[2017] VSC 385
General information, not legal advice.
Supreme Court of Victoria
2017-06-29
SLOSS J
Original judgment source is linked above.
CONTRACT - Unilateral mistake - Equitable right to rescission where other party exploits a 'serious mistake' - Whether Bank was aware of customer's mistaken understanding of terms of fresh loan - Held: Bank was not aware of a 'serious mistake' and did not deliberately set out to ensure that customer did not become aware of this mistake - Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 considered and applied.
TRADE PRACTICES - Misleading or deceptive conduct - Representation alleged to have been made to a party about the terms of an executory contract - Representation must be made with sufficient precision - Conduct to be assessed in the light of all relevant facts and circumstances - Whether Bank made representations about a loan which differed from the terms of that loan - Held: no representation was made giving rise to misleading or deceptive conduct - Australian Securities and Investments Commission Act 2001 (Cth) s 12DA(1) - Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 considered and applied.
TRADE PRACTICES - Statutory unconscionability - Whether statutory unconscionability requires 'moral obloquy' as distinct from mere unfairness or unreasonableness - Whether there was a 'moral taint' to Bank's conduct in not explaining terms of fresh loan to customer with sufficient clarity - Held: (1) moral obloquy required; (2) Bank's conduct not unconscionable - Australian Securities and Investments Commission Act 2001 (Cth) s 12CB(1) - Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56; (2013) 44 VR 202; Director of Consumer Affairs (Vic) v Scully (No 3) [2012] VSC 444; [2013] VSCA 292 considered and applied.
EQUITY - Vitiating factors - General law unconscionability - Whether customer with mistaken understanding of terms of fresh loan was under a 'special disadvantage' - Requires 'close consideration of the facts' - Equitable relief requires both (1) a disabling condition and (2) 'unconscientious taking advantage' by the other party - Inequality in bargaining power an important but not decisive factor - Held: (1) there was no special disadvantage; (2) there was no 'victimisation or exploitation' - Australian Securities and Investments Commission Act 2001 (Cth) 12CA(1) - Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447; Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 considered and applied.
CONSUMER PROTECTION - Whether a credit contract between Bank and customer was one to which Consumer Credit (Victoria) Code applied - Whether credit contract was 'carried over instrument' and subject to National Credit Code - Held: Consumer Credit (Victoria) Code applied and credit contract was carried over instrument - Consumer Credit (Victoria) Act 1995 (Vic); National Consumer Credit Protection Act 2009 (Cth).
CONSUMER PROTECTION - National Credit Code s 76(1) - 'Unjust transaction' - Court to have regard to the public interest - Factors to have regard to under s 76(2) - Customer did not seek legal advice before signing loan agreement - Whether Bank discouraged customer from seeking independent legal advice before signing loan agreement - Whether Bank exerted unfair pressure or used unfair tactics or otherwise engendered an unjust transaction - Held: neither of the loan agreements nor their provisions are the product of unfair conduct on the part of the Bank - National Consumer Credit Protection Act 2009 (Cth).
CONTRACT - Restitution - Change of position - Good faith and reliance on receipt of money - Whether restitution unjust because of misrepresentations as to loan amount - David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353; Dextra Bank & Trust Co Ltd v Bank of Jamaica [2001] UKPC 50; [2002] 1 All ER (Comm) 193 considered.
EQUITY - Subrogation - Payment out of a prior security by third party - Unconscionability of denying proprietary interest where third party presumably intended paying-out to be for own benefit - Subrogation only available absent sufficient remedy at law or in equity - Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269; Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; (2013) 86 NSWLR 174 considered.
1 In December 2008, the plaintiff, the Commonwealth Bank of Australia ('the Bank') advanced to the defendant, Mr Owen Bruce Stephens, the principal sum of $2,100,300 pursuant to two loan agreements. The advance was secured in part by a mortgage registered over Mr Stephens' property situated at 96 Wooralla Drive, Mount Eliza. Mr Stephens defaulted in making the payments due under the loan agreements, and the Bank now seeks possession of the 96 Wooralla Drive property and to recover the principal sum of $2,100,300, together with interest. The amount of the debt certified by the Bank as due and owing as at 18 April 2016 is $2,495,563.34.[1]
2 Alternatively, if the Bank does not succeed in its contractual claim, it seeks restitution of the (net) sum of $1,426,950.61 that Mr Stephens has had and received to his benefit, as a result of the Bank advancing the amount of $2,100,830[2] to him and after him making repayments to the Bank of amounts of $102,992.21 and $570,887.18, together with interest. Alternatively, the Bank seeks to be subrogated to the rights of Perpetual Trustee Company Limited ('Perpetual') under registered mortgage No. AE909466D (the 'Perpetual mortgage') by reason that the Bank paid to Perpetual the sum of $1,365,662.44 in order to discharge the Perpetual mortgage, and in so doing the Bank was presumed, by operation of law, to intend that the Perpetual mortgage would be kept alive for its benefit to secure the payment it made to Perpetual, together with interest and costs.
3 Mr Stephens has filed a defence and counterclaim. In his defence, he admits that he entered into loan agreements with the Bank but says that he did so in the mistaken belief that the financial accommodation to be provided to him by the Bank would be in the total sum of $2,550,000, rather than the sum of $2,100,300 that was actually advanced, and that the interest payable thereon would be capitalised so as to allow him to subdivide the 96 Wooralla Drive property and purchase another property situate at 2 Marie Court, Mount Eliza for the family to live in. Further, he says that the Bank knew or ought reasonably to have known that he was acting under such mistake. Mr Stephens contends that as the Bank advanced only the total sum of $2,100,300, which was less than the total sum of $2,550,000 Mr Stephens says it had approved, he is not bound to perform the loan agreements or the Bank's mortgage.
4 Further or alternatively, Mr Stephens alleges that the Bank engaged in misleading and deceptive conduct in contravention of section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ('the ASIC Act'), by reason of which he has suffered loss and damage. He alleges that the Bank represented to him that it had unconditionally approved a loan and would provide financial accommodation in the total sum of $2,550,000, that the interest on the loan would be capitalised so as to allow him to subdivide the 96 Wooralla Drive property and complete the development before repayment was required, and that the loan documents and mortgage to be entered into would reflect that arrangement.
5 Acting in reliance upon those representations, Mr Stephens entered into an unconditional agreement to purchase the 2 Marie Court property, and executed the loan documents and mortgage. However, he alleges that the representations made by the Bank were false and/or misleading in that the Bank now says it approved only the provision of financial accommodation totalling $2,100,300, that interest could not be capitalised under the loan documents, and that each of the loan documents so executed by him were consumer credit agreements for the provision of the sums of $1,100,150 and $1,000,150 respectively whereunder interest was payable by monthly instalments. Mr Stephens says that as a result of financial accommodation in the total sum of $2,550,000 not being provided by the Bank, (and implicitly with the interest thereon not being capitalised) he lost the opportunity to develop the 96 Wooralla Drive property and realise its true value, and has suffered a loss of more than $1 million.
6 Further or alternatively, Mr Stephens alleges that the Court should find that, in the circumstances, the Bank has engaged in unconscionable conduct in contravention of section 12CB, alternatively 12CA, of the ASIC Act, particularly as he was not afforded the opportunity to seek and receive independent legal advice prior to the execution of the loan documents and the Bank's mortgage, and the Bank knew or ought reasonably to have known that he needed funds urgently to settle the purchase of the 2 Marie Court property.
7 Further or alternatively, Mr Stephens alleges that the loan documents are credit contracts within the meaning of section 6 of the Consumer Credit Code (Victoria) (the 'old Code') applying as if it were section 5 of the National Credit Code (the 'new Code'[3]), by reason of section 11(1) of the old Code applying as if it were section 13 of the new Code, and that similarly, the mortgage entered into is a mortgage to which the new Code applies. Mr Stephens contends that at the time of entering into the loan documents and the mortgage, they were 'unjust' within the meaning of section 76 of the new Code and accordingly, are liable to be set aside by the Court pursuant to section 77(c) of the new Code, alternatively, that he is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable pursuant to section 77(b) of the new Code.
8 Generally Mr Stephens admits that he has not paid the sums variously demanded by the Bank but says that a failure to make restitution of the moneys claimed by the Bank would not be unjust in the circumstances; alternatively he submits that he is not liable to make restitution because he has changed his position in good faith and in reliance upon the representations and as a result of the Bank's contravention of sections 12CB and/or, 12CA and/or 12DA of the ASIC Act. Further, he says that the Bank is disentitled from asserting a right to subrogation by reason of the conduct on the part of the Bank in respect of which he complains. Insofar as he may be found liable to pay any moneys to the Bank, Mr Stephens seeks to set off so much of his damage as is required to extinguish the Bank's claim.
9 Mr Stephens also counterclaims for relief along similar lines to that pleaded in his defence, contending that he is not bound to perform the obligations under the loan documents or the mortgage by reason of mistake; further or alternatively, that he has suffered loss and damage by reason of the misleading and deceptive conduct engaged in by the Bank; further or alternatively, that the Bank engaged in unconscionable conduct in contravention of sections 12CB or 12CA of the ASIC Act by reason whereof he has suffered loss and damage; and further or alternatively, that the loan documents and mortgage were 'unjust' within the meaning of section 76 of the new Code and accordingly, are liable to be set aside by the Court pursuant to section 77(c) of the new Code, alternatively, he is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable pursuant to section 77(b) of the new Code.
10 By way of relief, in his counterclaim Mr Stephens seeks variously:
11 The Bank denies the substantive allegations pleaded by Mr Stephens by way of defence and in his counterclaim.
12 Against that background, in the event that Mr Stephens' counterclaim fails, the Bank contends he is liable to deliver up the 96 Wooralla Drive property and pay to it the (net) sum of $1,426,950.61 plus interest up to the date of issue (7 November 2013) in the amount of $476,291.09, and thereafter pursuant to section 58 of the Supreme Court Act 1958 (Vic); alternatively by reference to the subrogated mortgage, to pay to the Bank the sum of $1,365,662.44 plus either compound interest up to the date of issue (7 November 2013) in the amount of $1,906,164.32 or simple interest in the amount of $456,590.69, and thereafter in each case pursuant to section 58 of the Supreme Court Act 1958.
13 Mr Stephens' defence and counterclaim give rise to the following issues:
(a) Whether Mr Stephens' executed the loan documents and mortgage in the mistaken belief that the financial accommodation to be provided by the Bank would be in the total sum of $2,550,000 and that the interest payable thereon would be capitalised so as to allow him to subdivide the 96 Wooralla Drive property and purchase the 2 Marie Court property. If so, did the Bank know or ought it reasonably to have known that he was acting under such mistake?
(b) Whether the Bank made representations to the effect alleged, and in so doing engaged in misleading and deceptive conduct in breach of section 12DA of the ASIC Act? If so, does section 12GF(1B) operate by reason of a failure on the part of Mr Stephens to take 'reasonable care' in entering into the agreements in the circumstances? Or whether the Bank made representations as to a future matter for which it had no reasonable grounds in breach of section 12BB?
(c) Whether the Bank acted unconscionably, in breach of sections 12CB or 12CA (within the meaning of the 'unwritten law') of the ASIC Act?
(d) Whether by reason of the conduct of the Bank the loan documents and mortgage were 'unjust' within the meaning of section 76 of the new Code and accordingly, are liable to be set aside by the Court pursuant to section 77(c) of the new Code? Alternatively, whether in the circumstances, Mr Stephens is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable pursuant to section 77(b) of the new Code.
(e) What loss or damage, if any, Mr Stephens has suffered by reason of contravening conduct on the part of the Bank? (In this regard I note that Mr Stephens is seeking damages for the loss of opportunity to develop the 96 Wooralla Drive property, an opportunity he says would have come to fruition if the Bank had advanced the sum of $2,550,000.)
Lay Witnesses called to give evidence at the trial
14 The Bank called three witnesses who gave evidence about the events which took place and its lending practices generally, and the indebtedness of Mr Stephens. They were Mr Joseph Ringeri, Mr Jason Radich and Mr Mark Deligiorgakis.
15 Mr Joseph Anthony Ringeri is an experienced mobile lending manager who worked in lending roles with the National Australia Bank Limited ('NAB') for many years, prior to him commencing employment with the Bank in about 2002. Mr Ringeri first became involved in the lending arrangements for Mr Stephens in the first week of December 2008 when he received a phone call from Ms Trish Henderson. Mr Ringeri knew Ms Henderson from his time at NAB, having met her in about 2002 when he was working there. In his role as a mobile lender, he would meet with clients and potential clients, who were often referred to him by other brokers, and arrange home loans. Ms Henderson had a business at Mornington Peninsula called Ladybug Financial Services and was a source of new business for Mr Ringeri in his mobile lending role. She was one of about eight referrers of business to him,[4] but he did not regard her as a major source of business. Mr Ringeri became involved in Mr Stephens' transaction after Ms Henderson made a complaint to him about the conduct of the Bank's mobile lending manager who was handling the matter. Throughout these reasons, I shall refer to that person as 'Ms MLM'.[5] Mr Ringeri ceased his employment with the Bank in about May 2009 and returned to work with NAB.[6]
16 Mr Jason Radich joined the Bank on 4 December 1989 and has been working there for the past 26 years. He is currently the branch manager at its Somerville branch. In 2008, he was working as the branch manager at the Mt Eliza branch.
