National Australia Bank Limited v Paul Burness in his capcity as Trustee of the Bankrupt Estate of Mark William Bradley

National Australia Bank Limited v Paul Burness in his capcity as Trustee of the Bankrupt Estate of Mark William Bradley - [2007] NSWSC 247 - NSWSC 2007 case summary — Zoe

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JUDGMENT 1 In this case, the plaintiff seeks judgment for possession of the whole of the land referred to in Certificate of Title Folio Identifier A/357411 and known as 5 Macquarie Road, Pymble NSW. It seeks leave to issue a writ of possession to enforce the judgment and also seeks judgment for money due under the mortgage against the Second Defendant plus interest and costs. 2 The plaintiff sues on Registered Mortgage No 7324997H (the mortgage) over real property in respect of which Mark William Bradley and the Second Defendant were the registered proprietors at 5 Macquarie Road, Pymble. 3 It should be understood at the outset that a sequestration order was made against Mr Bradley on 1 May 2003 and the First Defendant was appointed trustee of his bankrupt estate. The First Defendant has consented to judgment for possession of the land. 4 The land is now registered in the names of the First Defendant as trustee and the Second Defendant as tenants in common. 5 It is the Second Defendant, Mrs Bradley, who is contesting the action. The Hearing 6 It is necessary to mention some matters concerning the conduct of the hearing before me. 7 Mrs Bradley was unrepresented at the hearing. She sought permission to be represented by her husband. This permission was refused because the terms of her Cross-claim gave rise to a potential conflict of interest between her and her husband. This conflict of interest arose out of the allegations in her Cross-claim at paragraphs 34 and 35 where she alleged that she signed documents as the result of undue influence on the part of her husband. Furthermore, it was at least possible that he could be called as a witness. 8 However, during the course of the hearing Mr Bradley sat next to her and the two of them conferred from time to time as to the matters that were to be put to the Court and as to questions to be asked of witnesses in cross-examination. 9 As appears from page 4 of the transcript, I asked Mrs Bradley if she was seeking an adjournment of the case and she indicated that she was not. She did, however, indicate then that she would like an expert witness to help explain the nature of the documents that were produced to her. This witness was not then readily available and she indicated that the hearing could proceed. 10 As appears at pages 112 and 113 of the transcript, towards the end of the hearing, Mrs Bradley indicated that she wished to call two expert witnesses, namely Mr Bruce Ford and Professor Stephen Keane. She had no report from either or them. She was relying on the decision in Permanent Mortgages Pty Ltd v Cook (2006) NSWSC 1104 in which these witnesses had given expert evidence referred to in that judgment. 11 A consideration of that judgment reveals that the facts were totally different from those in the present case. Furthermore, those expert witnesses had given written reports before the hearing and copies had been served on the opposing side in accordance with the rules. 12 In the present case there were no such reports and it appeared that Mrs Bradley just wished to call them because she felt their evidence had helped the defendants in the other case. 13 Because Mrs Bradley has been unrepresented I have considered it necessary to go into far more detail when outlining the facts of this case than may otherwise have been the situation. The Pleadings 14 The Further Amended Statement of Claim alleges that by mortgage dated 27 September 2000, Mr and Mrs Bradley mortgaged the land at Pymble to the plaintiff and that mortgage was duly registered and given the number 7324997H. 15 It is alleged that mortgage incorporates the terms of Memorandum lodged at the Land and Property Information NSW and numbered 2469574. The terms of that Memorandum will be referred to later. 16 Paragraph 5 of the Further Amended Statement of Claim alleges that the plaintiff advanced monies totalling $905,000, being the limit of the facility referred to in the loan contract to the mortgagors pursuant to account number 50-722-1857, and the mortgagors subsequently were in default under the loan contract and such default has not been remedied. 17 Paragraph 5A of the Further Amended Statement of Claim alleges that by FlexiPlus Mortgage Facility, Individuals - Personal Investments Purposes document dated on or about 24 May 2001, Mr and Mrs Bradley as borrowers agreed to pay the balance of the loan together with interest and all fees and other money owing to the plaintiff immediately upon cancellation of the facility established under the loan contract and, if they failed to do so and were placed in default thereunder, upon the plaintiff giving them a Default Notice and where the default had not been remedied, then unless the plaintiff had notified the mortgagees to the contrary, the plaintiff is entitled to bring the present proceedings against them 18 The Claim continues that on or about 19 January 2004, the plaintiff served on the defendants a Cancellation Notice demanding payment in the sum of $1,284,094. 20 in respect of that loan contract and that the defendants failed to pay to the plaintiff the sum so demanded. 19 It also alleges that on or about 29 January 2004, the plaintiff served on the defendants Default Notices demanding payment in the sum of $1,284,094.12 being the sum then due in respect of the loan contract which notices also constituted notices under s 57 (2) (b) of the Real Property Act 1900. The defendants failed to pay the whole of the sum so demanded and the default was not remedied. 20 It claims that on or about 3 March 2004, the plaintiff made formal demand on the defendants to pay to it the sum of $1,310,963.33 being the total amount then due under the loan contract and that they failed to pay this amount. 21 The Further Amended Statement of Claim further alleges that on about 21 June 2006, the plaintiff served on Mrs Bradley a Default Notice demanding payment in the sum of $1,352,015.31 being the total amount then due under the loan contract. This notice constituted a notice under s57(2)(b) of the Real Property Act. The Second Defendant failed to pay this amount. 22 On about 27 July 2006, the plaintiff made a further formal demand on the Second Defendant to pay the sum of $1,364,085.52 being the total amount then due in respect of the loan contract. That demand was not met. 23 By her Further Amended Defence, the second defendant concedes that she and her husband were registered proprietors of the subject land and the mortgage 27 September 2000 and that the mortgage incorporates the terms of the Memorandum as alleged.

