement, which itself answered the description of a "Transaction Document".
3. The term "Material Adverse Effect" is defined to include a material adverse effect upon "the effectiveness, priority or enforceability of any Transaction Document".
4. Again, the plaintiffs rely upon the assertions by Mrs Bega in the 25 June 2015 letter as constituting an event of default under the mortgage. For the reasons given above, I accept that there has been a breach of cll 8(d) and (j). Accordingly, the plaintiffs were entitled to demand repayment of the Secured Money, as provided in cl 9.2 of the memorandum. It is not in dispute that the plaintiffs made a demand on 22 July 2015 and that no repayment has been made by Mrs Bega.
5. I find that Mrs Bega is liable to repay the plaintiffs the advance of $1 million plus interest thereon calculated at the rates provided under the facility agreement. Interest is payable at the rate of 20% per annum from 2 April 2015 until 22 July 2015 (the date of the letter of demand) and thereafter at the higher rate of 30 percent per annum until the date of judgment. As the plaintiffs' evidence does not deal with this calculation, directions will be given for the parties to bring in agreed short minutes of order in relation to the calculation of interest which will be awarded up to the date of judgment.
6. I also find that the plaintiffs are entitled to enforce the mortgage and take possession of the Denham Court property. Since there is no evidence of service of a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) relating to the exercise of the power of sale, it is appropriate to defer the issue of a writ of possession to enforce the judgment for possession for a period of eight weeks.

Claim under the guarantee

1. The evidence establishes that the plaintiffs made a demand on each of the guarantors on 31 July 2015 and that no payment has been made in consequence of that demand. Since I have concluded that Aidan Bega and AB Veritas are bound by the guarantee given in the facility agreement, the plaintiffs are entitled to judgment against each of the guarantors in the sum of $1 million plus interest thereon in accordance with the terms of the facility agreement as indicated above.
2. The direction to the parties to bring in agreed short minutes of order in relation to the calculation of interest up to judgment extends to Aidan Bega and AB Veritas.

B: ISSUES BETWEEN MRS BEGA AND MR CIAPPARA

1. By the second cross-claim brought several weeks before the hearing, Mrs Bega makes two claims against Mr Ciappara.
2. First, she sought damages for alleged breach of Mr Ciappara's duty of care to Mrs Bega either in contract or in tort on the basis that he was negligent in the advice he gave to Mrs Bega in relation to the transaction, either because he failed to advise her about the signing of the mortgage on 1 April 2015 or, alternatively, that the advice given to her in relation to signing the mortgage was inadequate.
3. Second, she sought equitable compensation for alleged breach of Mr Ciappara's fiduciary duty to avoid a conflict with the duties owed to Mrs Bega as his client. It was contended that Mr Ciappara had a material personal interest in the transaction on which he was advising and failed to disclose that interest to Mrs Bega.
4. The issues raised by Mrs Bega's cross-claim against Mr Ciappara may be stated as follows: 1. Was Mr Ciappara's conduct on 1 April 2015 and 2 April 2015 negligent? 2. Was there a conflict of between the interests of Mr Ciappara's interest and Mrs Bega's interests to whom he owed his duty and, if so, was this a breach of his fiduciary duty to Mrs Bega? 3. Causation. 4. Quantum of loss.

ISSUE B.1: Was Mr Ciappara negligent?

1. It is necessary first to outline the duties owed by a solicitor to the client when advising on a loan or mortgage transaction.