17 Mr Radich did not have any involvement in any loan approvals for Mr Stephens in 2008 or at any other time. He said that in his role as a branch manager, he would not normally be involved in loan approvals and that they would be handled by a personal lender or a mobile lender.[7] He could not recall having met Mr Stephens or having had any discussions with him in September 2008 concerning the amount the Bank would lend him. He also does not recall having any involvement in Mr Stephens' acquisition of 2 Marie Court, which was funded by the Bank as part of the loans in 2008, or the later settlement in January 2010 following Mr Stephens' resale of that property.[8] He also had no recollection of Ms MLM, who was working as a mobile lending manager with the Bank.
18 In cross-examination, counsel for the defendant took Mr Radich through the sequence of interactions that each of Mr Stephens and Ms Henderson contended they had with him at the Mt Eliza branch, but for the most part Mr Radich either had no recollection or did not remember. That is not entirely surprising, given the effluxion of time and the limited role he played vis-à-vis Mr Stephens as a customer of the Bank, and counsel for the defendant did not suggest that Mr Radich was other than truthful as a witness.
19 Mr Mark Deligiorgakis is an employee of the Bank. In his current role, he works as a portfolio manager in the collections area, with loans that have fallen into arrears. Through Mr Deligiorgakis, the Bank tendered a 'Dobbs Certificate'[9] certifying the amount of moneys secured by Mortgage AG323120Q given by Mr Stephens to the Bank in relation to two Loan Accounts 827 501 903 and 827 502 009 as at 18 April 2016 as being $1,605,723.30 and $889,840.04 respectively.[10]
20 Mr Deligiorgakis gave evidence about 'matter detail reports' that are created and maintained by the Bank once a loan account falls into arrears. The matter detail reports (in redacted form) that were generated when each of Mr Stephens' loan accounts fell into arrears were the subject of a joint tender.[11]
21 Mr Deligiorgakis explained the matter detail report as being a 'report outlining a snapshot of the current customers' accounts and details'[12] and said it is a system that is 'for collections use only.'[13] Once a loan falls into arrears, the system 'automatically generates a portfolio or summary, and it pops up into a collector.'[14] Bank officers input information into the report by typing and entering the transactional details of phone calls and other conversations. The Bank's practice, or at least the objective of the training given to the collections officers, is for them to input information into the database as soon as they finish a call with the customer, with the aim of ensuring that the relevant information is captured, usually in an abbreviated or shorthand form, when everything is fresh in their mind and correct.[15] Mr Deligiorgakis was unable to comment about the practices of any of the staff members who recorded information in the matter detail reports for Mr Stephens' accounts because each of those calls was made to the Bank's call centre in Melbourne and he works in Sydney.[16]
22 Mr Owen Bruce ('Bruce') Stephens gave evidence himself and called two other witnesses, Ms Patricia ('Trish') Henderson and Ms Anna Graham, as to the events which took place.
23 Mr Stephens has professional qualifications as an electrical engineer, and he is involved in computing and electronics. Nowadays he is wholly self-employed, looking after computer networks and consulting to aviation and other businesses located on the Mornington Peninsula about their computer needs etc. Mr Stephens professes to have little or no experience of the banking or finance sector and says he does not understand banking matters. His domestic partner of some 27 years, Ms Patricia (Trish) Henderson, is currently working in sales and marketing, but she spent several years as a mortgage broker and was working in that capacity at the time the subject transactions occurred. Mr Stephens says he has no knowledge or understanding of Trish's business.
24 Mr Stephens has owned at least four properties: one in Spray Street, Rosebud and three in Mt Eliza at 16 Lowe Street (which was later sub-divided into two properties, being nos. 16 and 16A), 96 Wooralla Drive and 2 Marie Court. In the context of purchasing those properties, and in carrying on his business and domestic affairs, Mr Stephens has conducted banking transactions with Westpac Banking Corporation, Perpetual and Bendigo Bank, in addition to those undertaken with the Bank. He acknowledged that by the time of his dealings with the Bank, he had had some experience in dealing with loans and financial matters and was familiar with paying mortgages.[17]
25 At the time he sought the subject loans from the Bank, Mr Stephens was not an experienced developer. Prior to embarking upon his 'development proposal' for 96 Wooralla Drive, he had subdivided a property he owned at 16 Lowe Street, Mt Eliza, by splitting it into two blocks, but the 96 Wooralla Drive property was quite a different prospect to the Lowe Street split. He explained that 'Wooralla was on a much larger scale - it was 'a full development, development of the land, putting in fences, roads, plumbing, septic tanks and things like that.'[18]
26 Mr Stephens was not a customer of the Bank at the time he sought the subject finance from the Bank. He conducted his personal banking through Bendigo Bank and had a credit card with Virgin Credit.
27 From the outset, Mr Stephens had minimal contact with any of the Bank officers involved in the loan transactions the subject of this proceeding. In the early part of the process, Ms Henderson was invariably the contact point or the conduit for information transmitted between Mr Stephens and the Bank, and (as a practical matter) for information transmitted between the Bank and Mr Stephens. Mr Stephens pleads that throughout the subject transactions with the Bank, Ms Henderson was acting as his agent.
28 Ms Patricia Henderson and Mr Stephens are domestic partners and have been in a relationship for more than 27 years. From 2008, when the loan transaction with the Bank was initiated, and throughout, Ms Henderson acted as Mr Stephens' agent.
29 Ms Henderson currently works in sales and marketing for an architectural company and other architectural firms and building companies. She has been in that role for about four years. Between about 2003 and 2008, however, she was self-employed as a mortgage broker doing 'almost exclusively residential' loans,[19] having done her initial accreditation between about 2000 and 2002 through Sample & Partners and then with Abcorp Financial Services. Whilst working in the mortgage broking role, Ms Henderson said she did accreditations every year which were current and up to date with financial institutions such as Westpac, Interstar, ANZ and Perpetual.[20]
30 At the time when Mr Stephens was seeking development finance from the Bank, Ms Henderson was self-employed as a broker, operating as Ladybug Financial Services, which role she performed for approximately five years between about 2005 and 2010.[21]
31 In 2008, Mr Stephens asked Ms Henderson to have a look and see what options there were for them to undertake a development of 96 Wooralla Drive. At the same time, they were also seeking to understand what smaller residential properties might be coming on to the market, even though they were not in a position to buy at that time.[22]
32 In June or July 2008, Ms Henderson spoke with a colleague, Ms Anna Graham, and briefed her in very general terms on the proposed five lot subdivision and asked whether there was any development finance available. Ms Graham said that the group she was with did not offer development finance, and suggested that she should speak with Ms MLM, who was a mobile lending manager with the Bank. Ms Graham told Ms Henderson that she would likely know Ms MLM as she had worked with her at Abcorp Financial Services, and she offered to set up a meeting with her. In due course, Ms Graham arranged a meeting to introduce Ms Henderson to Ms MLM at the Manyung Gallery coffee shop in Mt Eliza on 20 August 2008.
33 Ms Anna Graham is currently employed by a company called National Mortgage Brokers in Queen Street, Melbourne. She said that National Mortgage Brokers is an aggregator - 'a middle man between the banks and the mortgage brokers'[23] - and is a wholly owned subsidiary of Aussie Home Loans, which is 80 per cent owned by the Commonwealth Bank. Ms Graham said that in 2008, she and Ms Henderson were 'business acquaintances'[24] and she did not socialise with her or Mr Stephens.[25]
34 Ms Graham said she knew that in 2008 Mr Stephens and Ms Henderson 'were trying to do some finance with' the 96 Wooralla Drive property. She said that Ms Henderson explained the nature of the transaction to her as being a subdivision, and asked her if she could assist with the finance. Ms Graham said that she said she could not - because they were seeking 'development finance' which was outside of the residential code - and suggested that she speak with Ms MLM who was a mobile lending manager at the Bank. The loan agreements that Mr Stephens later entered into with the Bank recorded that commission was payable to the 'Anna Maria Graham Trust', but Ms Graham said she assumed that Ms Henderson was the referrer on Mr Stephens' loan because she was 'the person that was doing all the talking'[26] and following up with Ms MLM and the Bank.
35 Ms Graham said she did not recall any discussions taking place between her and Ms MLM and Ms Henderson in 2008. She said 'I heard conversations on the telephone, but I don't recall being - the three of us being together.'[27] She said that she became aware, but was not sure how, that Ms Henderson did contact Ms MLM and that 'they must have completed an application.'[28] She said that at some point Ms MLM was apparently refusing to speak with Ms Henderson, and so Ms Henderson would be ringing Ms Graham and seeking her assistance, and asking her why Ms MLM was not returning her calls. Ms Graham said that she effectively 'became sort of the messenger.'[29]
36 In the case of each of the lay witnesses, an outline of the substance of the evidence proposed to be given by each of them was filed by the respective parties in advance of the trial commencing. The lay witnesses gave their evidence viva voce and were cross-examined. Witnesses were not present in Court until they had completed giving their evidence and being cross-examined, save for Mr Stephens, who as a party, exercised his right to remain in Court throughout the proceeding.[30]
Joint tender of a substantial body of documentation
37 Three volumes of Court Book were produced for use at the trial. A substantial body of relevant material contained therein was the subject of a joint tender. A small number of other documents, most of which were included in the Court Books, were tendered by one or other party.
38 The events in question took place many years ago. The three main witnesses in the proceedings, namely Mr Ringeri (on behalf of the Bank) and Mr Stephens and Ms Henderson, all demonstrated some difficulty in now recalling precisely what happened, and when, or what was said in conversations between them.
39 For Mr Ringeri, the transaction involving Mr Stephens was one of thousands of loans that were undertaken by him whilst working at the Bank. He was a good witness, in the sense that he listened to the questions, made appropriate concessions and acknowledged when he could not recall something. On many occasions he said he 'would have' done something, by reference to his usual practice. But there were other occasions where he clearly did recall that something did (or did not) take place and he made his position clear to the Court. Where his evidence contradicts that of Mr Stephens or Ms Henderson, I generally prefer the evidence given by Mr Ringeri.
40 Mr Stephens professed to know little about commercial matters. In giving his evidence he conveyed the impression that he had no interest in dealing with the Bank personally and was content to let Ms Henderson handle the whole loan process on his behalf. Because of his lack of direct personal involvement, his recollection of what took place is affected by, or suffers from, the fact that much of what he knows was communicated through the medium of Ms Henderson, rather than by interaction or communication directly with the Bank.
41 Ms Henderson, while not a party, was nevertheless interested in the transaction in that she acted as the agent for Mr Stephens. Much of the evidence she gave was at odds with Mr Ringeri's account or contrary to that recorded in contemporaneous notes or correspondence, or the statutory declaration she made in support of an application Mr Stephens made to the Financial Ombudsman Service. When giving evidence, at virtually every opportunity she sought to reinforce the notion that Ms MLM had told her that the loan of $2.55/2.65 million was 'fully and unconditionally approved' and Ms Henderson remained of the view that the Bank was committed to advancing that sum notwithstanding that she knew it had been 'approved' on the basis of false information, and Mr Ringeri had made it clear to her when he became involved in the matter in early December 2008 that he was going to start afresh and that the Bank would lend Mr Stephens the sum of $2,100,300.
42 The mobile lending manager whom Ms Henderson consulted, on behalf of Mr Stephens, in mid-2008, and dealt with until Ms Henderson made a complaint about her conduct in early December 2008, was not called by either party. I shall refer to the mobile lending manager throughout as 'Ms MLM'. She no longer works with the Bank. The evidence was that after the complaint was made, Ms MLM became the subject of an internal investigation and her services were terminated by the Bank at some point shortly thereafter. In circumstances where allegations were made in this proceeding that were critical of Ms MLM's conduct, but she was not called or given any opportunity to respond to them, I do not propose to identify her by name.
43 Counsel for Mr Stephens submitted that Ms MLM is in the Bank's 'camp' and is certainly not in Mr Stephens' 'camp', and given the Bank's failure to call her an inference should be drawn in accordance with the principles in Jones v Dunkel[31] that her evidence would not have assisted the Bank's case. The Bank disputed this. In effect, counsel for the Bank submitted that in circumstances where the Bank had terminated the employment of Ms MLM, following the making of the complaint, the Bank could hardly be expected to call her to give evidence in support of its case.
44 In my view, Ms MLM was not in either party's 'camp' (so to speak). In the circumstances of the termination of her employment by the Bank, it was not reasonable to expect that the Bank would call her. But given that the complaint made by Ms Henderson apparently provoked a phone call from Ms MLM to her in which she stated '[w]hat the F have you done to me?',[32] it was not reasonable to expect that Mr Stephens would call her either.
45 The conveyancer acting for Mr Stephens, Ms Janice Cocard of Southern Peninsula Conveyancing was not called by him. The chronology of events set out below shows that Ms Cocard played only a peripheral role in the relevant events, and the Bank did not suggest that she should have been called.