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46 References to page numbers are those in exhibit A. The plaintiff is also referred to as "the bank" or "NAB". 47 Mr and Mrs Bradley were married in 1985 and have three children now aged about eighteen, sixteen and fourteen. Mrs Bradley worked as a pre-school teacher from 1977 until 1988 when she stopped work to rear her children and from that time until 2004 she was a homemaker. In 2004 she returned to work as a pre-school teacher. 48 In June 1991 Mr Bradley granted a mortgage to the bank over properties which he alone owned at Neutral Bay and Mosman. See page 1 of exhibit A. 49 At page 3 of exhibit A is a letter from the bank to Mr and Mrs Bradley at their then address at Killara, advising that their application for a loan to purchase their home had been approved. The home is described as 5 Macquarie Road, Pymble and this is the land the subject of the present case. 50 The security for that land is a first registered mortgage over the Pymble property plus a guarantee and indemnity from Mr Bradley supported by first registered mortgage over the properties at Mosman and Neutral Bay, which were the subject of the earlier mortgage. The loan so approved was for $140,000. The mortgage signed by Mr and Mrs Bradley is dated 9 November 1994. 51 At pages 11 to 13 of exhibit A is a copy of Mr Bradley's tax return for the year ending June 1995. This shows earnings from his employment with Qantas Airways Limited of $97,124, receipt of gross rents of $14,420, interest deductions of $78,159 and other rental deductions $8,196. 52 Accordingly, at this stage he had investment properties yielding rents in addition to his salary and he claimed interest on the loans as a deduction from his taxable income in his Taxation Return. 53 The sources of the rent appears from the depreciation schedule at page 14 and they are the properties at Neutral Bay and Mosman. 54 Mr David Stowe gave evidence that from March 1994 to mid 1996, he worked for the plaintiff at its Chatswood branch as Business Accounts Manager. During that time he had management of the bank's relationship with Mr and Mrs Bradley. He met with Mr Bradley approximately ten times during this period and with Mrs Bradley on two or three occasions. He remembered Mr Bradley quite clearly and he recalled him saying words to the effect of, "My strategy is to accumulate properties and build wealth in a tax effective structure" and "The outcome we want to achieve is to pay the house loan as quickly as possible so that all the remaining debt is tax deductible". 55 The contents of the tax return referred to earlier support the proposition that Mr Bradley did have these goals. 56 As appears from pages 18 to 21 of exhibit A, Mr Bradley, in June 1996 was seeking to increase his loan capacity from $785,277 to $879,000 whilst the amount of the original loan to buy the Pymble house had reduced to $3,590. As appears from page 22 of exhibit A, the Plaintiff's request was granted. 57 Mr Bradley's taxation return for the year ending June 1997, at page 34 of exhibit A, shows gross rent of $29,370, interest deductions of $63,895 and other rental deductions of $14,095. In addition he earned, as an employee of AAP Telecommunications, approximately $185,000. 58 Mr Bradley's tax return for the year ending June 1998 gives as his home address 27 Blackburn Street, St Ives. In that year he received by way of gross rents, $34,685, interest deductions of $60,544 and other rent deductions of $20,922. His earnings as an employee of AAPT Telecommunications totalled $196,615.

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59 These taxation returns show that during these years Mr Bradley continued to have investment properties yielding rents in addition to his salary and that he was claiming the interest on the loans from the plaintiff as a deduction from his taxable income in his Taxation Return. They satisfy me on the balance of probabilities that the purpose of the loan from the plaintiff was predominantly to finance his investments. 60 From the email appearing at page 45 of exhibit A, it appears that by 30 November 1998 Mr Bradley had set up Online Australia Pty Ltd together with associated companies of which he and Mrs Bradley were directors. 61 On 22 June 1999, Mr Bradley wrote on the letterhead of Online Australia to Ms J Watman, Manager Private Banking Centre of the plaintiff, explaining that because of a proposed development of the Pymble land, the valuation provided by a real estate agent was too low. 62 In June 1999, the Plaintiff sought an increase of the loan. The purpose was described as "for injection into new business, OAL". See page 82 of exhibit A. 63 That request was supported by Ms Watman subject to the condition that the Neutral Bay property be sold in the next financial year and that the sale proceeds be placed on Term Deposit as replacement security to reduce the debt by a minimum of $400,000 in June 2000. 64 The Balance Sheet of Online Australia (OAL) Pty Ltd at June 1999 shows total assets of $56,332.30 and liabilities of $177,190.60. See page 98. 65 The Profit and Loss statement of the company for the year ending June 1999 shows total income of $240 and expenses totalling $120,860.93. See page 100. 66 As appears from the documents at pages 31 to 78, the accountant for Mr Bradley and his companies was the firm of Williams Hatchman and Kean (WHK) as at 1998 and 1999. August 1999 to August 2000 67 By August 1999 Mr Bradley was seeking accommodation of up to $1,100,000. He instructed his accountant to find a lender for this amount. 68 In early August 1999, WHK inserted the advertisement in the Australian Financial Revue appearing at pages 102 and 103. The advertisement in its relevant parts reads as follows:- "Finance wanted Secured loan facility required $1,100,000 Interest rate above market. 12 month term Ample security available Contact Mr Tony Garrett, Partner Chartered Accountants Williams Hatchman Kean, Level 15, 305 Kent Street, Sydney NSW 2000 Telephone (02) 92622155" 69 Mr David Anderson, a representative of Cromwell Property Security Limited, (Cromwell) saw the above advertisement in the Australian Financial Revue on 3 or 4 August 1999. Shortly after this he spoke to Mr Tony Garrett at WHK on the telephone during which Mr Garrett informed him: - "The loan is required by our client Mark Bradley. He owns a property at Pymble with his wife, Vicki Rae Bradley. That property will secure the loan along with two other properties owned by Mr Bradley at Neutral Bay and Pymble. I will send you an information package." 70 On 6 August 1999, Mr Garrett of WHK faxed to Mr Anderson an information package relating to the proposed loan. See pages 107 to 117 of exhibit A. 71 The Expression of Interest (page 110 of exhibit A) prepared by WHK on Mr Bradley's instructions, under the heading, "Required Facilities", states: - "Mr Bradley seeks $1.1m for an 11 month term, commencing in August 1999 with a fixed interest rate. The purpose of this facility is to provide for:

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Planned Use of $150,000 cash; · $150,000 for interest payment and personal living expenses. Mr Bradley plans to sell capital assets in 1999 - 2000 thereby attracting capital gains tax. Mr Bradley does not plan to draw a salary from the company Online Australia (OAL) Pty Ltd. · $100,000 to be loaned as long term debt to Online Australia (OAL) Pty Ltd, a company owned by Mr Bradley's family trust company, Bradley Associated Holdings." 72 It is seen, therefore, that more than half of the funds to be raised were to be used to pay off the existing debt of about $850,000 to NAB which itself was a debt incurred for the purposes of Mr Bradley's business investments. A further $100,000 was to be provided as a long term loan to his company Online Australia (OAL) Pty Ltd. 73 The security offered was a first mortgage over 5 Macquarie Road Pymble owned by himself and his wife, a first mortgage over a home unit at Neutral Bay owned by Mr Bradley and a further first mortgage over a house at Smiths Lake, also owned by Mr Bradley. 74 By letter of 9 August 1999, Cromwell indicated its willingness to consider a loan of $1.1 million to Mr Bradley, the lender being Cardinal Financial Securities Limited as trustee of the Cromwell Mortgage Trust. The purpose of the loan is stated as "to refinance existing debt and to provide working capital to Online Australia Pty Ltd". 75 By letter dated 19 August 1999 addressed to Mr and Mrs Bradley, care of WHK, the offer of a loan to Mr Bradley was confirmed. The security was to be a mortgage by Mr and Mrs Bradley over 5 Macquarie Road Pymble, a mortgage by Mr Bradley over the Neutral Bay and Smiths Lake properties, together with a guarantee from Mrs Bradley. See page 134. 76 A copy of that offer was signed by Mr and Mrs Bradley. See page 140 of exhibit A. 77 On 25 August 1999, Mr Richard Barron, solicitor for Mr and Mrs Bradley, wrote to NAB asking that arrangements be made for discharge of the mortgage as Mr and Mrs Bradley were refinancing the properties. 78 The letter from Cromwell dated 19 August 1999 offering the loan contained the following special condition, "Independent legal financial advice to be obtained by Mrs Bradley". 79 The Solicitor's Certificate at page 147 of exhibit A reveals that on 30 August 1999 from 2pm until 3.20pm Mr Knight, solicitor, interviewed Mrs Bradley and that he advised her as to the effects of the loan agreement offer, the mortgage over the property at Pymble, the mortgage over the properties at Neutral Bay and Smiths Lake, the Memorandum filed in the Land Titles office as number 5188664 and also as to the effect of the guarantee. 80 A Certificate dated 31 August 1999 from Antony Garrett, a partner in WHK Accountants, certifies that he explained to Mrs Bradley the financial risk she was assuming by executing the security and the guarantee and that the purpose of the financial accommodation was to refinance the existing loan and provide working capital to Online Australia Pty Ltd. 81 The Solicitor's Certificate as to Title shows that as at August 1999, the Pymble property was subject to a tenancy of 6 months from 3 August 1999 to Jason Cordwell. Accordingly, that property was not the residence of Mr and Mrs Bradley at that time. It was then being used to acquire rental income. 82 The loan facility from Cardinal Financial Securities Limited to Mr Barron appears at pages 164 and following of exhibit A. 83 The Deed of Guarantee and Indemnity between Cardinal and Mrs Bradley appears at 191 and following of exhibit A. It should be noted that Mrs Bradley's signature on the documents is witnessed by Mr Knight who gave the certificate referred to earlier. 84 On 8 September 1999, the transaction was concluded and Cardinal paid the following items:- "National Australia Bank - $854.157.90 Office of State Revenue - $ 6,103.60 MW Bradley - $154,648.66 Other cheques - $ 85,089.84 Total: $1,100,000" 85 In June 2000, Mr Bradley had again approached NAB for accommodation. By letter of 20 June 2000, page 225, the bank offered Mr Bradley a "FlexiPlus Mortgage-Individuals-Personal Investment Purposes- Professional's/Executive's/Investor's Choice Package" in the amount of $600,000. 86 This offer is addressed to Mr Bradley at 27 Blackburn Street, St Ives. This is not the subject property at Pymble. The securities required for this loan were a first registered mortgage over the Smiths Lake and Neutral Bay properties, each of which were owned by Mr Bradley. See page 232 of exhibit A. 87 By letter dated 27 June 2000 to Mr Bradley care of Online Australia (OAL) Pty Ltd, the bank sent a number of documents requiring his signature, one of which was a business purpose declaration. See page 242 of exhibit A. 88 At page 223 of exhibit A is a business purpose declaration signed by Mr Bradley dated 5 April 2000. The declaration is on a form headed, "National Australia Bank Limited, Business Purpose Declaration". 89 The Balance Sheet of Online Australia (OAL) Pty Ltd at June 2000 shows total assets of $224,900.17 and total liabilities of $314,366.17. The Profit and Loss statement for the year ending June 2000 shows total income of $58,253 with total expenses of $215,634.33. See pages 264 and following of exhibit A. August 2000 to March 2001 90 By letter dated 31 August 200 addressed to Mrs Bradley at 27 Blackburn Street, St Ives, the bank advised approval of the facility to both Mr and Mrs Bradley of $700,000 by, "Variable Rate Home Loan Professional's/ Executive's/ Investor's Choice Package". Enclosed were the fee agreement and two copies of the credit contract. They were asked to sign and return a copy of the credit contract, which they did. 91 The enclosed Facility Agreement Details showed that the total limit was for $700,000 to be repaid by 240 consecutive monthly principal and interest repayments. At page 275 of exhibit A the security required was a first registered mortgage over residential property situated at 5 Macquarie Road, Pymble and, in respect of notices, it says: "The customer nominated to receive notices is Mr Mark Bradley, 27 Blackburn Street, St Ives NSW 2075". 92 The acceptance of offer set out in the facility agreement is signed by Mr and Mrs Bradley in the presence of their solicitor, Mr Richard Barron on 4 September 2000. 93 At page 293 of exhibit A is a declaration signed by Mr Bradley in the form prescribed by Regulation 10 under the Consumer Credit Code, declaring that the credit to be provided by the bank is to be applied wholly or predominantly for business or investment purposes or for both purposes. It is dated 4 September 2000. 94 At page 296 and following of exhibit A is the mortgage No: 7324997H granted by Mr and Mrs Bradley over the Pymble property to the bank. It is dated 27 September 2000 and the signatures of Mr and Mrs Bradley are witnessed by Mr Richard Baron who was then their solicitor.

