Mizzi v Reliance Financial Services Pty Ltd & Ors - [2007] NSWSC 37 - NSWSC 2006 case summary — Zoe

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Mizzi v Reliance Financial Services Pty Ltd & Ors

[2007] NSWSC 37

Supreme Court of NSW|2006-12-18|Before: Brereton J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2006-12-18

Before

Brereton J

Source

Original judgment source is linked above.

Judgment (108 paragraphs)

[1]

CITATION : Mizzi v Reliance Financial Services Pty Ltd & Ors [2007] NSWSC 37 This decision has been amended. Please see the end of the judgment for a list of the amendments.

[2]

DECISION : Declare that upon proper construction of agreement and in events which have happened, the plaintiff was released from any obligation which she owed to the first defendant in respect of moneys advanced by first defendant to her, and in particular all obligations which she had under Loan Agreement and Mortgage. Order that first defendant execute and deliver to plaintiff discharge of mortgage and certificate of title.

[3]

CATCHWORDS : CONTRACTS - Unjust contracts - where mortgage of pensioner's sole asset to secure refinance of earlier mortgage in default was an unjust contract - whether as a matter of discretion relief should be granted - EQUITY - Unconscionable dealings - whether mortgage was unconscionable dealing - CONTRACT - Termination - accrued rights where mortgagee had agreed with mortgagor's son to release mortgagee upon provision by son of alternative security - where alternative security provided but other obligations of son not performed - whether mortgagee obliged to release mortgagor - accrued contractual right before termination - Privity - whether release enforceable at the suit of mortgagee - whether trust of benefit of contractual promise in favour of a third party - where son obliged in contract and in equity to procure release. - COSTS - where plaintiff ultimately succeeds by reason of success on one issue but fails on issue occupying much of trial.

[5]

Anderson v Martindale (1801) 1 East 487, 102 ER 191 Antonovic v Volker (1986) 7 NSWLR 151 Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 Bennett v ES&A Chartered Bank (1888) 9 LR (NSW) 554 Birmingham v Renfrew (1937) 57 CLR 666 Cabell v Vaughan (1669) 1 Wms Saund 290a Chappuis v Filo (1990) 19 NSWLR 490 Coulls v Bagots Executor and Trustee Co Limited (1967) 119 CLR 460 Dunlop Pneumatic Tyre Co Limited v Selfridge & Co Limited [1915] AC 847 Ettridge v Vermin Board of the District of Murat Bay [1928] SASR 124 Finance Corp of Australia Ltd v Bentley (1991) 5 BPR 11,833 Howden v Yorkshire Miners' Association [1903] 1 KB 308 Hyundai Heavy Industries Co Limited v Papadopoulos [1980] 1 WLR 1129 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 Johnson v Agnew [1980] AC 367 Kendall v Hamilton (1879) 4 App Cas 502 Les Affreteurs Reunis SA v Leopold Walford (London) Ltd [1919] AC 801 Matthews v Doctrieve Corp Pty Ltd [2003] FCA 459 McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 CASES CITED : Meldrum v Scorer (1887) 56 LT 471 Moody v Condor Insurance Limited [2006] 1 WLR 1847 Nguyen v Taylor (1992) 27 NSWLR 48 Norbury, Natzio & Co Limited v Griffiths [1918] 2 KB 369 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Robinson v Geisel [1894] 2 QB 685 Ryder v Taylor (1935) 36 SR (NSW) 31 Scott v Tuff-Kote (Aust) Pty Ltd [1975] 1 NSWLR 537 Sharpe v San Paulo Railway Co (1873) 8 Ch App 597 Taylor v Taylor (1978) 143 CLR 1 Trident General Insurance Co Limited v McNiece Bros Pty Ltd (1988) 165 CLR 107 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 White v Tyndall (1888) 13 App Cas 263 Williams v Papworth [1900] AC 563 Wilson v Darling Island Stevedoring and Lighterage Co Limited (1956) 95 CLR 43 Wilson, Sons & Co v Balcarres Brook SS Co [1893] 1 QB 422 Winterton Constructions Pty Ltd v Hambros Australia Limited (1991) 101 ALR 363 Yorkshire Miners' Association v Howden [1905] AC 256 Young v Lalic [2006] NSWSC 18

[11]