46 There were a number of other Bank officers involved in the relevant events who were not called. Mr Ringeri's line manager, the credit manager Mr Peter Coulton, and another credit manager, Mr Brian Segrave, were each involved in the fresh assessment and approval of the loans totalling $2,100,300 that were made to Mr Stephens in December 2008. Further, Mr Coulton and a manager named Mr Mark Wilson were apparently involved in the Bank's investigation of Ms MLM that took place following the complaint. Neither Mr Coulton nor Mr Segrave had any discussions with Mr Stephens, but Mr Ringeri gave evidence that he was told that Mr Coulton '[m]ost definitely' had discussions with Ms Henderson following the making of the complaint.[33] No evidence was given by Ms Henderson about such discussions, and Mr Ringeri's evidence was not put to her during cross-examination.
47 Another Bank officer, Mr Philip Marrinon of lending services, was mentioned on Exhibit D1, which is the printout of internal decision comments recorded on the ComSee approval document concerning loan application 90000033722, being the new application that Ms MLM apparently started for Mr Stephens on 4 December 2008, initially for a loan amount of $2,650,000, but corrected by her later that day to an amount of $2,250,000. Mr Marrinon is recorded as having approved that application at the request of Ms MLM. He was not mentioned by any of the witnesses at trial, and was not called by the Bank.
Mr Stephens' complaints about the discovery given by the Bank
48 Counsel for Mr Stephens contended that the discovery given by the Bank of its files was unsatisfactory, and in that context he observed that the Bank did not call any witness, such as Mr Salvatore Dema, the Bank officer who was supervising Ms MLM, whom he contended could have given useful evidence as to the chain of custody of the Bank's file. He submitted that the 'incomplete state of the [Bank's] discovered file(s) became obvious during trial and it is open to the Court to draw adverse inferences based on the failure to call a relevant witness to produce the other documents or explain their absence.'[34]
49 Counsel for the Bank took issue with the suggestion that there were any inadequacies in the Bank's affidavit of documents. He produced a letter from the defendant's solicitors to the Bank's solicitors dated 26 May 2014 identifying the areas where the discovery appeared not to be complete and noting documents that had not been produced on discovery.[35] The Bank's solicitors responded by letter dated 18 June 2014, enclosing copies of two Loan Applications and an HLDC Credit Decisioning Request that had been identified, and stated that apart from those documents, their instructions are that the Bank 'does not have in its possession, custody or power, any further documents as requested in paragraphs 1 to 4 and 6 to 9 of your letter'.[36] As to the defendant's solicitors request that the Bank give discovery of:
The documents sought in paragraph 5 of your letter ... are not part of your client's case, are not raised on the pleadings, are not relevant to the issues in dispute and will not be discovered by the Bank. Should your client make an application seeking discovery of these documents, the application will be opposed and this letter will be produced to the Court in support of pour application for indemnity costs.[38]
50 Counsel for the Bank submitted that as no follow-up request was made, the matter rested there and the defendant is now foreclosed from contending that the discovery given by the Bank was in any way incomplete or inadequate. In my view, that is the position.
51 Counsel for Mr Stephens also contended that the evidence to be given by Ms Henderson would demonstrate that she had given a number of documents to the Bank which have not been produced on discovery. He made a general submission to the effect that the Bank, despite the discovery process and ongoing requests for documents, had not provided all of the documents that were originally given to it. Counsel referenced the original handwritten loan application Mr Stephens made to the Bank, via Ms MLM, for a loan facility of $2.55 million and the handwritten covering sheet enclosed with it, as an example of the type of document that had not been produced. He sought to make something of this in the context of evidence to be led from Ms Graham about a phone conversation that she had with Mr Salvatore Dema of the Bank in early 2009, submitting that it was 'a critical document to' supporting Mr Stephens' case and added that '[i]f it has been shredded, then it is detrimental to his case, and so it is relevant in that respect.'[39]
52 The Bank objected to the Court receiving hearsay evidence from Ms Graham about what Mr Dema had told her during the course of that phone conversation. After hearing argument on the point, however, the Court ruled that the evidence proposed to be given, whilst admittedly hearsay, was conceivably relevant, and at the end of the day it would really be a question of what weight should be attached to it.[40] At that point, it was not apparent what the relevance of the handwritten application was in the scheme of the overall conduct and allegations relied upon.
53 Ms Graham gave evidence that she had not met Mr Dema before that call but knew him to be working as a mobile lending manager with the Commonwealth Bank at that time. She said that she had made a complaint about Ms MLM at an earlier point and Mr Dema was following up. Ms Graham said Mr Dema introduced himself as a manager and they proceeded to have a general conversation about Ms MLM and the state of her files. Ms Graham told him that she 'had introduced a number of referral sources to [Ms MLM], and they were really angry about what had happened.'[41] She said that some of the referral sources had informed her that they were not being paid for their commissions.
54 Mr Dema said that he had put someone else in Ms MLM's place to look after these referrers. Ms Graham said she was aware by this point that Ms MLM was no longer working with the Bank because Ms MLM had told her that she was being sacked but was allowed to keep the car until 31 December 2008 when she was being terminated.[42]
55 Ms Graham said that in their conversation, which she believes took place in March 2009,[43] Mr Dema described Ms MLM as 'a nightmare'[44] and said that 'he'd shredded all of [Ms MLM's] files that specific day'[45] and that 'the Stephens file along with all the others were shredded.'[46] She said:
Sal [Dema] had said that he was trying to rectify what had happened and he was putting other mobile lenders in to her referral sources and that her files were so bad that he had to shred everything. He wasn't uploading anything because it was - they were - his words were they were just shocking.[47]
56 As noted earlier, Mr Dema was not called to give evidence. It remains unclear what position he held within the Bank vis-à-vis Ms MLM and what role, if any, he performed in relation to document retention matters.
57 Counsel for the respective parties addressed this matter again in their closing submissions. The position remains that the original handwritten loan application Mr Stephens made to the Bank, via Ms MLM, and the handwritten covering sheet enclosed with it, have not been produced. The evidence given by Ms Graham about the 'shredding' of Ms MLM's files is hearsay, and in my view, has not been shown to be probative of anything. Accordingly, notwithstanding that I ruled the evidence was conceivably relevant, I do not propose to have regard to it or give it any weight.
Initial purchase of the 96 Wooralla Drive property
58 Mr Stephens settled on his initial purchase of 96 Wooralla Drive in about February 2007.[48] In order to do so, he entered into a loan agreement with Perpetual dated 7 February 2007 whereby he borrowed the sum of $1,274,000.00, repayable over a 360 month term. The loan agreement provided that the loan would have an 'interest only' period of 60 months, during which the principal of the loan would not be reduced, and thereafter for the balance of the period the loan was to be repaid by instalments of both principal and interest. Perpetual advanced the sum of $1,274,000 to Mr Stephens in consideration of him mortgaging all of his estate and interest therein to Perpetual.
Investigation of options for 96 Wooralla Drive - proceed with 5 lot subdivision or sell?
60 The 96 Wooralla Drive property occupied approximately 2.5 acres (1 hectare). It was a battle-axe block with a dwelling located at the rear. Mr Stephens said that he and Ms Henderson originally intended that it would be a family home for them and their daughter to live in, with the option to develop it down the track if they wished to do so because it had a planning permit in place allowing for a five lot subdivision. But he said their plans literally changed from day to day - '[t]here was a structure in place that allowed that [five lot subdivision] to be done and perhaps if we could sell four of the lots we would keep one property, one raw piece of land for ourselves and build on it for ourselves.'[51]
61 From the outset, aside from his inexperience as a developer, Mr Stephens was well aware of the practical difficulties he faced in proceeding with any form of subdivision, given his relatively modest salary and self-employed status. He said:
Well, the option to subdivide and so on was always there with the planning permit, but we could never raise finance. My salary at the time was - it varied obviously being self-employed and depending on the types of contracts I had sort of thing - around the 80,000 mark. So the idea of borrowing large amounts of money for subdivision and things like that was never really an option until we came across the idea of a development loan, and this was something that was suggested by Anna [Graham] and Trish [Henderson] and ultimately [Ms MLM].[52]
62 Ms Henderson said that when they purchased the Wooralla Drive property, it had a permit to allow a five lot subdivision but it was not an endorsed permit. They initially discussed doing a development themselves but did not proceed with anything. By 2008, they had been living at the property for about a year, their daughter was in the final year of school, and the property had a reasonably substantial debt on it, so they decided that it was time to make some decisions and to downsize. They decided to 'try the market and list the property for sale.'[53] Subsequently, they found a buyer at $2.7 million, introduced by Mitchell Torre Real Estate, but the purchasers kept asking for extensions of the finance clause. This led them to re-explore the option of developing the property themselves and Mr Stephens asked Ms Henderson to have a look and see what the options were.
63 In early June 2008, Ms Henderson approached the engineering firm of Jamison Craig, who were working on a nearby development, and obtained a preliminary estimate of costs for a development of the five lot subdivision. Jamison Craig estimated the costs of the proposed subdivision as being in the order of $394,656, with a cost per block of $77,931.00.[54]
64 In June or July 2008, Ms Henderson spoke with a colleague in her networking group, Ms Anna Graham, who was then working as a lending manager with Bank West. Ms Henderson briefed her in very general terms on the proposed five lot subdivision and asked whether there was any 'development finance' available. Ms Graham said that the group she was with did not offer development finance, and so she suggested that Ms Henderson should speak with Ms MLM, who was a mobile lending manager with the Bank. In due course. Ms Graham arranged a meeting between them to take place at the Manyung Gallery coffee shop in Mt Eliza on 20 August 2008.
Meeting at the Manyung Gallery coffee shop on 20 August 2008
65 The meeting took place between Ms Graham, Ms Henderson and Ms MLM, although it seems Ms Graham left part way through the meeting. Ms Henderson provided a brief overview of the proposed development for 96 Wooralla Drive, explaining that it was a five lot subdivision, and outlining matters such as the likely costs of the development, the existing mortgage/borrowing, what the likely end values would be and the total borrowing required, the likely end sale of the property and how the loan would be done. Ms Henderson said that they also discussed the amount of the proposed loan Mr Stephens was seeking and the fact that they were looking for another property to live in while the development was underway, but they were not prepared to move on that until they had secured a sale or had the necessary development funding in place. She said:
The amount of the loan that we discussed was 2.5 million and that was broken down into 1.35 for the existing mortgage, a purchase price of approximately 600,000 where we'd set our budget for purchase, legal costs for the settlement of the new property, and Jamison Craig's subdivision costs, which was about 380,000. Then interest capitalisation which I calculated at about 120,000.[55]
Ms Henderson said that at this meeting she gave Ms MLM a copy of the estimate of the development costs that she had obtained from Jamison Craig, showing that the development cost per block was approximately $78,000.
66 She said Ms MLM explained to her that the loan would be done as a 'development loan', and be based on a 'gross realisation value',[56] and that she was accredited to do development loans of up to $3 million and up to five-lot subdivisions.[57] Ms Henderson said that Ms MLM also enquired as to how long the funds would be required and she replied for a period of 12 to 18 months. They also discussed the fact that the interest would be capitalised throughout the term of the loan because Mr Stephens, on his income, could not afford to pay the monthly repayments. Ms Henderson also informed Ms MLM that they had a buyer for the 96 Wooralla Drive property who was seeking a second or third extension of the finance clause and that this was the reason why they were looking to secure funds to do the development themselves. She added that if they could not secure the development funding then they would look at auctioning the property in six to eight weeks' time.
67 As they were leaving the coffee shop, Ms MLM went to her car and gave Ms Henderson a home loan application pack which she retrieved from the boot of her car, and said that she would send through some other loan application forms as well. Ms Henderson said that Ms MLM told her at that meeting that 'she would initially do a pre-approval, but was confident that she would be able to get the borrowing.'[58]
68 Ms Henderson said that within a few days Ms MLM had made several phone calls back to her just to clarify items. Ms MLM then came back to her and said '[i]n principle, subject to getting everything in the application, the CBA will be able to do this.'[59] She also informed Ms Henderson that once she received the application she would be able to give a 'full approval for 2.5 million for the full borrowing and enough funds to buy another property.'[60] Ms Henderson said that this was when she said to Mr Stephens '[o]kay, we can go ahead and do the full application.'[61]
69 Mr Stephens said that once they had the idea of developing 96 Wooralla Drive, they knew that the land would be broken up and not be liveable. He was looking around for something smaller for them to live in in the meantime and through contacts at his daughter's school he found out that the headmistress's house at 2 Marie Court, Mt Eliza was coming up for sale. They went to see the vendors and in late August or early September 2008 he entered into a contract with them to purchase the property.[62] The agreed price was $605,000 and a deposit of $20,000 was required to be paid by 22 September 2008. Mr Stephens said that at this stage he did not have $20,000 for the deposit but that Ms Henderson spoke with Ms MLM at the Bank and made arrangements for the deposit to be provided by the Bank 'in advance in order to secure the property.'[63] Initially they paid a deposit of $500 in cash and then later they obtained a bank cheque for the sum of $19,500, which they collected from Mr Radich at the Mt Eliza branch of the Bank on 25 September 2008 and paid to Wilkinsons, the vendors' estate agents.[64]
70 In early September, Ms MLM apparently asked Ms Henderson to provide a list of pre-sales from the area to show what prices land and homes were selling for, and emailed her a 'low doc home loan application form' and also a standard home loan application.[65]
71 Mr Stephens said that sometime around 10 September 2008, after Ms MLM had emailed Ms Henderson, he filled out the loan application form by hand[66] and, with assistance from Ms Henderson, collated the documentation that was to go with it - primarily a copy of his passport and driver's licence, the pre-sales for the area, Jamison Craig's breakdown of expenses, and the originals of Mr Stephens' income tax returns, credit card statements and home loan statements for all properties he owned, and the planning permit. He said:
. . . I wrote out every component of the loan that was required. It was sealed up in an envelope. The envelope actually had a string attachment to close it. I believe, and I hope, that Trish put all of the other documents with it, all the appropriate development details with it and it was forwarded to [Ms MLM]. That's the last time I have ever seen it.