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(b) in respect of any credit provided by the bank to you other than under an agreement covered by this mortgage; and (c) otherwise payable under this mortgage." 98 Clause 28.2 relates only to the extent that the Consumer Credit legislation applies to the mortgage. 99 Clause 31 defines the word "you":- " You means the person or persons named in this mortgage as mortgagor and where there is more than one, any one or more of them jointly and separately, and includes their successors and transferees. Your has a corresponding meaning." 100 On 6 October 2000 the bank paid out the monies due to Cardinal Financial Securities by a payment of $1,123,191.33 to the Primary Bank of Australia, (the nominee of Cardinal), and to Cardinal's solicitors, Gray & Perkins, $1,485. 101 By mid October 2000, Mr and Mrs Bradley had two loan facilities from NAB. 102 The first was the loan Mr Bradley entered into in June 2000 for $600,000 secured by mortgage over his properties at Neutral Bay and Smiths Lake. This was loan account No. 48-700-9952 103 The second was the loan of $700,000 to Mr and Mrs Bradley secured over the Pymble property by mortgage, executed in September 2000. This was given loan account No. 10-515-0267. 104 By letter dated 16 October 2000 from the bank to Mr and Mrs Bradley and addressed to their then home at St Ives, it advised that the credit contract had been drawn down by paying out the liability to Cardinal of $1,124,826. 36. The source of this fund was stated to be as follows: - "Loan account No. 10-515-0267 $700.000 Loan account No. 48-790-9952 $424,826.33 Total: $1,124, 826.33." 105 It will, therefore, be seen that the total amount of the facility to Mr and Mrs Bradley, secured by the mortgage over the Pymble property was fully drawn down. The loan to Mr Bradley of up to $600,000 was partly drawn down to the extent of $424,826.33. March 2001 to May 2003 106 At pages 318 to 320 of exhibit A is a form of application, which includes Mr Bradley's financial details and shows total liabilities of $1,035,833. This was the total amount then owing to the bank. It is signed by Mr Bradley and dated 22 March 2001. 107 The application contains the words: - "I/we have read and understand the particulars which have been completed in this form and state that those particulars are true, complete and correct and have been provided to the bank to enable it to determine whether or not to provide me/us a loan increase for which (as indicated) I/we hereby make formal application." 108 According to the affidavit of Ms Scharfenberg, this was an application for a new facility incorporating or restructuring the amount then due by Mr and Mrs Bradley to the bank under the loan in the total amount of $905,000, in the form of a FlexiPlus Mortgage Facility Individuals Personal Investment Purposes, Professional's/ Executive's / Investor's Choice Package and this application was approved. 109 Her affidavit goes on to say that the Package documents executed by Mr and Mrs Bradley cannot be found, despite all enquiries and searches having been made. At pages 321 and following of exhibit A is a copy of the bank's standard terms for FlexiPlus Mortgage facilities in force as at 24 May 2001. 110 In a letter dated 18 May 2001, Mr Bradley wrote to the bank setting out details of his current financial situation and saying: "As requested last month, Vicki and I require $200,000 of short term funding to develop our assets". 111 At page 340 of exhibit A is the bank's internal document setting out details of the consideration of Mr Bradley's application to restructure the loans. It points out that currently Mr and Mrs Bradley have a total of $1,023,000 in borrowings which had been primarily used for the Pymble property and investment in the company. At that stage the Pymble property was not occupied by them as their home. 112 It was proposed to restructure the facilities by a National FlexiPlan Mortgage of $905,000 and a further National FlexiPlan Mortgage for $240,000. The property at Smith's Lake was the security for the $240,000 loan. This property was subsequently sold and that debt was discharged. 113 At pages 346 to 350 of exhibit A are documents which were faxed by the bank to Mr Bradley at his Online Australia office on 24 May 2001. Pages numbered 2, 3, 4, 5 and 6 of the faxed documents are included. 114 At page 346 of exhibit A is an authority for the bank to reveal confidential documents relating to the parties for the purpose of credit reference. This is signed by Mr and Mrs Bradley and their home address is given as 5 Macquarie Road, Pymble. 115 At page 347 of exhibit A is the second page of the fax which is a letter of instruction to the bank signed by Mr and Mrs Bradley and dated 24 May 2001. It commences with the words: - "I/we authorise and request you to attend to the draw down of my/our loan (and attend settlement if required) on my/our behalf and debit my/our accounts with you in terms of the following instructions.