Legal principles - solicitor's duty to advise

1. A solicitor's duty to his or her client arises in both contract and tort. The terms of the retainer will usually set out the scope of the duty with respect to the latter: Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 at [16] (French CJ, Kiefel and Keane JJ), citing Hawkins v Clayton (1988) 164 CLR 539 at 544-545; [1988] HCA 15.
2. It is uncontroversial that a solicitor must ensure that the client understands the documents he or she is to execute and the consequences of executing them, especially in relation to unusual provisions: Fox v Everingham (1983) 50 ALR 337 at 341-2; Henderson v Amadio (No 1) (1995) 140 ALR 391 at 518-9.
3. That a matter might fall beyond the ambit of the retainer does not necessarily militate against the existence of a duty owed by a solicitor to act in respect of it, though whether any such responsibility is enlivened will always depend upon the circumstances of the case: Provident Capital Ltd v Papa at [2] (Allsop P); Dominic v Riz [2009] NSWCA 216 at [89] and [91] (Allsop P). It is therefore unwise to be in any way dogmatic in general terms about what needs to be done in fulfilment of the retainer: Provident Capital Ltd v Papa at [2].
4. Solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act: Provident Capital at [75] (Macfarlan JA), citing Polkinghorne v Holland (1934) 51 CLR 143 at 158; [1934] HCA 28, and Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418. However, depending on the circumstances known to the solicitor, the performance of the retainer may require more than an explanation of the legal effect of documents, but also the obvious practical implications of the client's entry into the transaction the subject of advice: Provident Capital Ltd v Papa at [75], [80] (Macfarlan JA).
5. Thus, it is necessary to consider what material facts were known to the solicitor when the impugned conduct occurred in order to determine precisely the extent of the obligations attracted by his or her discharge of the retainer: Provident Capital Ltd v Papa at [68] and [78] (Macfarlan JA).
6. With respect to a retainer in relation to a mortgage transaction (whether certified or not), the provision of independent legal advice is not a mere formality and should involve proper and adequate advice about the consequences of entering into the contract. If, during the execution of a retainer, the solicitor is put on notice that the client's interests are endangered unless further steps are carried out, a duty may arise to bring attention to that aspect of concern. The amount of emphasis that ought to be placed on any apparent risk will depend upon the circumstances (e.g. loyalty of blood or love), and may need to be expressed "with clarity and force" or "in strong terms": Provident Capital Ltd v Papa at [2] (Allsop P) and [80] (Macfarlan JA); David v David [2009] NSWCA 8; (2009) Aust Torts Rep 91-993 at [76] (Allsop P)

Application of principles to the present case

1. It is plain from Peter Bega's email to Mr Ciappara on 31 March 2015 and the subsequent telephone conversation between Mr Ciappara and Mrs Bega later that evening, that the retainer was to advise Mrs Bega in relation to the proposed transaction involving a loan and mortgage.
2. Turning to the particulars of negligence, it is asserted by Mrs Bega that Mr Ciappara: 1. failed to advise her of the terms of the mortgage. 2. failed to advise her not to sign the mortgage in the absence of the facility agreement. 3. failed to advise her that the mortgage gave rise to independent obligations that were enforceable against her in the absence of the facility agreement being executed. 4. failed to advise her that she would not benefit from signing the mortgage and that she should not sign it. 5. failed to advise her that he was not an independent legal advisor because of his interest in the Allure Apartments. 6. failed to advise her that if the Aidan Bega and AB Veritas failed to repay the funds that were to be advanced to them that she would be responsible for repaying any funds advanced pursuant to the mortgage. 7. failed to advise her that there was a conflict between her interests and interests of Aidan Bega and Peter Bega as a result of signing the mortgage.
3. Particular (a) is not established. I have found that Mr Ciappara did advise Mrs Bega of the terms of the mortgage. That advice was given on 1 April 2015. It was repeated on 2 April 2015 with an explanation of the facility agreement, which was secured by the mortgage. The giving of that advice is supported by the objective documentary evidence of Mr Ciappara's file notes.
4. The premise of particular (b) is incorrect. Mrs Bega did not sign the mortgage on 1 April 2015 not understanding that she would also need to sign the facility agreement. Mr Ciappara explained to Mrs Bega on the morning of 1 April 2015 that he did not have a copy of the facility agreement that the plaintiffs had sent to Mr Mullins. Before Mrs Bega signed the mortgage, Mr Ciappara told her that he would contact Mr Mullins to see what was happening with the facility agreement. Mr Ciappara protected Mrs Bega's interests by holding onto the original signed mortgage until he had advised her in relation to the facility agreement, which occurred the following day.
5. The premise of particular (c) is also incorrect. The mortgage was not binding on Mrs Bega at any time prior to her signing the facility agreement. The mortgage did not give rise to any binding obligations on Mrs Bega until it was provided to the plaintiffs together with the signed facility agreement on 2 April 2015.
6. Particular (d) assumes that the scope of the retainer extended to providing advice on the wisdom of the transaction. I do not agree. Mrs Bega's intention as expressed to Mr Ciappara was to obtain a loan for $1 million to assist her son Aidan Bega with the purchase of an investment unit. That intention was consistent with the stated purpose of the loan in Recital A to the facility agreement. Mr Ciappara advised Mrs Bega of the risks (both personal and to her home) that she faced in the event of her default in repaying the loan and interest. Mrs Bega's submissions did not identify any matter which put Mr Ciappara on notice that Mrs Bega's interests were endangered unless further steps were carried out. In any event, Mr Ciappara made clear to Mrs Bega that he was not providing financial advice and that she should see an accountant. Mrs Bega did not pursue that course. In the circumstances, the discharge of Mr Ciappara's retainer did not require him to advise Mrs Bega of the wisdom of the transaction.
7. The premise of particular (e) is that Mr Ciappara was not an independent legal adviser. The question of Mr Ciappara's independence is subsumed within the allegation that he had a conflict between his own interests and Mrs Bega's interests to whom he owed his duty, because his firm, through its service company, had an interest in two units in the Allure Apartments. For the reasons given below under Issue B.2, I have concluded that there was no relevant conflict of interest, nor did Mr Ciappara act in such a way that preferred his own interests to those of Mrs Bega as his client.
8. Particular (f) is not established. Mr Ciappara explained to Mrs Bega that she was personally responsible for repaying the loan of $1 million within six months with interest at 20% per annum, being $104,000, and that if the loan was not repaid within six months she would be in default under the facility agreement and the lender could take action against her to recover the $1 million, including taking possession of her home at Denham Court and selling her home. He also explained to her the default rate of interest at 30% per annum and that, in addition to taking possession and selling her home, the lender could sue her personally for any outstanding amounts, including interest and charges payable under the facility agreement.
9. The premise of particular (g) is that there was a conflict between the interests of Mrs Bega and those of her son and husband. That has not been established. The evidence is that Mrs Bega and Aidan Bega viewed the Allure Apartments as property held for the benefit of the Bega family. In addition, Mrs Bega knew the nature and purpose of the transaction was to assist her son to acquire an investment unit. She was willing to give security over property in her name to assist another family member obtain property which was for the benefit of the Bega family, including herself. Mrs Bega saw her interests aligned with those of her husband and the Bega family, including her son Aidan, who had guaranteed her obligations under the facility agreement. It was not suggested that her view at that time was mistaken.
10. Nor has it been established by expert evidence or otherwise that a reasonable solicitor in the position of Mr Ciappara would have considered that there was a conflict between Mrs Bega's interests and the interests of her husband and son arising from her signing the mortgage and would have given that advice to her.
11. For these reasons, Mrs Bega's claim for damages against Mr Ciappara based on a breach of duty to exercise reasonable care in providing legal advice to her in respect of the proposed transaction must fail.