[MR MATTERS:] When you say you filled out the application, including the loan amount that was required?---That's correct.
Are you able to tell Her Honour what that amount was?---At the time I believe I filled out 2.5 million or thereabouts. I was very vague at the time when I started trying to remember that actual amount, further down the track with FOS [Financial Ombudsman Service] and things like that. But apparently it was 2.55 million.
When you say 'apparently it was 2.55' are you saying the amount you filled out or - - -?---The amount that I filled out and actually applied for was 2.55 million. 2.550000.
Did the application ask you to state what the purpose of the loan was - - -?---If I remember correctly, yes, we put on 'development loan' on the top at the front.
You have then given that application to Trish; is that your evidence?---Trish gathered it up and passed it on to [Ms MLM], that's correct.
After that did you hear anything further through Trish or anyone else as to what was happening with the loan application?---Well, nothing - if we are talking about the deposit stage, nothing between about 1, 2, 3 September when I filled this out and it was sent to [Ms MLM] until it came time to pay the full deposit on 24, 25 September and we had to get confirmation that the loan had been approved.[67]
72 Ms Henderson said that there was a covering note that was submitted along with the loan application which included a breakdown of the costs and the purpose of the loan, being a five lot subdivision to be undertaken over the next 12 to 18 months and the purchase of 2 Marie Court. The covering note is not available,[68] but in giving evidence about it Ms Henderson said:
So mentally it was the refinance, the purchase cost, the legal costs, any additional funds required, the purpose for those funds and in this case the capitalisation of the interest.[69]
73 Ms Henderson said that on or about 10 September 2008 the application was posted from the Mornington branch of the post office to Ms MLM at the Lilydale branch of the Bank from which she operated.[70] Once the handwritten application was submitted to Ms MLM, a 'Streamline' account was opened in Mr Stephens' name at the Lilydale branch of the Bank. The Streamline account was to be the source of the loan repayments and a direct debit form had been completed by Mr Stephens in advance to enable that to take place.
74 Ms Henderson said that within a couple of days of submitting the application, probably on or around 15 or 16 September 2008, Ms MLM rang her and said that the Bank 'would be able to do the borrowing and that subject to the valuation of Marie Court, that the loans would be fully and unconditionally approved for Mr Stephens.'[71] Ms Henderson said that in the period following this call, she left a number of phone messages for Ms MLM including one informing her that they had put in a contract for the 2 Marie Court property, one mentioning that she had approached a couple of other real estate agents with pre-sales and would send those through to Ms MLM, and another requesting her to confirm that the funds were fully and unconditionally approved, because the 2 Marie Court contract was to become unconditional around about 20 or 21 September. Indeed, Ms Henderson said that because she had heard nothing from Ms MLM, the conveyancer had to seek an extension of time from the vendors of 2 Marie Court with respect to the finance clause.[72]
75 Ms Henderson also gave evidence that a week or so after she posted Mr Stephens' completed loan application to Ms MLM, she was chasing up Ms MLM and leaving messages for her, enquiring as to the status of Mr Stephen's loan application. She said that on about 17 September 2008, while she was at a coffee shop at the shopping centre in Knox with Ms Graham and Mr Ringeri, she received a call from Ms MLM 'to say that the funds could be fully and unconditionally approved.'[73] She said that it was during this phone conversation that Ms MLM also mentioned that she would provide a 'buffer of $50,000' because of the 12 to 18 months it would likely take for the development to be completed. [74]
76 Ms Graham gave evidence that she recalled a meeting with Ms Henderson and Mr Ringeri in Knox City which she believed took place 'somewhere between October and December of 2008',[75] and that Ms MLM called Ms Henderson on her mobile during this meeting. She said that Ms MLM told Ms Henderson '[y]our loan's been approved. Everything's fine. I'm just waiting - I'm just struggling to print documents, but everything is okay with your loan'.[76] She added that she knew who was speaking to Ms Henderson on the phone because Ms MLM 'was very, very loud, so even on a mobile phone you always recognised her voice', and because Ms Henderson was 'absolutely surprised and shocked' because Ms MLM had called.[77]
77 Mr Ringeri, on the other hand, did not recall being at any such coffee shop meeting with Ms Graham and Ms Henderson in mid-September 2008. He said that the only time he recalls having coffee with them was at the Glen Waverley Shopping Centre, The Glen, and he does not recall going to Knox City or Doncaster. Further, he did not recall any phone call between Ms Henderson and Ms MLM taking place during any such meeting nor any discussion afterwards about what transpired.[78]
78 By letter dated 19 September 2008, Ms MLM wrote to Mr Stephens' conveyancer, Ms Janice Cocard of Southern Peninsula Conveyancing, in relation to his purchase of 2 Marie Court to 'confirm that a loan offer of $300,000.00 has been made by the Commonwealth Bank'. The letter continued:
Our mutual clients [Owen Bruce Stephens] are currently considering the Bank's offer, including any conditions that need to be satisfied. Please note that before any moneys are advanced, the title to the property and all other aspects connected with the loan must be to the Bank's satisfaction.
To enable us to prepare our security documents please provide the information detailed on the attachment (if you have not already done so) as soon as possible. Delays in masking the information available may impact on our ability to arrange a timely settlement. Please quote the above reference 20920096 in all correspondence.
The maximum amount the Bank will provide at settlement is $300,000.00 less any applicable fees and charges. Please arrange to collect from your client the balance of the funds required to complete the purchase.
In the meantime, and for your information, we advise:
The Bank will not be in a position to discuss settlement requirements until all documentation has been completed and signed by our customers. Please contact us on the above telephone numbers for general enquiries and (03) [] for settlement bookings.[79]
79 It appears that the letter enclosed the Bank's Consumer Credit Contract Schedule document (ref: 20920096) dated 19 September 2008, which was signed electronically for and on behalf of the Bank by 'Owen Eaton'.[80] Such a document was received by Mr Stephens' conveyancer, and the copy discovered bears an annotation at the top of the first page 'copy to keep'. The copy of the document in evidence had a blank space at the end for Mr Stephens' signature. Mr Stephens said that he signed the document but did not make a copy of the signed version.[81] He could not recall the exact date when he signed the application for the $300,000 but said it was somewhere between early September 2008 and the meeting with the branch manager, Mr Radich, on 24 and 25 September 2008.[82] He said the original would have been sent back to the Bank once it was signed. Neither party has discovered a version of the document that was signed by Mr Stephens. In closing submissions, the Bank submitted that it is more likely that Mr Stephens did not sign it.[83]
80 The Consumer Credit Contract Schedule document shows, at Item B, the amount of credit (principal sum) as being $300,000. In examination in chief Mr Stephens was asked whether he was able to explain that? He responded by saying:
---I am not able to explain that. I'm not a banker. I'm not a financier. I have no idea why [Ms MLM] pulled a sum of 300,000 out of the hat for the purposes of this part of the schedule. My original loan application was for 2.55 million. I don't know banking procedure and so I assumed that, okay, this is what she's done in order to get the deposit over the line and maybe other bits and pieces for costings or something like that. I have no idea why she generated $300,000.[84]
81 He said that he did not think Ms Henderson understood it either and added '[b]ut we had to confirm that before we went fully unconditional [on the purchase of 2 Marie Court], confirm the full amount.'[85] He said the reason they went to the Mt Eliza branch of the Bank to see Mr Radich was 'we had to ask Jason Radich to confirm it.'[86]
82 Under cross-examination, Mr Stephens said that this contract for the $300,000 was 'part of [his] original loan application' and he confirmed he did sign it.[87] Counsel then asked some follow-up questions, to which Mr Stephens responded, as follows:
[MR CAREW:] And you had time to read this [contract for $300,000]? The settlement is some 70-plus days away for Marie Court; you understand that?
---That's correct, yes.
And did you read the amount on this contract or not?---300,000, yes, I did.
Did you take any interest in the interest rates that were applicable?---Not at that stage because the original loan that I applied for was back to this capitalisation exercise. How [Ms MLM] structured the loan and the loan rates and the $2,340 repayment exercise, that was of little interest to us. I couldn't afford the 2.55 million in total as a traditional home loan. So the capitalisation process was vital.
Did you read this contract or not?---No, we only looked at the 300,000.
So I gather you are not really someone who's a devil for the details when it comes to contracts?---Not really, no. I can admit that. I received this and signed it because [Ms MLM] needed to get this document under way to facilitate getting the deposit. Why she structured it this way, I have no idea. It could have been 100,000 for all I was concerned, the deposit.
And, what, you wouldn't have said anything about that?---It would be part of the internal banking arrangements for the total of 2.5 or 2.55.
When you get documentation from the bank in this period if it is not as per your request you just for yourself consider that just a matter for internal arrangements within the bank?---The documents that I have received that I am required to sign, yes, the bank has produced those for different requirements and I'm usually obliged to sign them to facilitate whatever function is necessary, for example overdrafts or things like that. So very few people read the detail.[88]
The Bank, via Mr Radich, provides the initial deposit moneys for Marie Court
83 On 23 September 2008 Ms Henderson went down to the Mt Eliza branch of the Bank and made an appointment for Mr Stephens to meet with Mr Radich the next day and sign for the deposit. On 24 September 2008 when Mr Stephens and Ms Henderson turned up at the branch, Mr Radich had no knowledge of why they were there and was unable to assist them and could not confirm anything. They explained the background briefly and then Mr Radich made some phone calls, including apparently to Ms MLM, to try to find out what was happening, but as he was unable to speak with her, Mr Radich arranged for them to return the next day. Mr Stephens said he believes that when he returned to the Mt Eliza branch the next day, Mr Radich had contacted Ms MLM in the interim and 'the bottom line was that we were told and advised that the full amount was available, the full loan amount.'[89] With that confirmation in place, Mr Stephens said the remainder of the deposit was able to be released, and he left the Bank branch with the deposit and the belief that his loan for $2.55 million 'as a development loan was approved and unconditional.'[90]
84 Ms Henderson's account of the meeting with Mr Radich is to similar effect. She said that at the meeting on 25 September 2008, Mr Stephens asked Mr Radich to confirm that all of the funds, that is the $2.55 million, were fully approved. She added that this request was made by Mr Stephens against the background of him having already informed Mr Radich that, to date, he had only received documents for the $300,000, and explaining to him that if the funds for the full development were not available, Mr Stephens could not go unconditional on the purchase of Marie Court or proceed with any refinancing.[91] Ms Henderson said that Mr Radich discussed the development with them and commented that they would do very well out of it. He then went away and got two bank cheques, which he signed and gave to Mr Stephens. One cheque was for the deposit and the other was for funds for deposit into Mr Stephens' Virgin credit card account. Mr Radich shook hands with Mr Stephens and wished him well with the development. Mr Stephens and Ms Henderson then left the Bank and went to the real estate agent and delivered the cheque for the deposit.
85 Mr Radich gave evidence to the effect that he was the branch manager at the Mt Eliza branch in September 2008, but said he had no involvement in the approval of any loans to Mr Stephens and could not recall having ever met him or Ms Henderson. Nor could he recall having been aware of Ms MLM as a mobile lender with the Bank. Under cross-examination, Mr Radich was asked about the procedure concerning loans from the Bank. He agreed that, if a client presented at the branch and wanted loan funds released, his usual practice was not to release any funds without receiving confirmation from a mobile lender, and if, when he rang to speak with the mobile lender, the person concerned was not available, he would leave a message with the mobile lender and wait for them to call back.[92]
86 In respect of the moneys advanced by the Bank to Mr Stephens from his Streamline Account on 25 September 2008, counsel for the defendant took Mr Radich to the Bank statement recording that transaction,[93] and the following exchange ensued:
[MR MATTERS:] Do you see there it's a Streamline Unlimited account?---Yes.
Lilydale branch?---Yes.
And there's a withdrawal of $30,000 on 25 September?---Yes.