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Pay to NAB Limited. " 116 This indicates that there was a restructuring of the loan with a total amount of $905,000 being drawn down. 117 The document goes on to require the bank to debit the following accounts:- "Deposit account No. 50-722-1857 $110,000. Deposit account No. 48-790-9952 $250,000. Loan account No. 48-454-1136 $85,500. Loan account No. 10-514-0267 $689,000. Loan account No. 5313 5550 000 22990 $14,450 Costs $900 Total $902,900." 118 There is clearly an error in the additions. The individual amounts total $1,150,800. 119 The error appears to be the sum of $250,000 in the second line. In fact that facility was $240,000 secured on the Smiths Lake property. However, if one replaces $250,000 with $240,000 the total would be $1,140,800. 120 The document also includes the words: "Existing security agreement held". 121 The next document, at page 348 of exhibit A, is the nomination of the person to receive notices. The name Filepe Lagos is nominated. This is clearly an error because Mr Lagos was the bank officer. This document is also signed by Mr and Mrs Bradley and is dated 24 May 2001. 122 The document appearing at 349 of exhibit A is a Declaration in accordance with the Consumer Credit Code that the credit to be provided is to be applied wholly or predominantly for business or investment purposes (or for both purposes). It complies with the forms specified in the Consumer Credit Act and Regulations. It is signed by Mr and Mrs Bradley and dated 24 May 2001. 123 The next document signed by Mr and Mrs Bradley and dated 24 May 2001 is headed, "Applicants Mr and Mrs Bradley" and sets out their financial position. Towards the foot of the document, it reads: - "I/we have read and understand the particulars which have been completed in this form and state that those particulars are true, complete and correct and have been provided to the bank to enable it to determine whether or not to provide to me/us a loan/loan increase for which (as indicated) I/we hereby make formal application. [Emphasis added] 124 The fax machine's print outs at the head of each page show that they were sent by the bank to Online Australia on 24 May 2001 and those at the foot of each page show that they were returned by fax by Online Australia to the bank on 25 May 2001 at 10.10am. 125 By letter dated 30 July 2001 (page 354) to Mr Bradley, the bank says: - "We are pleased to advise the following.

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May 2003 onwards 130 By letter dated 28 May 2003, Worrells Solvency & Forensic Accountants wrote to the bank advising that, on 1 May 2003, a Sequestration Order was made against the estate of Mark Bradley and that the date of act of bankruptcy was 10 September 2002. 131 On or about 19 January 2004, the bank sent Cancellation Notices to Mr Bradley at 5 Macquarie Road, Pymble, and at 24A Warrangi Street, Turramurra, and c/o Paul Andrew Burness of Worrells. 132 On about the same date, a Cancellation Notice in the same terms was sent to Mrs Bradley at 24 Warrangi Street, Turramurra. 133 That Cancellation Notice gave notice that the bank cancelled the FlexiPlus Mortgage Account No. 50-722-1857 in the name of Mark William Bradley and Vicki Rae Bradley, "provided to you by the bank under terms and conditions dated 24 May 2001". 134 It advised them that, by reason of the cancellation, the facility limit had been reduced to zero and that Mr and Mrs Bradley were required immediately to repay the unpaid balance of, and any other money due under the facility; and, at that date, the amount outstanding was $1,284,094. 12. 135 On about 27 January 2004 Default Notices pursuant to s57(2)(b) of the Real Property Act 1900 was served on Mr Bradley and on Mrs Bradley. These advised that the amount outstanding under the facility was $1,284,094. 12 and that if the default was not remedied within 31 days from service of the notice, the bank proposed to exercise its power of sale in respect of the property, the subject of the mortgage, being mortgage No. 7324997 over property described in Certificate of Title Folio Identifier A/357411 and located at 5 Macquarie Road, Pymble NSW 2073. 136 By notices served on or about 3 March 2004 from the bank to Mr and Mrs Bradley, the default specified in the Default Notice had not been remedied and the bank demanded payment of the whole amount then due, namely $1,310,963. 33 plus costs. 137 No argument has been raised as to the effectiveness and validity of the Notices and it is not in dispute that the monies claimed have not been paid. Was the Provision of credit to Mrs Bradley including the Mortgage and Loan Agreement subject to the provisions of the Consumer Credit Code? 138 The relevant terms of the Code have been set out earlier. The real question is whether the purpose of the loan secured by the subject mortgage over the Pymble property was credit provided, or intended to be provided, wholly or predominantly for personal, domestic or household purposes.