ISSUE B.2: Whether Mr Ciappara breached his fiduciary duty to Mrs Bega?

1. Mrs Bega's case, as particularised, is that Mr Ciappara had a material personal interest in the transaction on which he was advising because Causidicus Fessus owned two units in the Allure Apartments. As indicated, Mr Ciappara was a director of that company. His wife held 50% of the shares in the company and the other 50% was held by Mr Sarvaas' wife.

Legal principles - fiduciary duties

1. As a general proposition, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship (the no profit rule) and not to be in a position of conflict (the no conflict rule). If either of these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach: Breen v Williams (1996) 186 CLR 71 at 93-94 (Dawson and Toohey JJ) at 113 (Gaudron and McHugh JJ); [1996] HCA 57; Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165 at [74] and [78]; Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [74] (McHugh, Gummow, Hayne and Callinan JJ); Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [31]-[32] (French CJ and Keane J) and [56] (Hayne and Crennan JJ).
2. It is not in dispute that Mr Ciappara owed these two fiduciary duties to Mrs Bega. There is no suggestion that Mr Ciappara obtained any unauthorised benefit or profit; Mrs Bega's claim is for losses arising from the alleged breach of the no conflict rule.
3. The no conflict rule is directed to "a real sensible possibility of a conflict"; it is not enough to identify "some conceivable possibility" in events not contemplated which might result in a conflict: Boardman v Phipps [1967] 2 AC 46 at 124 (Lord Upjohn), cited with approval by the Privy Council in Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 at 400G and in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103; [1984] HCA 64 (Mason J). See also Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1; [1999] NSWCA 408 at [425].
4. More recently, the High Court described the conflict rule as encompassing "a conflict or a real and substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed. The rule also applies where the alleged conflict is between conflicting duties: Pilmer v Duke Group Limited (in liq) at [78].
5. Assuming a conflict of interest and duty, the orthodox view, which I accept, is that "there is no duty to disclose a conflict and when judges refer to a duty to disclose in this context it is no more than a shorthand way of referring to the defence of fully informed consent by the principal": Blackmagic Design Pty Ltd v Overliese and Ors (2011) 191 FCR 1; [2011] FCAFC 24 (Blackmagic Design) at [105]. On this view, disclosure of a conflict by the fiduciary is simply a means of avoiding a breach, not a duty: Blackmagic Design at [105].
6. The disclosure required is all material information of which the fiduciary "is aware or which he has deliberately refrained from acquiring": BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372 at 378. In BLB Corporation v Jacobsen the High Court emphasised (at 378) that the (so-called) duty of disclosure "does not extend to matters of which the fiduciary was unaware notwithstanding that prudent inquiry would reveal their existence".