4 Although she commenced primary school in Malta in about 1934, she stopped attending school when the war began in about 1939. She is mainly self-taught. She can write a little, but describes herself as not very good at writing, and unable to do sums. Her native language is Maltese. She says that she does not speak English very well, but can manage to "get by" if people talk slowly and carefully. She learnt some English in Malta during the war, and more when she came to Australia. 5 Mrs Mizzi married her husband Joseph Mizzi in Malta in 1948, following which she stayed at home to look after the home and their four children. They migrated from Malta to Australia in about 1963, and initially lived with Mrs Mizzi's sister and brother-in-law at Waterloo for about six months. 6 Joseph died on 15 December 1990. While he was alive he made all the decisions about their housing and financial matters. They had a joint bank account, which he operated. Following his retirement, he deposited the pension into his savings account and withdrew money for their living expenses; although sometimes Mrs Mizzi attended to this if her husband was ill, when she did so bank staff assisted her. After Joseph's death, the bank staff showed her how to operate the bank account on her own. She has never had any cheque account, bankcard or credit card, and has operated only one bank savings account for her Australian pension and another for the Maltese pension, both at the Commonwealth Bank. 7 Mrs Mizzi was assessed for literacy by Dr Robert Pryor, psychologist. He concluded from tests that her general reasoning score was in the extremely low range (second percentile), and that her general familiarity with English was in the "well below average" range: she was capable of identifying most traffic signs, signs on office doors, some general amenities signs and some signs on boxes and packages, but was not very good at identifying instructional signs found in factories. She exhibited some reading skills in using a railway station indicator and a basic standardised office message; she was able to identify correctly details from job advertisements on two out of three occasions, but struggled to comprehend when a significant amount of text was presented. Her verbal reasoning score was in the "extremely low" range, and her reading English development score was no better than someone in the third grade of primary school. Thus her practical reading skills are largely restricted to signs and simple office-oriented documentation. Dr Pryor concluded: Therefore on the basis of these data it appears that Ms Mizzi's reading and literacy skills were very unlikely to be sufficient for the comprehension of legal documentation and for an informed appreciation of the obligations and likely consequences of signing such documentation. Moreover, Ms Mizzi would be likely to struggle to comprehend a legal explanation of such documentation without extreme effort being undertaken on the part of the solicitor or legal representative involved to ensure adequate comprehension and informed consent. From Ms Mizzi's self report it appears that such attention to detail and assiduity were lacking at the time she was advised to enter into the guarantor arrangement. 8 In cross-examination, Dr Pryor accepted that Mrs Mizzi would probably understand the concept of borrowing money, including that if she borrowed it she may have to pay it back. He agreed that what the tests focussed on was the subject's ability to deal with English in its oral and written forms, although to some extent they also address ability to deal with concepts. 9 Mrs Mizzi gave evidence without the assistance of an interpreter. My impression was that her coherence and fluency in spoken English fluctuated. She provided simple answers in basic English to most of the questions she was asked. However, it took some effort to ensure that she understood even relatively simple concepts: for example, when she was asked to acknowledge on day two of the hearing that she remained bound by the oath taken on the first day [T33] - the "yeah"s recorded in the transcript as her initial responses do not fully convey the apparent uncertainty that accompanied them. The History of Property Transactions 10 Mrs Mizzi and her husband purchased the Heckenberg property as joint tenants in late 1986 for $56,000. Mr Mizzi made all the arrangements. As I have recorded, Mr Mizzi died on 15 December 1990. No notice of death was registered at that stage. 11 In about June or July 1998, Stefan called her on the telephone, and asked if she knew where the deeds were for the house. He said "Nana, I need your help for a little while, I need to use your deeds to sort out a little problem with my business. Nana, I really need you to help me. I need to borrow some money for my business - not much - but I have to use deeds for the house. I need your help Nana. Can you let me have the deeds for a while so that I can use them to guarantor a loan". Stefan denied that he was in trouble, and said that it was only a little problem and that he only needed to use the deeds for a little while, "only for a few months". Mrs Mizzi said: "What are the deeds? I'll help you Stefan, you know that. What are the deeds love?". Stefan explained that they were the papers for the house, and Mrs Mizzi replied that she knew where those papers were, in the bedroom, and that he could use them if he wanted. Stefan said that he would come over and get them that day. 12 Later that day Stefan came to Heckenberg property. Mrs Mizzi found the papers relating to the house in a drawer in the bedroom and showed them to Stefan, who identified those he required, which he took away with him. Mrs Mizzi remembers hugging and kissing him just before he left, because she was so happy to help him. 13 Some time afterwards, Stefan telephoned Mrs Mizzi again and said "Did you know that Nanoo [Mr Mizzi] is still on title?". Mrs Mizzi asked what that meant and Stefan explained that her husband still appeared as one of the owners, and that new papers showing her as the surviving owner were required. Mrs Mizzi said "Stefan, you know I don't do those things - you come over and show me - I don't know about these things". Stefan said that he would show her the forms, explain it and sort it out.