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147 Furthermore, paragraph 504.2.1 of the Lending Manual provides: - "A business purpose declaration must be completed when an individual (including as trustee for a family trust) is borrowing wholly or predominantly for investment purposes." 148 Mrs Bradley also relies on the Guidelines For Professional /Executives/ Investors Choice Package, part of exhibit 1. Paragraph 102.2 says that to qualify for a Choice Package, loans must be used for personal purposes only. She also refers to paragraph 102.4, which provides that to qualify for a Choice Package, loans must be for personal purpose only. 149 Here again the word "personal" has a different meaning from that in the Consumer Credit Code because to qualify for a package, the applicant must include a residential investment property [emphasis added] loan in the lending component. A residential investment property loan is excluded from the Consumer Credit Code by ss 4 of section 6 of the Code as is pointed out above. 150 In the case of Johnsson v Arkway Pty Ltd (2003) 58 NSWLR 451 at 456 Shaw J quoted with approval the statement of Gillard J in Linkenholt Pty Ltd v Quirk (2000) VSC 166:- "It is appropriate to consider what the money was used for in order to determine the purpose of the provision of the credit. In considering the question it is important to consider the substance of the transaction in the context of its performance." 151 As I read this passage, it indicates that one is entitled to look at the performance of the transaction, that is, what was actually done with the funds raised. 152 On the facts of this case set out in detail above, I am more than comfortably satisfied of the following:

From about 1991 onwards, Mr. Bradley had acquired investment residential properties funded by loans from the plaintiff and secured by mortgages over the Pymble property owned by him and his wife as well as over properties which he owned alone.
He aimed to make payments of interest on the loans tax deductible and so he reduced the proportion of borrowing for the home and correspondingly increased the proportion of borrowings for investment.
By June 1999 he had set up Online Australia (OAL) Pty Ltd and its associated companies and was using loans secured in part by mortgage over the Pymble property to assist in financing them.
During August and early September 1999 Mr and Mrs Bradley raised a loan from Cromwell/Cardinal of $1,100,000 secured in part by mortgage over the Pymble property predominantly to pay out the liability to NAB of about $850,000 and to provide working capital for the companies. This was arranged through their accountant.
In August 2000 Mrs Bradley was advised of the approval of a loan to her and her husband from the plaintiff of $700,000 to be secured by a mortgage over the Pymble property. She signed the facility agreement which, amongst other things, nominated her husband to receive notices. They were then not living in the Pymble property but at an address at St Ives.
On 27 September 2000 Mr and Mrs Bradley executed the mortgage sued upon in the presence of their solicitor. The Memorandum incorporated within this mortgage made either or both of them jointly and separately liable for all money which one or more of them owe the bank, or will or may owe the bank in the future, and which by law may be secured by this mortgage, including under an agreement covered by this mortgage; and in respect of any credit provided by the bank to them other than under an agreement covered by this mortgage; and otherwise payable under this mortgage."
The purpose of the loan was to pay out the liability to Cromwell/Cardinal of $1,124,826.36.
This liability was reduced upon the sale of a property owned by Mr. Bradley.
On 24 May 2001 Mr and Mrs Bradley signed an application to restructure the loan from the plaintiff to a limit of $905,000 secured by the mortgages which the plaintiff already held.
On the same day they signed a declaration in accordance with the Consumer Credit Code that the credit to be provided is to be applied wholly or predominantly for business or investment purposes (or for both purposes). It complies with the forms specified in Consumer Credit Act and Regulations.
In accordance with s 11(2) of the Code the credit granted is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes.
The bank (and Mr Bradley who obtained the declaration from Mrs Bradley) did not know and had no reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
The application to restructure signed on 24 May 2001 was accepted by the bank which implemented the restructure applied for. 153 Accordingly, the purpose of the credit provided to Mr and Mrs Bradley and secured by the subject mortgage over the Pymble property was not provided wholly or predominantly for personal, domestic or household purposes and the Consumer Credit Code has no application in this case. Was Mrs Bradley's Liability extinguished? 154 Mrs Bradley also alleges that the loan to which she was a party was fully paid out and discharged as at 25 May 2001 and, consequently, she has had no liability to the bank after that time. In support of this submission, she points to the fact that the bank in its letter to her and her husband of 16 October 2000 (page 312 of exhibit A) refers to loan account No. 10-515-0267 of $700,000 and loan account No. 48-790-9952 of $420,826.33 as being drawn down. 155 The former loan account was comprised in the mortgage over the Pymble property to which Mr and Mrs Bradley were parties. The latter loan account was solely in the name of Mr Bradley and was secured by a mortgage over the Neutral Bay and Smiths Lakes properties. 156 Following upon the execution of the documents by Mr and Mrs Bradley on 24 May 2001, (appearing at pages 346 to 350 of exhibit A), the bank wrote to Mr Bradley on 30 July 2001 (page 354 of exhibit A) advising that the loans had been restructured so as to provide a facility limit of $905,000. This also advised that accounts numbered 105-515-0267 and 48-454-1136 were closed. 157 Accordingly, Mrs Bradley claims that the loan was discharged and came to an end. 158 This is clearly not the case. The loan was not discharged and the mortgage was not discharged. Instead, the borrowings were continued secured by the mortgage over the Pymble property and the facility was increased with the restructured facility being given account No 50-722-1857.