Mr Stephens will say that that $30,000 relates to the cheques that were provided by yourself on the 25th or by your branch on 25 September 2008?---Again, I don't recall.
Mr Stephens will give evidence that he wasn't an existing customer of the Commonwealth Bank prior to September 2008, so I don't ask you to comment on that. But in the usual course of your experience as branch manager, is it usual that on a Streamline Unlimited account $30,000 would just be available drawn down to a new customer of the bank?---It's perhaps unusual given the account is a transactional account, not an overdraft type account.
And to that end there is an overdrawing approval fee of $30; that's correct?---Yes.
Because it's not an overdraft account?---Correct.[94]
87 The evidence was that the 'Streamline Unlimited Account' account was one that Ms MLM had established for Mr Stephens.[95] The bank statement shows that the account commenced on 25 September 2008 with a 'Nil' opening balance. The sum of $30,000 was withdrawn from the account that day and an overdrawing approval fee of $30.00 was debited to the account on 26 September 2008. That is, the bank statement records that the sum of $30,000 advanced to Mr Stephens on 25 September 2008 was treated by the Bank as an overdraft transaction on his Streamline account.[96]
88 It will be noted that, to this point, on Mr Stephens' version of events, he has not signed any loan documentation other than the Consumer Credit Contract Schedule document for the $300,000. Furthermore, when giving evidence he acknowledged that he had difficulty recalling what was 'the full loan amount' he had sought via Ms MLM, and was not confident as to whether it was $2.5 million, or $2.65 million, or $2.55 million, but believed that she had approved an amount of $2.65 million. It was also especially important to him that the interest on the loan be capitalised, given his salary level, yet this feature was not mentioned by him, or indeed Ms Henderson, when recounting what they contend took place during their conversation with Mr Radich. At the time of their meeting, Mr Radich was a branch manager. He had not had any dealings with either Mr Stephens or Ms Henderson and was not involved in processing or approving any loan to them. Ms Henderson said that Mr Radich had been informed that they had only signed documents for the $300,000 but required $2.55 million before they could go unconditional and proceed. To the extent that the evidence given by Mr Stephens and Ms Henderson suggests or conveys the impression that when Mr Radich met with them on 25 September 2008, he confirmed that loan funds of $2.55 million were fully approved and available to Mr Stephens, I do not accept their evidence.
89 Once the Bank had provided the deposit money, Mr Stephens said it was 'all go' on the development at 96 Wooralla Drive:
. . . We had received the deposit for the Marie Court property and therefore we had gone unconditional. Trish wound up the procedures to start developing it. She wanted to develop the property. We started calling contractors over the next few months, bulldozers, the works. [Ms MLM] had told us to go for it, and we did.
Again, when you say '[Ms MLM] told us to go for it'?---Told Trish.
And in turn Trish has - - -?---Well, we went for it, sort of thing. She didn't need to tell me.
But Trish had spoken to you about what [Ms MLM] had said to her?---Yes, it's all go for the development.
So when you say it was all go, works and bulldozers, do you recall what sort of works were being - - - ?---The initial ones were obviously the preliminary ones to get the various contractors sorted out. So a lot of paperwork there. . . . [97]
90 Once the paperwork was underway, Ms Henderson and Mr Stephens arranged for the initial work to be undertaken almost straight away, such that in October and November 2008, the subterranean plumbing system and landlines for the ground lights on the old tennis court and elsewhere were stripped out and the large bluestone fences were bulldozed out.[98]
Difficulties in following-up Ms MLM prior to settlement
91 Ms Henderson said that from there onwards, that is after they had collected the bank cheque and paid the deposit over, she started work on getting the development under way because '[Ms MLM] had confirmed to us via phone call that we were able to start undertaking the development and to do so as soon as possible.'[99] Ms Henderson said that she personally did a lot of the work engaging and co-ordinating contractors. In the period through to November 2008, the planning permit for 96 Wooralla Drive needed to be endorsed, and then amended, to allow upgraded septic tanks to be installed on the site. Meanwhile, Mr Stephens was following up on the balance of funds for the settlement of Marie Court and for the re-financing of the Perpetual mortgage. Ms Henderson said that Ms MLM was not communicating effectively with them and so Mr Stephens also asked her to follow matters up with Ms MLM, which she did, leaving a number of messages for her at the Lilydale branch. Generally Ms MLM would leave her a message saying '[i]t's all in hand' but there were other times when she said there were problems with the printing of the documents, that they were being printed in Sydney and that there had been delays in getting the documents through.[100]
92 Ms Henderson said that on 31 October 2008 she received an email from Ms MLM enquiring after the documents, and stating that she '[a]ssumed you want loan to remain same as have not heard back from you in respect to trust.'[101] Ms Henderson said that she did not understand what Ms MLM was asking about and rang her to clarify the matter. Ms MLM then asked her whether they wanted the properties to change into a trust, which may be a better arrangement. Ms Henderson said that she did not see any reason why Mr Stephens would want to do that, and asked her to proceed and to print the documents and send them through as soon as possible. Mr Stephens did, however, give evidence that he and Ms Henderson 'discussed whether or not we should do all of this development through a trust.'[102]
93 Through November 2008, Ms Henderson said she called Ms MLM many times but most of the calls went through to a message bank, where she left a message for Ms MLM to call. In November 2008, in the lead up to the settlement of Marie Court, Ms Henderson rang several times to express concern that the documents were not coming through in a timely way. In one conversation in late November, Ms MLM apparently said to Ms Henderson that there were printing problems in the Melbourne office. In another conversation she informed Ms Henderson that the documents were being printed in Sydney. Ms Henderson said that on each occasion when she spoke with Ms MLM she would 'ask her the question "Are the funds fully and unconditionally approved for the full development, [Ms MLM]?" and her answer was emphatic, "The full loan is approved," and stating amounts.'[103]
94 In her evidence in chief, Ms Henderson explained why it was that she sought confirmation, or re-confirmation, from Ms MLM, as follows:
[MR MATTERS:] Are you able to say why on these occasions you were asking about confirmation or reconfirmation of the loan amount?---Yes, I can. [Ms MLM] seemed quite gung-ho. She kept attempting to push me to speak to Bruce about pushing up the loan amount. She spoke to me about, after the house had sold, which she had - [Ms MLM's] advice was that the primary home should sell first because that would allow Mr Stephens to pay off the greater amount of debt.
Just stopping here, when did this discussion you are now talking about take place?---Several times throughout the process, probably in two or three phone calls in September through October. So, one of [Ms MLM's] suggestions was that as the subdivision went through, if Mr Stephens had sold one, two or three properties, she would then be able to get him funds to build houses on the other lots of land. It had absolutely no bearing, but she was very, very gung-ho in her attitude and each time she spoke to me - - -
When did this discussion take place, do you recall?---November. November. October and November. Both times.
So there was more than - are you saying there is more than one conversation?---More than one conversation where [Ms MLM] would say that she wanted to increase the loan amount as the development went through or refinance it as it went through. So, to answer your question, I was concerned that there was contradictory information coming all of the time. So phone calls weren't being answered. The documentation wasn't coming. The conveyancer had had difficulty confirming the documentation with [Ms MLM] at that stage for the forthcoming settlement.
Coming back to late November 2008, leaving aside the conversations you have given evidence about?---Yes.
From there what happens next and when in relation to this process?---So late November to 1 December I left a number of phone messages to say to [Ms MLM] that settlement was coming up on Marie Court and there was still no balance of documents available. [104]
Marie Court settlement unable to proceed because no Bank documents had arrived
95 Under the contract for 2 Marie Court, settlement was due to take place on 11 December 2008 but Ms Henderson was notified a day or so before that they were not going to make that date. Mr Stephens said that was because no paperwork had arrived from the Bank to either them or their conveyancer, Ms Cocard, in order to complete the transaction.[105] He said that he had not had any direct discussion with the Bank about what was going to happen.[106]
96 In early December 2008, Ms Henderson contacted Ms Graham and asked her to approach Ms MLM to ascertain where the documents were for settlement. Then, on 5 December 2008 or thereabouts, Ms MLM phoned Ms Henderson and said that she needed her to alter some documents for her. Ms Henderson said that she was shocked to start with and didn't really understand what Ms MLM was talking about. She was driving in her car at the time and asked Ms MLM to 'just fax through what you need', and then she queried her saying '[t]his loan is fully and unconditionally approved?' Ms MLM apparently responded along the lines of '[y]es, yes, there's no problem at all. It's just that I have to tick the boxes'.[107]
97 Ms Henderson said that when she returned home, there was a fax on the machine from Ms MLM asking her to fax through documents from her home fax number. The documents were two pay slips which purported to show Mr Stephens' income as being $40,000 per month. When she saw them, she noted that they were not correct and said she was 'just absolutely beside myself' and did not 'know where to go or what to do',[108] so the next morning she rang Mr Ringeri, who was the only other person she knew at the Bank. Ms Henderson did not raise the matter with Mr Stephens at this point but waited until after she had spoken with Mr Ringeri.
98 Mr Ringeri said that Ms Henderson phoned him in the first week of December 2008 - he could not recall the exact date - and told him that another mobile mortgage manager with the Bank, Ms MLM, had asked her to alter Mr Stephens' pay slips to show his income as being $40,000 per month, in order to provide documentary support for the loan he was seeking from the Bank. Mr Ringeri told her that he would raise the matter with his superiors and contact Ms MLM's manager. In the meantime, he asked Ms Henderson to say nothing about this to Ms MLM and to report back to him on any further phone calls between them.
99 Mr Ringeri then went to his line manager, Mr Peter Coulton, who in turn raised the matter with a manager, Mr Mark Wilson, and they then contacted the Bank's group investigations, who look into such matters.[109] Mr Ringeri said he was told not to do anything until Mr Coulton instructed him as to what to do, and, in the meantime, Mr Coulton 'would have conversations with Trish as to these allegations.'[110] On the afternoon of 5 December 2008, having been told that Mr Coulton had spoken with Ms Henderson, Mr Ringeri called her and said that he would be taking over Mr Stephens' loan application.[111]
100 In her evidence, Ms Henderson did not mention having had any conversation with Mr Coulton, and Mr Coulton was not called to give evidence.
101 On the morning of Monday, 8 December 2008, Ms Henderson sent an email to Mr Ringeri enclosing a copy of a new (current) licence for Mr Stephens. Mr Ringeri responded by thanking her and suggesting that a new loan should be started for Mr Stephens. He said:
Thanks Trish,
What have you decided to do with Mr Stephens loan.
Late Friday as we spoke, it is not advisable to proceed with [Ms MLM's] loan, although approved, it was approved on the wrong income details. As discussed with you & my boss, this file has been referred to senior level, so you need to stay arms length away, knowing it is wrong. My advice is to start all over and re-do correctly. I will ensure that this loan is done correctly and processed for settlement.
What do you think?[112]
102 Mr Ringeri said that the reference to '[Ms MLM's] loan' was a reference to the loan that he understood Mr Stephens had sought from Ms MLM, and the reference to that loan having been 'approved' was reflecting what Ms Henderson had told him in their earlier phone conversation.[113]
Mr Ringeri starts a fresh application for Mr Stephens
103 Later that morning Mr Ringeri started a fresh application for Mr Stephens for a total sum of $2,100,300 based on what Mr Coulton had told him to do. He said:
Peter Coulton said to me, 'I have had my discussions with Trish Henderson, and because there was a contract for the purchase and the sale we needed to escalate it to assist Mr Stephens in meeting that settlement deadline. Be careful with the application. Make sure it's correct and submit it.' He will overview it. He actually checks it. He would have spoken to - if you look at my comments - Brian Segrave, who is the actual credit manager, and had discussions. All I was doing was submitting it with that information, with the correct information. That's all I did.[114]
104 Mr Ringeri said he was told to make sure everything was accurate because Mr Stephens 'had purchased the property which was unconditional and he had a sale which was unconditional.'[115] Under cross-examination Mr Ringeri described the position saying:
--- ... We were going to give him bridging finance until he sold that property, Wooralla, and then reduce his debt. We were helping Mr Stephens, his problem of an unconditional purchase. That's how it all started and I was only involved in this transaction.
[MR MATTERS:] So, is what you are saying - or I will put it another way. Does that mean that in relation to what [Ms MLM] had done prior to 4 December, that you didn't concern yourself personally with going back and looking at what she had done to date?---Not really, no.
Because someone else was looking at it?---There was no need to. I had to do what I had to do to get this loan through for him.[116]
105 Mr Ringeri worked primarily from the instructions he was given by Mr Coulton. He said that he also received some documents from Ms Henderson but he could not recall precisely what they were or when it was or how that he received them, noting that he may have asked her to fax through some of the documents to him.[117] He believed that amongst the documents that he received was a proof of the borrower's identity acknowledgement and consent,[118] and two direct debit requests authorising Mr Stephens' account to be debited for the loan repayments,[119] and in each case, at the point he received them, the documents were pre-filled by Mr Stephens and/or Ms Henderson.[120]
106 Mr Ringeri was aware that with the pending settlement of the 2 Marie Court property, he needed to escalate the preparation of the loan application in order for approval. In the meantime, he understood that Mr Coulton would speak with the credit manager, Mr Brian Segrave, regarding the loan approval.