[12]

14 On 14 August 1998, Stefan drove Mrs Mizzi in his car to a solicitor's office in Parramatta. According to Mrs Mizzi, they both went into the office, and Stefan spoke to the solicitor in English; she says that they spoke quickly in English and she could not understand much of what was said, although she understood a few words. She says the solicitor brought a large pile of papers to the desk where she was sitting and handed her a pen, placed his finger on the papers and said: "Put your signature here please" many times, and she complied. She says that she did not look at all of the papers, but only at the places where she was told to sign. She says that the solicitor did not tell her anything about the papers and did not give her any copies of them, and that she did not ask any questions but trusted the solicitor and Stefan to be careful with her deeds and not to lose them. In any event, Mrs Mizzi executed - in the presence of Pierre Saab, a solicitor in Macquarie Street Parramatta - a notice of death, and a mortgage to Across Australia Finance Pty Limited securing advances of $50,000, in which she was described as the mortgagor and Stefan as guarantor. Stefan then drove her home and thanked her for helping him. 15 The mortgage to Across Australia was discharged on 29 October 1998, and the discharge was registered on 15 January 1999. Mrs Mizzi recalls that about three months after signing the papers at the solicitor's office, Stefan drove her to Sydney and they collected the deeds, which she placed in a tin box and hid in her bathroom, "because I was afraid of robbers in the area". Stefan thanked her for letting him use her deeds and they hugged and kissed; she received no money or presents from Stefan or anyone else for doing so, as "I was just happy to help Stefan". 16 In late June 1999, Stefan telephoned Mrs Mizzi and asked whether she still had the deeds, or whether her son Martin had them to attend to the late Mr Mizzi's will. Mrs Mizzi replied that she still had them, having put them away in a safe place. Stefan said: "Nana, I just need to use them again to help my business for a little while. It is just like last time: it shouldn't be for too long". Mrs Mizzi replied that that was okay, and that he could come and get the deeds. He added that his accountant was arranging for her to see a lawyer to sign papers "like before, it is just to show that it's okay for me to use your deeds". About three days later, Stefan telephoned again and said that he would send his wife Dennise around, to take her to see a solicitor. Mrs Mizzi said: "Yes, that's alright Stefan, will Dennise be bringing the little one?". Stefan replied: "Yes, I think so Nana". 17 The next day, 6 July 1999, Dennise came to the Heckenberg property with her baby Jordan, collected Mrs Mizzi and drove her to a solicitor's office. Dennise spoke to the solicitor and then introduced Mrs Mizzi. Mrs Mizzi says that she did not understand what they were talking about. She was given "lots of papers to sign" and was embarrassed because she did not know where to sign them and felt that she was taking a lot of the solicitor's time. She says she signed where the solicitor indicated by placing a finger on the paper or pointing at a place on the paper. She recalls a conversation in which the solicitor said that she needed to sign the documents so that Stefan could get his money. The solicitor explained that the papers said that Stefan would pay back the money he was borrowing, and indicated the interest rate, and where she was required to sign. Dennise said: "You know, Nana, it's like a guarantor that Stefan will keep his promises to pay back the money he borrowed". Mrs Mizzi says that she concluded: "Okay then. I don't know what all this is for. Thank you for helping Stefan".

[39]

42 In this case, the significant circumstances are as follows: · Mrs Mizzi was desirous of helping her grandson Stefan. She had been involved in one previous successful similar transaction, the Across Australia mortgage, and another in respect of which enforcement proceedings were underway against her, the Kremnizer mortgage. · The Reliance mortgage involved her home and only asset of significance. However, it did not place it in jeopardy, because the home was already in jeopardy as a result of the Kremnizer mortgage, which was in default, and unless she could somehow otherwise escape liability, a refinance was imperative to have any chance of saving her house. · When the mortgagees sought to enforce the Kremnizer mortgage, Mrs Mizzi raised a Contracts Review Act defence, but ultimately refinanced with Reliance rather than pursuing it. It is conceivable that, had the Reliance mortgage been entered into in circumstances where Mrs Mizzi was not advised and did not have the benefit of consideration of a Contracts Review Act objection to the previous mortgage, some argument that the Reliance mortgage was affected by injustice in the Kremnizer mortgage might have remained. But in circumstances where such an argument had been considered, pleaded but ultimately abandoned in favour of refinancing, I do not perceive any relevant unfairness in the Reliance mortgage. · While Mrs Mizzi's financial position was such that she would not be able herself to service the interest let alone repay the principal in accordance with the terms of the Reliance mortgage, in circumstances where the Kremnizer loan was in default, a refinance at least gave her some time, and the prospect that Stefan would be able to arrange repayment, without materially worsening her position. Even though it was unlikely that Mrs Mizzi would herself be able to service and repay the Reliance loan, and there may have been doubt (objectively viewed) as to Stefan's ability to do so, the alternative was for her to suffer a judgement for possession under the Kremnizer mortgage, in respect of which consideration had already been given on her behalf to a Contracts Review Act defence. · Although the interest rate charged by Reliance was high relative to bank rates, it was not when compared to the rates which the court often sees charged by lenders of last resort; no contention that the interest rate was unreasonably high was pleaded or particularised; and no evidence which would have permitted such a conclusion was adduced. · While Mrs Mizzi has little education and limited English, and while the advice given by Mr Kekatos probably did not convey to her in any detail an understanding of the obligations she was assuming, from the accumulation of what Mr Kekatos told her, and her son Martin's explanation of the consequences of "going guarantor", and her experience with the Kremnizer mortgage and the default under it, by the time she entered into the Reliance mortgage she must have known the general nature of and risks associated with such a transaction, and in particular she had a basic but sufficient understanding of those aspects which are relevant in the context of this case: that in return for an additional three months time, she was leaving her house at risk, reliant on Stefan to perform his obligations and procure the return of her deeds at the end of that period.