Decision

1. In order to succeed in her claim for equitable compensation against the Mr Ciappara for losses suffered as a result of her entering into the facility agreement and mortgage, Mrs Bega must first establish that Mr Ciappara acted in a way that gave rise to a conflict of interest in the sense explained above: Blackmagic Design at [100].
2. Mr Ciappara submitted that the interest of Causidicus Fessus in two units in the Allure Apartments created no relevant conflict, nor did it indicate that he lacked independence. I accept that submission.
3. First, looking at the relevant facts and circumstances of this case it is apparent that, at the time of his retainer, Mr Ciappara was unaware that the proposed commercial investment opportunity to be undertaken relevantly by Aidan Bega concerned the purchase of units in the Allure Apartments. Indeed, counsel for Mrs Bega expressly put to Mr Ciappara the proposition, with which he agreed, that he did not discuss with Mrs Bega on 1 or 2 April 2015 where the units were to be purchased (by Aidan Bega) (T464, lines 16-18). Nor was there any evidence that Mr Ciappara refrained from acquiring information concerning the details of the proposed commercial investment by Aidan Bega, let alone that he deliberately refrained from doing so.
4. Second, that the proposed commercial investment by Aidan Bega involved the purchase of units in the Allure Apartments and that the investment would assist in reducing the debt owed by STD to the plaintiffs were events not contemplated by Mr Ciappara, let alone contemplated as real sensible possibilities by a reasonable person in his position with his knowledge. There cannot be the possibility of a conflict with respect to events not contemplated as "a real sensible possibility" or "a real and substantial possibility". That is consistent with the requirement that the disclosure of the conflict required to obtain the fully informed consent of the principal, is all material information of which the fiduciary "is aware or which he has deliberately refrained from acquiring": BLB Corporation v Jacobsen.
5. Third, even if (contrary to my findings) Mr Ciappara knew that Aidan Bega's proposed investment was in the Allure Apartments, that would still be an insufficient basis upon which to conclude the existence of a conflict or possible conflict of interest. Mr Ciappara did not know that the proposed transaction in April 2015 would assist STD in paying down its debt in respect of the Allure Apartments development.
6. Nor did Mr Ciappara have any reason to suspect that the Allure Apartments were at any financial risk. The only evidence to the contrary is that of Peter Bega who said in cross-examination that Mr Ciappara knew about the threat to the viability of the Allure Apartments project (T403, lines 33-43). I reject that evidence of Peter Bega. It was self-serving and highly improbable. Peter Bega had no interest in informing Mr Ciappara of that matter. His interest was to propose the investment in Allure Apartments by Causidicus Fessus in a positive light not a negative one, particularly in circumstances where STD was attempting to dispose of units to friends and associates, including another unit to Causidicus Fessus in February 2015.
7. Mrs Bega's submissions did not address why a reasonable person in Mr Ciappara's position would have contemplated that there was a real or substantial possibility of conflict between Mr Ciappara's personal interests as a director of a service company (owned by his wife, as to 50 per cent) which owned two units in the Allure Apartments and the interests of Mrs Bega to whom he owed his duty. This is not a case in which it was suggested that Mr Ciappara had preferred his personal interests to those of Mrs Bega by making or pursuing a gain, putting aside the question of having done so without Mrs Bega's informed consent: Pilmer v Duke Group Limited (in liq) at [78].
8. I am not satisfied that there existed a real or substantial possibility of conflict between the personal interests of Mr Ciappara and the interests of Mrs Bega to whom the fiduciary duty was owed.
9. In her closing written submissions, Mrs Bega asserted a conflict of interest that went beyond Mr Ciappara having an interest in the Allure Apartments. That submission fell outside the original pleadings and particulars. Unsurprisingly, Mr Ciappara objected to Mrs Bega raising it as a new case against him.
10. The new conflict case sought to be advanced by Mrs Bega involved serious allegations against Mr Ciappara, including false recitals in the offset deeds between Causidicus Fessus and STD and knowledge by Mr Ciappara of an attempted fraud on the creditors of STD by reason of the rebates in the purchase price of the units purchased by Causidicus Fessus. Counsel for Mrs Bega had not put any such allegations to Mr Mullins or Peter Bega. Nor did Mr Ciappara have an opportunity to cross-examine those witnesses in relation to those matters, or to obtain documents for tender in response to such allegations. It would be unfair and an injustice to Mr Ciappara, if Mrs Bega were permitted to depart from her case as pleaded and particularised.
11. For these reasons, Mrs Bega's claim for equitable compensation against Mr Ciappara based on an alleged breach of fiduciary duty to avoid a conflict of interest or possible conflict of interest must fail at the first step.