107 Mr Ringeri was not involved in the investigation of Ms MLM and he did not look at Ms MLM's file.[121] He did not recall having received a copy of Mr Stephens' original handwritten loan application dated September 2008 but said that he 'would have had some information to key in this application that [he] did.'[122] He agreed that he did not have an interview with Mr Stephens at any stage. He said:
---Given the timeframe between when the application was first raised with Trish to me, given the date of settlement, Trish was actually the person acting on behalf of Mr Stephens. I was to catch up with Mr Stephens on the day of doc signing, which is at the coffee shop, but I haven't actually interviewed him prior to that.
You only had three days until settlement from when you received it?---That's correct.
So there was a fair amount of urgency and rush?---I wouldn't say - yes, correct. But in saying that too, counsel, is that the $2.1 million would have been provided by Peter Coulton as to his conversation with Trish.[123]
108 Mr Ringeri said that the Bank has a computer programme called 'ComSee' which is used in the loan approvals process. He said:
ComSee is a point scoring software where the information that you input into the system takes into account the number of years of an applicant and an address, the statement of position, the income, the loan amount as a percentage of the income. If it is outside bank's policy, it then refers it or says 'fails servicing test'.[124]
109 Information pertaining to the loan application is loaded onto the system and 'ComSee' then generates a 'yes' or 'no' response. In some cases the matter will then proceed to a manual assessment and decision. Where the loan is assessed manually, the senior credit manager sits down and manually assesses the loan. There is also a servicing calculator called 'Bridging NSM' that allows the credit manager to see how the end result of the loan would look.[125]
110 The Bank's records show that a fresh application for loan, made in Mr Stephens' name, was assessed initially by Mr Ringeri using ComSee, but when it failed the servicing test the application was referred to Mr Segrave for manual assessment, and then approved by him on 8 December 2008.[126] Mr Ringeri explained that where a credit manager makes a manual assessment there is an element of discretion involved[127] but the Bank's normal policy is to allow loans which do not exceed about 40 per cent of the customer's gross monthly income.[128]
111 Mr Ringeri said that the Bank's file showed that at '17:00' on 8 December 2008, Mr Segrave made a 'Manual Decision U79' approving the loan to Mr Stephens:
08-Dec-08 17:00 - Assessed - Cond. Eligible - Manual Decision U79 - Cus Exception - Income and/or Repayment Capacity OA08 - Approved - Lending Services - refer comments - Brian Segrave[129]
112 Mr Segrave's notation on the Bank's file relevantly records as follows:
...
I have discussed this application with Peter Coulton who has confirmed that application number 90000033722, approved 5 December 2008, was submitted with false information and is currently under Bank investigation. Peter advised information within your application has been confirmed as correct. Peter also confirmed that neither the applicant nor the broker is in the wrong regarding the previous proposal. Pls confirm that this information is correct. Should this not be correct approval is void.
Surplus cash mitigates servicing risk through the bridging period (CUS Exception)
Availability of the buffer and the pending sale of other ppty mitigates nominal servicing deficiency in the residual period (CUS Exception)
(LSR43.86% ncd$15pm)
*BUTC
Loan Amount $2,100,150
Aggregation Amount $2,100,150
C/L: 272%
LVR: 63.54%[130]
113 Mr Ringeri observed that at a 'C/L' (or commitment level) of 272 per cent, the loan was outside of the Bank's usual terms and under normal circumstances would not have been approved, but he explained how it was approved, as follows:
So how is it that the loan was approved with that commitment level?---Okay. As mentioned earlier, under normal circumstances it would not be approved. However, given the circumstances Mr Stephens faced himself with, with the purchase of Marie Court, it was an unconditional purchase. The bank actually assisted Mr Stephens to settle that property and provide him with an interest only loan, which is a bridging finance loan, for the short-term from when it was approved to settlement date and then reduce the debt to 300,000. So, given he was a good client of the CBA and given Trish's standing, we assisted
Mr Stephens in giving him finance under terms of bridging finance and then clear the debt or reduce the debt.
Bridging finance?---Yes.[131]
114 Mr Ringeri's 'Comments' on the Bank's file recorded that:
We are re-submitting loan on the following basis.
Applicant has purchased ppty at 2 Marie Crt Mt Eliza for $605k with settlement due 11/12/08. Has paid $20,000 deposit which has been funded through applicants Streamline A/c.
Also has sold his existing residence for $2.7mil which settlement is to take place on 14/1/09. We have both contracts in our files for verification.
Customer is seeking Bridging Finance until sale proceeds takes place at which time debt to be reduced to $300,000.
Funding is as follows:
(although $30,886 overdrawn, allowance/deduction of Deposit paid $20,000)
Loan rounded to $2,100,000 to cover any other expenses
Requires this loan to assist with construction to vacant
Applicant has also sold ppty at 107 Spray St Rosebud for $292,000-00 to our customer [name redacted] of which we have done loan to assist with purchase, settlement due end of December 2008. Sale of $292,000 less 10% allowance, less loan of $176,000 will give applicant additional $86,800 of surplus funds.
End result that customer will have is Ppty at Marie crt Mt Eliza for $605,000-00 with loan of $300,000 (Refer NSM) C/L 32.06 with LVR at 49.58% and clear title to ppty at 16A Lowe St Mt Eliza.
In context of Peter Coulton's email, we recommend approval of this facility as customer is now locked into Sale & Purchase and initial loan App no. 90000033722[132] has been committed to customers.[133]
115 Mr Ringeri said that the reference to the customer seeking 'bridging finance' is something that 'he would say' Ms Henderson told him. His explanation, which was given and tested under cross-examination, was that the way the file was presented in the first week of December showed that 'bridging finance was needed' because:
Bridging finance is a term used to fund a property purchase before a sale takes place. It's short-term debt. So you can clearly see that Mr Stephens couldn't afford a loan of 2.1.[134]
116 But Mr Ringeri was unable to definitively recall it being raised or by whom:
So you remember that being raised by someone?---I would say Trish.
But you don't recall, you are guessing; is that right?---No, I'm not guessing, no, because I presented a document to head office based on conversations with Trish. I don't make things up. So I don't recall every conversation that happened this time far back, but according to this, yes, I would have been instructed to do bridging finance.
Would you have been instructed by someone else like a credit manager within the bank?---No, no. That's the only way with Trish and myself to get this loan over the line for him. If he wanted a longer term loan, this would have been declined. The fact was it was a short-term loan, discussed with Trish and in time with Mr Stephens, as to what bridging finance meant, and it was an interest only loan for a short-term.
But you don't recall when that was discussed?---No.
Or with whom, other than to say you think it was Trish?---It would have been at the same time when I was doing all this, yes.
So if Ms Henderson and Mr Stephens say that at no stage ever did they discuss with you bridging finance, you would dispute that, would you?---I would so, yes.[135]
117 Mr Ringeri said he was told to process Mr Stephens' loan application as per the approval that had been given by Mr Segrave in consultation with Mr Coulton.[136] On 9 December 2008, Mr Ringeri recorded on the loan file that the 'Customer wanted split loans from $2,100,000 to $1,100,000 and $1,000,000' which he said he processed manually and within the approval already given by Mr Segrave because it made no difference to the essential loan valuation criteria.[137] Mr Ringeri was unable to recall what the reason for the split was but his 'understanding was that it came from Trish as well as Mr Stephens.'[138] He said that he did not have the ability to manually approve loans[139] but he was allowed to approve the split because it was an acceptable change within the Bank's policy as 'nothing else had changed other than we just split the loans.'[140]
118 Mr Ringeri does not believe that he and Ms Henderson had any discussion about Mr Stephens' requiring the loan for a five lot subdivision of the 96 Wooralla Drive property. He said:
---I wouldn't say it wasn't discussed, but I don't believe that was discussed, because the loan as I mentioned all along was only there to help him bridge that purchase. I had nothing to do with what he was proposing to do with that property because he actually sold the property with permits on it and it was a contract of sale for the property to be sold. I don't believe there were discussions on doing subdivisions or planning approvals or building other properties on it.
You don't think that it was discussed, but you don't recall?---That's correct.[141]
119 Nor does Mr Ringeri recall receiving from Ms Henderson the original handwritten loan application that had been completed by Mr Stephens, or the covering note saying that the purpose of the loan sought was for the subdivision of the 96 Wooralla Drive property into five lots, or a summary of the breakdown of the cost items making up the $2.55 million sought.[142] He did recall receiving some documents from her but said that '[i]t would have been documents to assist the approval of this application for the 2.1.'[143] Mr Ringeri also said that he did not recall receiving from Ms Henderson any altered pay slips of Mr Stephens. He said that his recollection of their initial phone call was that Ms Henderson had called him because Ms MLM had asked her to alter Mr Stephens' pay slips, and Ms Henderson had a problem with that.[144]
120 On 9 December 2008, Mr Ringeri sent an email to Ms Henderson at 11.32 am confirming that loans of $1,100,000 and $1,000,000 had been approved, subject to the following conditions:
- Valuation confirming Sale Price of $2,700,000 at 96 Wooralla Drive Mt Eliza
- Valuation confirming Purchase of $605,000 at 2 Marie Court.
- Last 6 mths Home Loan statements with Capitol First for $1.4 mil, Westpac Loan of $290,000 and Challenge Bank of $176,000 with acceptable conduct on all these loans.
- Copy of receipt for Deposit paid of $20,000-00
- Bendigo Bank Savings account (last 3 mths).
- I enclose discharge authorities to assist with the refinance.
- Require the original Acknowledgment & consent.[145]
In his email, Mr Ringeri also informed Ms Henderson that the loan documentation would issue when all documents were 'received and all is confirmed', and that he would see Mr Stephens to sign the loan documentation. He added that they would not be in a position to settle on 11 December 2008 and requested if the settlement of Marie Court could be extended.[146]
121 It was put to Mr Ringeri that Ms Henderson would say that upon receiving that email she telephoned him immediately to confirm that the balance of funds, being the amount required to take it to a total of $2.55 million, would be forthcoming. But he did not recall any such phone call and did not think it was correct.[147]
122 In response to Mr Ringeri's email Ms Henderson did, however, send him an email at 2.50 pm that day stating:
No probs Joe - aim for thursday for all of this - if so when will we be in a position to settle...discharge authorities are already signed and sent through Janice Cocard at Southern peninsula conveyancing and both parties - spray st and wooralla (challenger and capital first) are ready to book settlement...[148]
123 Mr Ringeri responded to Ms Henderson, by email, a few minutes later, stating:
Trish,
As soon as Val is confirmed and you provide everything we need, hopefully we should settle by end of next week.
I have today requested doc's[149]
124 When Ms Henderson gave evidence, she said that she rang Mr Ringeri after receiving his (11.32 am) email and asked him about the balance of the funds. He said that he would sort it all out as soon as Marie Court is settled. Apropos his request for a valuation of the Wooralla Drive property confirming the 'sale price', she said to Mr Ringeri words to the effect of '[y]ou do understand that this development is under way?'[150] and explained that Mr Stephens needed the balance of the funds for the subdivision. Mr Ringeri confirmed to her that he did understand that and also that he understood the amount that was required.
125 I do not accept the evidence Ms Henderson gave in this regard. Her account is disputed by Mr Ringeri, and it is not consistent with what is stated in the email exchange. Further, the email correspondence that ensued between them that day makes no reference to any such phone call having taken place, and if there had been a conversation between them along the lines she maintains, it is likely that it would have been mentioned.