[43]

46 In the present case, relevantly: · Reliance took steps to require that Mrs Mizzi obtain independent advice. Even if that advice when given were inadequate, Reliance could not be expected to know that. The certificate given (which was in the form approved by the Law Society) does not descend to the content of the advice given. Reliance was entitled to assume that Mr Kekatos had appropriately and properly advised Mrs Mizzi. · Although Reliance had been advised by its own solicitors that there may be concerns as to the enforceability of its security, the questions that Corrs raised included matters of which Corrs were unaware but Reliance was aware - namely that a valuation had been obtained, and the correct security property identified. If Reliance made a calculated decision to proceed notwithstanding Corrs' advice in those circumstances, that did not amount to accepting any risk so far as Mrs Mizzi's appreciation of the transaction was concerned. · The transaction had obvious aspects of improvidence on the part of Mrs Mizzi. Reliance knew that the underlying benefit of the previous transaction had been for Stefan not Mrs Mizzi; that she was effectively a guarantor; and that she was aged and probably did not have the capacity to service the loan without Stefan's assistance (although Mr Cassaniti appears to have been under the impression that rather than Mrs Mizzi being a guarantor, she had borrowed money which she had on-lent by way of investment in Stefan's business, the return on which would service her loan). But even if there were grounds to doubt her ability to service the loan, Reliance was also aware that refinancing was an imperative for Mrs Mizzi. The observations in Khoshaba in respect of lenders who engage in mere asset lending do not carry weight in these circumstances, because this is not a case in which Reliance lent moneys in circumstances which visited unnecessary or avoidable risk on Mrs Mizzi's home and only significant asset; if Reliance did not lend, she stood to lose the house in any event, to Kremnizers' clients.

[82]

81 In this state, UCPR r 6.23 provides that proceedings are not defeated merely because of the misjoinder or non-joinder of any person as a party to the proceedings. This rule authorises the determination of issues in proceedings despite the non-joinder of a party [Finance Corp of Australia Ltd v Bentley (1991) 5 BPR 11,833; BC9102015 (Mahoney JA, Handley JA agreeing)]. Thus if a person who would have been an appropriate party has not been joined, the court may proceed to determine the rights of the parties actually before the court, but a person who has not been joined and is affected by orders made in the proceedings, will be entitled to apply to have them set aside [Taylor v Taylor (1978) 143 CLR 1, 4; Finance Corp of Australia Ltd v Bentley; Chappuis v Filo (1990) 19 NSWLR 490, 512]. 82 Under the contract, Lords, Stefan and Dennise were entitled to enforce the benefit of clause 11.3. In the case of joint obligors (as distinct from obligees, but the analogy is instructive), there is only one obligation and generally all living promisors must be joined [Cabell v Vaughan (1669) 1 Wms Saund 290a; Kendall v Hamilton (1879) 4 App Cas 502, 542-544]. However, this requirement is relaxed if one of the joint obligors is an undischarged bankrupt or is outside the jurisdiction [Wilson, Sons & Co v Balcarres Brook SS Co [1893] 1 QB 422]. Moreover, since the Judicature Acts [cf UCPR r 6.23], while applications were generally approached on that same basis, the court has a discretion and may refuse to require joinder of one of the joint obligors if the plaintiff had done everything in its power to serve the absent defendant without success [Robinson v Geisel [1894] 2 QB 685; Norbury, Natzio & Co Limited v Griffiths [1918] 2 KB 369; UCPR r 6.21]. 83 In the case of joint obligees (but not joint and several obligees), all living joint promisees must be joined, those who refuse to join as a plaintiff being joined as a defendant - that is, unless the Court otherwise orders [UCPR r 6.20]. On the death of a joint (but not joint and several) obligee or obligor, the benefit or burden of the obligation passes to the survivors, the interest or obligation of the deceased being extinguished [White v Tyndall (1888) 13 App Cas 263]. It is not necessary to join concurrent (as distinct from joint) holders of a right as parties [Scott v Tuff-Kote (Aust) Pty Ltd [1975] 1 NSWLR 537].