ISSUE B.3: Causation

1. In light of my findings above, the issue of causation does not arise. Nonetheless I will briefly indicate my views as to causation, assuming negligence by Mr Ciappara.

Negligence

1. Mrs Bega urged the Court to find that had she received "robust" advice not to sign the mortgage and the facility agreement, she would not have done so. Mrs Bega emphasised that counsel for Mr Ciappara did not cross-examine her on that basis. However, that submission raises a false issue. Any evidence given by Mrs Bega as to what she would have done but for Mr Ciappara's purported negligence would have been inadmissible to the extent that it served her interests: s 5D(3) of the Civil Liability Act 2002 (NSW).
2. Furthermore, even if admissible, such evidence would have been of little weight: Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55 at [32] and fn 64 (McHugh J). As Macfarlan JA said in Provident Capital Ltd v Papa at [83], the issue is to be determined by reference to the circumstances as proved by the evidence before the Court.
3. Turning to the objective facts and circumstances. First, it is significant that Mrs Bega trusted her husband to decide what should be done in the family's best interests. She left it to him to decide whether it was in the family's interests to execute the documents (T482, line 47-T483, line 5). She trusted her husband in respect of business matters. She was not inclined to question why she needed to sign the documents, and her evidence was that she "was simply not interested" in business affairs (first affidavit, [15] and [18]).
4. Second, Mrs Bega believed that she had to sign such documents to help her son Aidan Bega (T475, lines 24-36), and to "keep the apartment investment in Townsville afloat" (first affidavit, [44]). And she understood that there was a sense of urgency in signing the documents (first affidavit, [29]).
5. Third, although Mr Ciappara advised Mrs Bega that he could not give financial advice and that she should see her accountant, Mrs Bega saw no need to speak to her accountant. She was content to rely on her husband's judgment as to what should be done in the family's interests. Plainly, she determined to enter into the transaction on the basis that her husband had decided that it was in the family's interests for her to execute the documents. The present case is distinguishable from Provident Capital Ltd v Papa. There, the solicitor did not give Mrs Papa advice, beyond explaining the legal effect of the documents she was to sign, such as that she should obtain independent financial advice. Here, Mrs Bega received advice that she should see her accountant, but she proceeded without taking the step which had been recommended by her solicitor.
6. Fourth, Mrs Bega has not demonstrated that the transaction was improvident. As indicated, Mrs Bega and her son Aidan regarded property owned by particular family members or associated entities such as the Allure Apartments as held for the Bega family (T387, lines 31-33; T483, lines 7-13). The transaction secured for the direct benefit of the Bega family, through AB Veritas, seven units in the Allure Apartments on terms that involved substantial discounts.
7. Fifth, there is no evidence that if Mrs Bega had gone to another solicitor she would have received advice of a different character to that given by Mr Ciappara. However, let it be assumed that advice not to enter the mortgage and facility agreement had been given to Mrs Bega by a solicitor, even in strong terms. In my view, the probabilities are that Mrs Bega would not have followed such advice, preferring to accept the wisdom of her husband's judgment as to the best interests of the Bega family, and she would have still entered into the transaction.
8. For these reasons, if (contrary to my conclusion) Mr Ciappara was negligent in his provision of advice to Mrs Bega, causation has not been established.