126 Ms Henderson provided documentation to Mr Ringeri as and when required. She said that initially she provided some documentation to him in person and later on, she faxed documents to him. Early on 8 December 2008 Mr Ringeri received a bundle of documents from her by fax which included a 'PAYG certificate' and letter from Michael Hansen of T & M Property No 1 Pty Ltd, Mr Stephens' employer, dated 5 December 2008 stating that he was employed in a full time permanent position and his base salary was $80,000.[151] Nevertheless, Mr Ringeri made his own enquiries to verify Mr Stephens' income. He said that he 'called Michael' (i.e. Mr Hansen) on 8 December 2008 and confirmed Mr Stephens' salary details. He said 'he would have' confirmed that the amount of $80,000 per annum was correct and his annotation (made on the letter) confirmed that.[152] In the case of the Perpetual loan referred to in his email 11.32 am (above) to Ms Henderson, Mr Ringeri did not recall whether he, or one of his assistants, checked as to whether there was acceptable conduct on the Perpetual Capital First loan in the previous six months.[153] In that regard, he was taken to two account statements pertaining to the Perpetual loan, the first of which was discovered by the Bank[154] and the second by Mr Stephens.[155] Mr Ringeri said he did not recall having seen either statement and said such checking matters were often handled by his assistants because, as a mobile lender, he was 'out on the road a lot'.[156]
127 Mr Ringeri said that he was not aware of any unacceptable conduct on the part of Mr Stephens on the Perpetual loan.[157] But he added that:
Because the file has been referred to senior credit manager, if anything was not correct it would have to be referred back to credit manager and make the decision based on what's presented and what's changed. So, if it was an unacceptable conduct, if that was picked up, the bank may not have settled.[158]
128 On or about 11 December 2008, Mr Ringeri sought a valuation of the 96 Wooralla Drive property through the 'valex.com.au' valuation service available to the Bank. In his email to valex.com.au, he outlined the loan dealing, stating that the customer had sold the property for $2.7 million, the Bank was refinancing the existing Capital First (i.e., Perpetual) mortgage, and the customer's equity in the property would be used in order to assist with the purchase of another property which was due to settle on 15 December 2008.[159]
129 On 15 December 2008, Ms Henderson faxed through a contract of sale (with section 32 statement) for 96 Wooralla Drive marked 'For the attention of Joe Ringeri'.[160]
130 There is a dispute about whether the contract that was faxed through (Exhibit P2) was one that was signed by the purchaser and/or the vendor, and whether it was actually received by Mr Ringeri. Exhibit P2 records the 'Day of Sale' as being 'the 1st day of December 2008' and it bears what purports to be the signatures of Mr Stephens (as vendor) and Mr Michael Hansen (as purchaser). The Particulars of Sale record the sale price as $2,700,000 with a deposit of 10% payable on signing and the balance of $2,430,000 payable on settlement, which was due to take place on '14th January 2009'.[161] The section 32 statement included in the faxed bundle contained a 'vendor's acknowledgment' which is dated 'Dec/5/2008' and what purports to be Mr Stephens' signature, and a date of acknowledgement by the purchaser of '5/12/08' and what purports to be Mr Hansen's signature, but each of Mr Stephens and Ms Henderson gave evidence that what was faxed through to Mr Ringeri was unsigned and undated and was provided to him for valuation purposes only.[162]
131 Mr Ringeri certainly had a copy of a contract of sale for 96 Wooralla Drive (which bore a facsimile transmission date of '2008 12/15'). It was put to him during cross-examination that he had requested Ms Henderson to send through to him an earlier contract for sale of 96 Wooralla Drive that was not proceeded with, on the basis that he 'needed it to show the valuer as the property had to be valued at 2.7 million to borrow the required funds against the property.'[163] Mr Ringeri had no recollection of requesting Ms Henderson to send through a contract that was not proceeded with. He could not recall actually receiving the contract but said he 'would have' received it from Ms Henderson.[164] Nor could he recall whether the copy of the contract he received was signed and dated but said '[he] would have thought that normally contracts for sale will be signed by the purchaser and vendor', and that his understanding was that there was always a sale 'on foot'.[165] He said it was normal business practice to request that a valuation be done and he 'needed a contract as evidence that the property was sold.'[166]
132 Ms Henderson sent the fax to Mr Ringeri under cover of a handwritten note stating:
Hi Joe
I spoke with the conveyancer
- no building permits issued
only permit to subdivide
so is sold as is with permit
to sub-divide.[167]
Importantly, Ms Henderson's cover note makes no mention of the Contract of Sale having expired - indeed the words 'so is sold as is' conveys the impression that the sale is on foot. Mr Stephens admitted under cross-examination that the contract provided to Mr Ringeri was signed by the purchaser, but not the vendor.[168]
133 On 15 December 2008, Mr Ringeri requested an 'urgent' valuation of 96 Wooralla Drive from 'John Miles Rm Property Consultant'. Mr Ringeri completed the relevant details on the Bank's request for valuation document, noting the 'Purchase price' as being $2,700,000.00 and stating in the 'Remarks' box:
Owner has sold ppty with Section 32 for plan of Sub.
No Building Permits issued. Only permit to Subdivide. Ppty [96 Wooralla Drive] sold as is with Permit to Subdivide. Customer has Purchased another ppty with Settlement due 15/12/08.[169]
134 It will be noted that the language used by Mr Ringeri (in bold above) reflects that used by Ms Henderson in her fax of 15 December 2008, so it is likely that Mr Ringeri received her fax. He has also proceeded on the basis that 96 Wooralla Drive has been 'sold', consistently with what Ms Henderson had informed him in her covering note. In the circumstances, I do not accept the oral evidence of Mr Stephens and Ms Henderson to the effect that Mr Ringeri requested that she send through a contract that had expired or was no longer on foot.
135 Ms Henderson gave evidence in relation to the two valuations that were sought by Mr Ringeri, but the substance of the evidence she gave was not put to Mr Ringeri. She said that at some point during the week commencing 8 December 2008, Mr Ringeri rang her to say that a valuation would be required for 96 Wooralla Drive, and to ask if she could meet the valuer there. According to Ms Henderson, Mr Ringeri added: 'Can you cover the sign at the front?' She said he was referring to the sale sign for the five lot subdivision, which bore the words 'individual lots for sale' and, under one of the blocks, the words 'under offer' to encourage interest.[170] Ms Henderson said she could not understand the meaning of his request and 'just ignored it completely.'[171] She recalled meeting the valuer at Wooralla Drive on '13, 14, maybe 15 December', showing him the subdivision pegs and the house. The valuer told her that, being a residential valuer, he was unable to value Wooralla Drive.[172] A meeting with another valuer was arranged for the day after the mortgage documents were signed. Ms Henderson said she met him, introduced him to Mr Stephens, and showed him the plan of subdivision and development permits.[173]
Mr Ringeri's communications with Mr Stephens prior to document signing
136 Mr Ringeri acknowledged that, for the most part, he was communicating with Mr Stephens through Ms Henderson and was hoping that the communications he had with her were being passed on accurately to Mr Stephens.[174] Mr Ringeri said that he had not met Mr Stephens before their meeting on 16 December 2008 at which the documents were signed, but added that he 'would have had' a discussion with Mr Stephens over the telephone prior to the coffee shop meeting, to run through what they were doing. He said:
But, again, the usual practice is to discuss what I was doing, because Trish Henderson knew exactly what I was doing and I wanted to make sure Mr Stephens knew what we were doing too, because I was hoping Trish was passing on the right information to Mr Stephens, and then my conversation would have been around that. However, I don't recall exactly what was said.[175]
137 Under cross-examination, the topic was re-visited with Mr Ringeri:
[MR MATTERS:] The phone call beforehand, do you recall what was discussed in this phone call or when it was prior to the 16th, the phone call to Mr Stephens you say you had?---Yes, I would have explained to Mr Stephens the content of the contracts and what we were doing, and then the purpose of our meeting on the 16th to sign those documents ready for settlement.
You would have, you say. Do you recall doing this at all?---Look, I did over 1,000 customers in my 16 years. It's very hard to remember every word for word and document for document. So, bearing in mind that 2.1 was for him to purchase Marie Court and it was an interest only bridging finance and all the documents, all my conversations with Trish, followed up with a phone call with Mr Stephens who I rang, come the coffee shop date there should be no surprises at all, because that's how it was presented.
Bearing in mind that you are under oath?---I understand that.
I understand it's a long time ago, but bearing in mind you are under oath, I ask you whether you distinctly recall having a conversation - - -?---I did have a conversation with Mr Stephens, but word-for-word I don't remember.
On the telephone or any other method prior to 16 December 2008?---On the telephone.
So if Mr Stephens says he never spoke to you, either before or after 16 December, only at the coffee shop meeting?---I can't speak for him, unfortunately. I cannot speak for Mr Stephens.
No, but you would dispute that, would you?---Pretty much, yes.
Pretty much?---Yes, I would dispute it.
If the documents had been sent out in the mail as you expect them to, why would you need to speak to Mr Stephens before the 16th?---First to tell him what we were doing with the loan. He needed to be advised what Trish was aiming to do.
. . .
. . . Until you have this phone call with Mr Stephens, you are just hoping that the communications you have with Ms Henderson about the loan are being passed on accurately to Mr Stephens?---Correct.[176]
138 Mr Stephens denies having had any such telephone conversation with Mr Ringeri. He acknowledged that there may have been a phone message from him somewhere along the line, the contents of which he does not now recall, but he said he has never actually spoken with Mr Ringeri on the phone.[177] He added that he had not met Mr Ringeri or had any contact with him prior to, or since the meeting that took place between them on 16 December 2008.
Meeting at coffee shop to sign documents on Tuesday, 16 December 2008
139 Mr Stephens said that on Tuesday, 16 December 2008, he and Ms Henderson drove to Dandenong in order to meet with Mr Ringeri in a little coffee shop and sign the documents, in advance of the settlement for Marie Court.
140 Each of Mr Stephens and Ms Henderson gave evidence that the coffee shop meeting with Mr Ringeri was of very short duration. Ms Henderson said '[t]he whole meeting took less than three minutes.'[178] Mr Stephens said that the meeting took only in the order of five to ten minutes - '[w]e had a cup of coffee. We signed the documents. The coffee was drained and we left.'[179] He said that there was 'what I would call a rush to actually settle on Marie Court'[180] and 'Joe [Ringeri] said that we'll just sign the documents to get the settlement sorted out and we can sort everything else later. That's why the meeting was so short.'[181] The 'rush' that Mr Stephens referred to was apparently because settlement of the Marie Court property was set for Friday, 19 December 2008 and 'we had to get up to Dandenong, sign the documents, Joe had to obviously take them away and process them.'[182]
141 Mr Ringeri did not agree that there was any 'rush' and disputed that the meeting occupied only a few minutes. He said the meeting would have taken at least 15 minutes to half an hour,[183] noting that he would not have drunk his coffee in three minutes, and estimates that with this type of transaction, the meeting would have taken 'no less than half an hour.'[184] Mr Ringeri's recollection was that when he arrived at the coffee shop, Ms Henderson was already there and Mr Stephens came along just a little later. As noted earlier, Mr Ringeri was not aware that Ms Henderson and Mr Stephens were domestic partners. He said 'we sat down, introduced each other, said hello and then we went through the loan contracts and got Mr Stephens to sign them.'[185] He explained that they were not going through each document in full detail but were 'walking through [each of] the documents as it was presented.'[186]
142 As to Ms Henderson's suggestion that there was urgency or he was in a rush at the meeting, Mr Ringeri acknowledged that there were time constraints involved, in the sense that the settlement of Marie Court was due to take place on the Friday, but he did not accept that he was 'in a bit of a rush' at the meeting. He said that there was no time limit 'other than we had a settlement date approaching and we needed to get the documents in time for settlement.'[187]
143 Mr Ringeri said that he usually only gets involved in document signing where the customer 'cannot get to a solicitor or cannot get to a branch and sometimes if it is a high net worth client I personally do the sign-up just to make sure they get that one-on-one service.'[188] In such a case, the customer would usually receive a copy of the documents in the mail in advance of the signing meeting, so that they can peruse them in advance 'because when they sign them they need to know what they're signing.'[189] Mr Ringeri said that he had received his copies of the two loan contracts from the Bank's head office on 12 December 2008[190] and he hoped that Mr Stephens had received them too, but he does not recall having asked Mr Stephens whether he had.