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159 Mrs Bradley argues that the account in which these funds were drawn down was an account in Mr Bradley's sole name. This is further support for her claim that any obligation by her under the loan is discharged. 160 This argument fails to take into account that the FlexiPlus Facility is in joint names. It does not take into account the definitions of "amount due" and "you" contained in the Memorandum incorporated in the mortgage, the terms of which are set out earlier. The fact that the account, created for the purposes of and under that facility, were in Mr Bradley's sole name does not affect the fact that the contractual relationship remained between the bank and each of Mr and Mrs Bradley. 161 In any event, because the mortgage is not regulated by the Code, the issue is irrelevant. 162 As pointed out earlier, clause 31 of the Memorandum incorporated within the mortgage provides that "amount owing" means, at any time all money which one or more of Mr and Mrs Bradley owe the bank or will or may owe the bank in the future. In addition, the word "you" means the person or persons named in the mortgage as mortgagor and when more than one, any one or more jointly and separately. Both Mr and Mrs Bradley are named as mortgagor. 163 In the course of her questioning of witnesses, Mrs Bradley referred to the words appearing on the document signed by her on 24 May 2001, page 350 of exhibit A, "If a loan is negotiated" and asked where was the loan that was negotiated. 164 In paragraphs 8 and 9 of his affidavit, Mr Timothy Brain, a bank officer, says:- "Consistently with my invariable practice at May 2001, following receipt of file note referred to in paragraph 3 above, I would have: (a) prepared facility documentation for a FlexiPlus Mortgage Facility Individuals - Personal Investment Purposes document, together with a covering letter, in the name of Mr and Mrs Bradley. The covering letter would have been in substantially the same or similar form as the bank's letter to Mr Bradley dated 20 June 2000. The facility documentation contained in the covering letter would have included a document in substantially the same terms as the facility document and (b) sent the said covering letter and facility documents to Mr and Mrs Bradley. 9. As at May 2001 the bank kept electronic copies of covering letters and the flexi plus facility documents were sent to customers, but did not require customers to return signed documentation." 165 I am far from satisfied that Mr Brain followed his invariable practice on this occasion in May 2001. In the first place, the documents appearing at pages 346 to 350 were sent by fax to Mr Bradley on 24 May and returned by him to the bank on 25 May. The missing page 1 is probably just a cover note and was not returned. Consequently the bank has produced faxed pages 2 to 6 inclusive, each of which is signed by Mr and Mrs Bradley. On the probabilities, I am satisfied that page 1 was not relevant to the transaction being conducted and so was not returned to the bank and consequently the bank does not have it. 166 Whether such a practice was followed on this occasion or not is immaterial. The letter of instruction appearing at page 347 expressly authorises and instructs the bank to attend to a draw down of $905,000 and to pay that amount to the bank. It also provides that it is subject to existing security already held. That existing security included the mortgage granted by Mr and Mrs Bradley over the Pymble property sued upon in this action. 167 When signing this letter of instruction on 24 May 2001, Mrs Bradley clearly authorised the restructuring of the account and that it was subject to the existing securities already held. 168 As previously pointed out, this restructured amount comes within the definition of "amount owing" as contained in clause 31 of the Memorandum incorporated within the mortgage over the subject land.

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169 Accordingly I am comfortably satisfied that Mrs Bradley is liable for the amounts due pursuant to the loan agreement and the subject mortgage. The Cross Claim 170 I now pass to the Second Defendant's Cross-claim. 171 She seeks a declaration that she is not, and never was, a party to the facility and a declaration that the loan to which she was a party was discharged on or about 24 May 2001 and, consequently, she is no longer indebted to the bank in respect of any amount in relation to the home loan which was previously secured by the mortgage. 172 I have already dealt with this claim and it is, for reasons already stated, rejected. 173 She also seeks an order under the Consumer Credit (NSW) Code setting aside or relieving the Cross Claimant from liability under the facility or the mortgage. 174 For reasons already given, I am satisfied that Consumer Credit Code does not apply to the facility or to the mortgage. 175 In paragraphs 14 and following of her Cross-claim, Mrs Bradley alleges that about May 2001, Mr Bradley approached the bank without her knowledge seeking additional finance and that on about 24 May 2001, the bank faxed to him at his work place a 6 page document. This is the document contained at pages 346 to 350 of exhibit A. She alleges that no communication was made directly between the bank and her and that, in conducting the transaction in this fashion, the bank made Mr Bradley its agent in respect of the transaction. 176 She claims that on about 24 May 2001 Mr Bradley asked her to sign each of the pages, which she did, but at no time did Mr Bradley explain to her the effect of those documents, nor his purpose in doing so. She did not receive then any independent advice, whether legal or otherwise, nor did Mr Bradley or the Cross Defendant suggest to her that such advice should be obtained. 177 She alleges that on or around 25 May 2001 the facility with a limit of $905,000 was made by the bank to Mr Bradley only. Those funds were recorded as a debit to a pre-existing account numbered 50-722-1857 held with the bank in the name of Mr Bradley only. Furthermore, on or about 25 May 2001, the bank arranged for a transfer of approximately $689,000 to repay the home loan and the home loan was discharged. 178 These matters have already been considered and, for the reasons given, I reject the allegations. 179 From paragraph 27 onwards, Mrs Bradley makes claims pursuant to the Consumer Credit Code. For reasons already given, I am satisfied that the Code does not apply to this transaction or to the mortgage. 180 This particularly applies to her claim under s70 of the Code, which allows the Court to reopen unjust transactions. Unconscionable Conduct and Undue Influence 181 Alternatively, she claims that the bank's conduct in procuring her agreement to the restructuring of the loan in May 2001 was unconscionable because:- "1. By communicating only with Mr Bradley and by sending the fax only to him made Mr Bradley its agent.