Causation in equity

1. With respect to the claim for breach of fiduciary duty, Mrs Bega relied upon Brickenden v London Loan and Savings Co of Canada [1934] 3 DLR 465 at 469; [1934] UKPC 25 (Brickenden), in support of her submission that there is no need to enquire what course she would have taken if the (assumed) conflict of interest had been disclosed by Mr Ciappara. Mrs Bega further submitted that the enquiry should be whether the act for which Mr Ciappara was responsible is causal of her loss.
2. Mr Ciappara submitted that the principle in Brickenden was inapplicable to the present case and that the test of causation in equity is as stated in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 439; [1995] UKHL 10, and confirmed in Beach Petroleum NL v Kennedy at [432]. Mr Ciappara also referred to Blackmagic Design at [109] and submitted that since Mrs Bega was always going to sign the loan documents whether she received independent legal advice or not, no loss was caused by any purported breach of fiduciary duty.
3. The issues raised by the Brickenden principle only arise if (contrary to my conclusion) there is a finding of breach of fiduciary duty. It may be accepted that it is generally desirable to deal with non-dispositive issues: Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12]. However, it is somewhat artificial to attempt to do so in the present circumstances where I have found that there was no real or substantial possibility of a conflict between the personal interests of Mr Ciappara and the interests of Mrs Bega to whom the duty was owed.

ISSUE B.4: Quantum

1. It is not necessary to address the issues raised by Mr Ciappara's submissions with respect to quantum of damages and equitable compensation, including his contentions that Mrs Bega failed to mitigate her loss and that her claims against him (specifically her claim for breach of fiduciary duty) is an "apportionable claim" under s 34(1) of the Civil Liability Act.

C: ISSUES BETWEEN MR CIAPPARA AND AIDAN BEGA AND AB VERITAS

1. Since Mrs Bega's cross-claim against Mr Ciappara has failed, the issues raised by Mr Ciappara's defensive cross-claim against the plaintiffs, Aidan Bega and AB Veritas do not arise.

D: CONCLUSION, COSTS AND ORDERS

1. The plaintiffs' money claim against Mrs Bega under the facility agreement for $1 million plus interest has succeeded. The plaintiffs have also succeeded in their money claim against the guarantors, Aidan and AB Veritas. The plaintiffs are entitled to a judgment against Mrs Bega, Aidan Bega and AB Veritas in the amount of $1 million plus interest up to judgment under the facility agreement from 2 April 2015 at 20% per annum, increasing to 30% per annum as from 22 July 2015.
2. The plaintiffs are also entitled to judgment for possession of the Denham Court property.
3. The first cross-claim of Aidan Bega and AB Veritas against the plaintiffs has failed and should be dismissed. The second cross-claim of Mrs Bega against Mr Ciappara has also failed and should be dismissed. It follows that Mr Ciappara's defensive cross-claim seeking indemnity against the plaintiffs, Aidan Bega and AB Veritas has failed and should be dismissed.
4. As to costs, subject to one qualification, there is no reason why costs should not follow the event. The qualification relates to the third cross-claim. The parties should be given an opportunity to make short written submissions having regard to the outcome. Subject to any further application by the parties for an oral hearing, it is proposed to deal with the costs of the third cross-claim on the papers.
5. For the assistance of the parties, my preliminary view, subject to consideration of further submissions, is that Mr Ciappara should pay the cross-defendants' costs of the third cross-claim, and there should be an order that Mrs Bega pay those costs to Mr Ciappara and also pay Mr Ciappara's costs of the third cross-claim.
6. Accordingly I make the following orders: 1. Judgment for the plaintiffs against each of the first, second and third defendants in the sum of $1 million, together with interest thereon at the rate of 20 per cent per annum from 2 April 2015 until 22 July 2015 and thereafter at the rate of 30 per cent per annum until the date of judgment. 2. Direct the parties to bring in agreed short minutes in respect of the calculation of interest in accordance with order (1) above. 3. Judgment for possession of the land comprised in Lot 3 in deposited plan 791971 and known as 150 Fox Valley Road, Denham Court in the State of New South Wales (the land). 4. Grant leave to the plaintiffs to issue a writ of possession in respect of the land, not earlier than eight weeks after the date of judgment. 5. The first, second and third defendants to pay the plaintiffs' costs of the proceedings. 6. Dismiss the first cross-claim of Aidan Bega and AB Veritas Pty Ltd with costs. 7. Dismiss the second cross-claim of Helen Bega with costs. 8. Dismiss the third cross-claim of Charles Ciappara. 9. Reserve the question of costs of the third cross-claim. 10. Direct Mr Ciappara to file and serve short written submissions (not exceeding three pages) with respect to the question of costs of the third cross-claim within 14 days. Mrs Bega and the cross-defendants to the third cross-claim to file and serve short written submissions in response (not exceeding three pages) within a further 14 days, and Mr Ciappara to file and serve any written submissions in reply (not exceeding two pages) within seven days thereafter. 11. Direct that, subject to any application by the parties for an oral hearing, the question of costs of the third cross-claim be decided on the papers.

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