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186 In her affidavit sworn on 10 August 2006, Mrs Bradley says that in 1988 she stopped work to raise her children. Prior to that she had been a pre-school teacher and returned to that work in 2004. 187 She says that she has no knowledge of, or education in, finance or banking. In 2001 she did a one-day course on how to enter data into the MYOB accounting program and she has used that program on about five occasions. Since around 1988 her husband has taken responsibility for financial matters and family finances. Apart from grocery bills her husband pays all bills and routinely opens and deals with the mail. 188 She said that from time to time, from 1988 to around 2005, her husband would ask her to sign documents, which she would do without questioning the purpose of doing so. 189 She further says that, from the time of her marriage in 1985 until 2005, she trusted her husband to protect the family interests and she had confidence that he would do that. She claims that during the period between 1994 and 1998 she was unaware what was happening with the home loan. Around 1998 her husband left his job with AAPT and set up an Internet company called Online Australia (OAL) Pty Ltd. 190 She continues that in 1999 her husband told her that they were having difficulty paying debts and they needed to refinance with Cardinal Financial Services which asked her to obtain some legal and financial advice to allow that to happen. She agrees that about August 1999 she was introduced to Mr Knight, a solicitor who provided her with independent legal advice on the mortgage documents in relation to the Cardinal Financial Services transaction. 191 He affidavit states that, in about mid 2000, her husband told her that they could not manage the loan with Cardinal and he had arranged to go back to the NAB. 192 In September 2000, she saw Mr Barron, solicitor, at her then home at St Ives and they looked at the loan documents together. She understood that she and her husband were borrowing $700,000 from the bank and that amount was secured by a mortgage over the family home. She understood that the $700,000 was needed to refinance the debt on the family home and meet the family's living expenses. She spoke to her husband about this sum, which she regarded as a large amount of money and said that she knew that she had to sign the mortgage to protect the house. She did not want to lose her house but this was the limit and she was not going to agree to anything above it. 193 She said that it was not until 2005 that she became aware that, in addition to the $700,000, other amounts were advanced by NAB to her husband. She then saw the pages which were part of the fax sent in May 2001. She agrees that each bears her signature. She does not remember seeing the faxed pages or signing them. 194 She cannot recall how her signature came to be on the pages. However, she assumes that her husband would have brought the faxed documents home, told her that the bank needed her to sign them and that she did so. She claims that she would never have signed them if she had realised or been told by anyone that they were part of a larger document which could potentially increase her debt to the NAB or put the family home at risk. 195 The picture which Mrs Bradley paints of herself as a naïve housewife is far from the complete picture. 196 During cross-examination, she agreed that in the period since 2000 she has been a director of a number of companies including Data Liberation Pty Ltd, Sydney North Properties Pty Ltd, Bradley Associated Holdings Pty Ltd, Online Australia Pty Ltd and Tralee Asset Management Pty Ltd. She is the sole director of Sydney North Properties Pty Ltd. 197 At page 403 of exhibit A is a letter which she wrote to the bank on 7 October 2003, on behalf of Sydney North Properties. This letter reveals considerable business acumen and knowledge. 198 On 17 October 2003, she wrote to Mr Burness, the Trustee of Mr Bradley's estate (page 407) setting out details of her assets. This shows that she has not inconsiderable abilities, even though she claims that she relied on her husband for instructions in most respects. 199 She agreed that sometimes she asked her husband's for advice and when he gave it she would understand it. 200 She also agreed that, in relation to the mortgage and guarantee documents which she signed in respect of the transaction with Cardinal Financial Services, she had received independent advice from Mr Knight, solicitor so that she understood the nature of those documents and the consequences which flowed from her execution of them. 201 When asked questions about the advice and explanations she was given by Mr Knight, she said that she presumed it was given but did not remember it. 202 She accepted the accuracy of the wording in Mr Knight's certificate of 30 August 1999 that she had spent about an hour and twenty minutes with him during which he gave the explanation relating to the mortgage and guarantee documents. 203 She also agreed that Mr Garrett, an accountant, explained to her the purposes for borrowing $1.1 million from Cardinal Financial Securities. However, she did not recall the meeting. 204 She agreed that in August 1999, she was prepared to consent to giving the mortgage and the guarantee for a loan of $1.1 million to Cardinal Securities. 205 In my view, this makes it highly probable that she had no qualms about executing documents on 24 May 2001, which had the effect of restructuring the loan to the lesser sum of $905,000. 206 At pages 108 and 109 of the transcript, the following exchange occurred: "Q. Then if you go to page 347, that's another document you signed on 24 May 2001, isn't it? A. Yes.

At a glance

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Judgment (81 paragraphs)

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