144 Mr Ringeri said he personally got Mr Stephens to sign the documents, rather than using the process outlined in the standard letter sent by the head office of the Bank.[191] He said that he was involved in this signing because of his relationship with Ms Henderson and also because there was only a short time until the settlement of Marie Court was due, and so it was in the Bank's interest for him to conduct the signing personally and collect the documents rather than wait for them to arrive in the mail.[192] It was not his usual practice to have clients sign up documents in a coffee shop but Mr Ringeri said he thought the meeting had been arranged with Ms Henderson by phone, and that the coffee shop location was at her request.[193]
145 Mr Ringeri does not recall precisely what documents were signed that day or what was discussed with Mr Stephens, but he said that on the basis of his usual practice 'it would be the loan amount, the interest rate, the repayments, the security, which is what's securing the loan, and all the fees and charges that come on those contracts.'[194] He also said that in addition to having Mr Stephens sign the loan documents, 'he would have' discussed with him the Bank's 'Wealth Package' document that gives the customer a lower interest rate.[195] Mr Ringeri later said that the Bank's mortgage document is another document that would have been signed by Mr Stephens as part of the suite of documents executed on 16 December 2008.[196] He said it's a document that the customer signs authorising the registration '[s]o he would have to have been made aware of that.'[197] He believed the documents signed that day were the contracts for the loans but said '[t]here would have been others attached to those contracts like the wealth package,'[198] the discharge authority which enables the Bank to pay out Capital First (i.e. Perpetual) and take possession of the title,[199] the authority to pay moneys at settlement[200] and the discharge letter to Capital First to discharge the mortgage.[201]
146 During cross-examination, it was put to Mr Ringeri that when he took Mr Stephens through the loan amounts of $1.1 million and $1 million, Mr Stephens had asked him '[w]hat about the balance of the funds?' Mr Ringeri said 'That I do not recall.'[202] He was then informed by counsel for the defendant that Mr Stephens and Ms Henderson would be giving evidence that he had replied by saying words to the effect that '300,000 was already signed for and available for development of the [Wooralla] property, and that the balance would be sorted out after the Marie Court property had settled.'[203] Mr Ringeri did not recall that conversation. Counsel for the defendant then put to him:
[MR MATTERS:] They [i.e., Mr Stephens and Ms Henderson] will both say that you confirmed and stated that the full loan funds of $2.55 million was unconditionally approved and would be available?---That's not true. I don't recall that.[204]
147 Mr Ringeri's evidence on that issue was consistent with that given by him during examination in chief. Counsel for the Bank had shown him a Bank Consumer Credit Loan Contract Schedule in the name of Mr Stephens for the sum of $300,000, to be secured over the Marie Court property, with a disclosure date of 19 September 2008, which was signed on behalf of the Bank but did not bear Mr Stephens' signature.[205] Mr Ringeri said that he had not seen that document before. He was also taken to Bank account statements headed 'Economiser Home Loan Summary' that were apparently created in respect of this contract.[206] He said that he had not been involved with this loan for $300,000, and knew nothing of it, but explained that when loan contracts are prepared they must be assigned an account number and the Bank's system automatically opens the account and generates statements which are then deleted or cancelled if the loan contracts are null and void.[207] In the case of the statement for the 'Economiser Home Loan Summary',[208] Mr Ringeri agreed, under cross-examination, that the statement does not state that the account is closed, and there is nothing on the document to indicate that that is the position.[209] (It will be recalled, however, that the letter from Ms MLM that accompanied the Consumer Credit Loan Contract Schedule for the $300,000 stated that the moneys would be provided 'at settlement'[210] and the schedule stated that the Bank would pay the $300,000 'at your written direction'.[211])[212]
148 When giving his evidence in chief, Mr Stephens was asked whether there was any discussion at this meeting with Mr Ringeri about the amount of the funds to be loaned. Contrary to what had been put to Mr Ringeri, Mr Stephens responded by saying: 'No, not that I recall. Not from me anyway.'[213] In reference to the Consumer Credit Contract Schedules for the respective loan sums, he said that he noted the amounts shown at item B, but he didn't query them. He then said 'Trish queried the amounts and the remainder' with Mr Ringeri and they 'started discussing the 300,000 and the remainder' in his presence but at that stage 'there was no resolution' and it 'was to be sorted out in the future, after settlement.'[214] He said that the only thing he could remember was 'the figure of 300,000 being mentioned' in the sense of 'where was it?' and added that he did not 'calculate the shortfall to 2.55.'[215] He said that they discussed the $300,000 'because we knew that was coming and Joe [Ringeri] was going to address the shortfall in the New Year, and that was the complete context.'[216] In other words, Mr Stephens did not suggest that the sum of $150,000 was explicitly raised.
149 When Ms Henderson gave evidence about what numbers were discussed at the meeting with Mr Ringeri, she said:
---When Mr Ringeri opened up the documents for the 1 million and 1,100,000, he said that these were two standard loan applications - two standard mortgage documents that were absolutely identical and the amount was 1 million and 1,100,000. Mr Stephens then said, 'What about the balance of the funds for the subdivision?' I think I interjected and said, 'Just to clarify, we are talking about the 300,000 that's been approved by [Ms MLM].' Joe asked a question which was, 'Mr Stephens signed for that 300,000.' Mr Stephens answered in the affirmative, yes, he had. Joe said, 'That's legally binding' or 'Those funds are available.' I can't remember the exact wording. I then said, 'And the balance of the funds, that leaves us with 150,000 shortfall'. Joe confirmed that all of those funds would be available and it would be sorted out after settlement.[217]
150 On this issue, I prefer the evidence given by Mr Ringeri. First, the evidence given by Mr Stephens and by Ms Henderson is contradictory in significant respects, and Mr Stephens' evidence was that 'there was no resolution' at that stage. Secondly, Mr Ringeri was involved in the iterative process that had been undertaken by Mr Coulton and Mr Segrave, in consultation with him, in order for the Bank to approve the loan of $2,100,300 to Mr Stephens. He was also aware, as a result of Ms Henderson having contacted him to complain that Ms MLM had asked her to alter Mr Stephens' pay slips, that Mr Stephens' salary could not support the approval of a loan of $2,550,000. In my view, in those circumstances, it is most unlikely that Mr Ringeri would have informed Mr Stephens and Ms Henderson to the effect that any further loan funds would be forthcoming in addition to the $2,100,300 that Mr Segrave had approved.
151 During cross-examination, Mr Ringeri was asked about Home Loan Application No. 90000033722 (print date 22/10/2012) for the sum of $2,250,300.[218] It will be recalled that this loan application number is the same as the number that Mr Segrave referred to in his 'comments' when approving the loan of $2,100,300 on 8 December 2008.[219] Mr Stephens obtained this copy of the loan application from the Mt Eliza branch in late October 2012.[220] When Mr Ringeri was shown this loan application he said that he had not seen it before but thought it might have been done by Ms MLM.[221] During cross-examination, Mr Ringeri was also taken to the comments he made on the Bank's file when seeking the ComSee approval and, in particular, his recommendation that in the context of Mr Coulton's email the loan be approved as the 'customer is now locked into Sale & Purchase and initial loan App no. 90000033722 has been committed to customers.'[222] The following exchange then took place:
[MR MATTERS:] Based on Mr Coulton's email, you are stating in your notes that that initial loan application number has been committed to the customers and they are locked into the sale - - -?---From Peter's notes, yes.
You have no reason to doubt Peter's notes, do you?---No.
Or his email?---No. I'm just saying that that application number that he passed on to me is no longer proceeding.
Where does it say that?---It's been committed; that's not proceeding with. If it proceeded then he would have had the loan, wouldn't he?
Sorry, just going back to page 431, you are not contending, are you, that, 'In context of Peter Coulton's email we recommend approval of this facility as customer is now looked [sic] into sale and purchase and initial loan' number 'has been committed to customers', you are not suggesting that that indicates that the initial loan has been cancelled, are you?---No, but it never eventuated.
I'm not asking about that at this stage. If we go to page 1012 [i.e., Home Loan/Investment Home Loan Application 90000033722 undated but printed 22/10/2012], this is the loan application that's being referred to, though, at page 431. Do you see the amount of the loan on page 1012?---Yes, I do.
Do you have any idea how the amount of $2,250,300 - - -?---No.
You are not familiar with that number at all?---I do not know.[223]
152 Exhibit D1, which is a printout of Bank internal decision comments recorded on the ComSee approval document concerning Loan Application 90000033722, was tendered by the defendant through Mr Deligiorgakis.[224] The document records that Ms MLM started a 'New Application' for Mr Stephens on 4 December 2008, initially for a loan amount of $2,650,000, but she corrected it later that day to an amount of $2,250,000. Mr Stephens' employment is recorded there as being 'Manager of computing company' with an 'Annual income of around $300k'. The 'Purpose' of the loan was initially recorded as 'Purchase of new owner occupied property in Mt Eliza, refinance of existing property' but in her 'Recommendation' Ms MLM notes:
RECOMMENDATION: Very highly recommended as per BUTC;s - General Comments [Ms MLM] - - Deleted Users - -
04-Dec-08 19:32 NB: property at 96 Wooralla Drive has a contract of sale, settlement end of January. No end debt. Streamline overdraft to be paid out of funding. Group cert and p/slips on file. New contract of sale being faxed 5/12/08. Bridging finance for 2 months maximum. REFINANCE OFI-CAPITAL FIRST HAVE DISCHARGE PREPARED AND READY TO SETTLE AS SOON AS POSSIBLE POST APPROVAL. CONTACT DETAILS FOR DIRECT ACCESS TO OFI SETTLEMENTS AREA WILL BE PROVIDED. - General Comments [Ms MLM] - - Deleted Users - -
04-Dec-08 19:33 PLEASE CALL ME TO DISCUSS, THANKS - General Comments [Ms MLM] - - Deleted Users - -[225]
153 The comments endorsed on the file in the name of Ms MLM indicate that a 'Manual Assessment' was required and so the matter was 'Refer[red] to Credit' by Ms MLM, where a 'Manual Decision' was made by Mr Philip Marrinon of Lending Services, as follows:
05-Dec-08 15:32 - Assessed - Cond. Eligible - Manual Decision OA08 - Approved - Lending Services - refer comments - Philip Marrinon[226]
05-Dec-08 15:31 #637924
Hi [Ms MLM],
I have assumed the customer is PAYG and your comments are incorrect,
CUS Exception: Income/Repayment Capacity Test (C/L 48.16% during Bridging period)
Mitigant: Surplus funds are available to assist during bridging period. All home Debt to be repaid in full from the sale of the current home.
BUTC
Regards
Phil Marrinon
...
Loan amount $2250300
Aggregation $2550300
C/L 48.16%
LVR 68.09%- Assessment Philip Marrinon COLLECTION P/FOLIOS&INFRASTRUC
Account Variations
The following account has been subject to variations: Account Number 200042; Original Balance $1400000; Reduced Balance $0; Reduced Limit $0; Original Redraw $0; Reduced Redraw $0 (Source of Funds: New Loan)[227]
155 On 5 December 2008, two further comments are recorded by Ms MLM:
05-Dec-08 15:39 - Confirmed To Proceed - Confirm To Proceed - [Ms MLM]
05-Dec-08 15:41 - Fulfilment-Pending-Send to LPC (Auto)- Confirm To Proceed - [Ms MLM][228]
156 There are two final entries made on the document, the first of which is recorded as having been made by Mr Ringeri:
09-Dec-08 10:52 - Not Proceeded With - NPW U295 - Bank Decision - Joseph Ringeri
13-Apr-09 11:07 - Closed - Automatic Closure - System User[229]
157 Mr Ringeri was not taken to this document when giving evidence, nor was it put to him in cross-examination.[230] Under cross-examination, Mr Ringeri agreed that Mr Coulton, in his comments in ComSee on the Bank's file for the fresh loan application, had mentioned an 'initial loan application number 90000033722'that had been 'committed to customers' but Mr Ringeri said he knew that '[f]rom Peter's notes'[231]. I note that while Mr Ringeri's evidence was to the effect that he was not familiar with any application made for $2.25 million, the entry recorded in Mr Ringeri's name on Exhibit D1 is consistent with the sequence of events about which he did give evidence, namely that on Monday, 8 December 2008 he emailed Ms Henderson at 9.02 am and informed her that '[Ms MLM's] loan', although approved, was approved on the wrong income details, and that he would 'start all over and re-do correctly'; he then started a fresh application in ComSee at 11.22 am that day, which was approved by Mr Segrave later that day. On 9 December 2008 at 11.15 am, Mr Ringeri then split the $2,100,300 that had been approved by Mr Segrave into two loans, acting within that approval.
158 Mr Stephens said that while at the meeting on 16 December 2008 he produced his driver's licence, which he had been asked to bring with him, and Mr Ringeri gave him some documents to sign 'ostensibly to facilitate the settlement of Marie Court.'[232] He could not recall all of the documents he signed at that meeting - he said that he did not read them and they were not explained to him - and he 'was just told that these documents were necessary to settle'.[233] He recalled that some of the documents had blanks in them at the time he signed them.
159 Mr Stephens said that at the coffee shop meeting, they (that is, he and Ms Henderson) were working on the basis that the 'original loan', by which he meant the loan he originally sought via Ms MLM for $2.5/$2.55/$2.65 million, was still in place and that the documents he was signing that day were purely to facilitate the purchase and settlement of the Marie Court property and to take over the Wooralla mortgage.[234] He said 'there was no discussion of altering loan amounts or anything like that from the original loan'[235] It is surprising that they could have adopted such a position, given the clear statement made by Mr Ringeri in his email to Ms Henderson on 9 December 2008, '[c]onfirming that loans of $1,100,000 and $1,000,000 have been approved' and her '[n]o probs Joe' response.[236]
160 Mr Stephens said that the only 'advice' he received from Mr Ringeri was in relation to the 'Wealth Package' document and it was to the effect that the wealth package would reduce the interest rate payable by him. Mr Stephens was asked what his understanding was of how the interest was to operate in relation to the moneys to be advanced and he replied '[a]pparently overall the interest rate was a lower rate. That's as far as I knew. I didn't have specific details, numeric details.'[237]
161 As to the operation of the loan in relation to the payment of interest Mr Stephens said that as at the 16 December coffee shop meeting, in his mind, the original loan that had been applied for through Ms MLM stood - he had not applied for another loan - and so his 'original concept of the development loan with the capitalisation of the interest was the only thing in my mind.'[238] He explained the capitalisation of interest saying:
The interest was to be capitalised, that is to be put back into the mix, so to speak. The rate of interest was reduced by whatever the parameters were in the wealth package. That was my understanding of what was happening.[239]
162 Mr Stephens explained that the 'original concept' he was referring to involved at least three components. First, the funding would cover the purchase of 2 Marie Court. Secondly, the discharge of the Perpetual mortgage over 96 Wooralla Drive and the indebtedness to that financier. Thirdly, the development of 96 Wooralla Drive. Later on, under cross-examination, Mr Stephens said that as the funding was to be a development loan, he understood that the interest was to be capitalised and paid out of the proceeds of sales of the lots because he could not afford a mortgage of $2.5 million. He did not know what the amount of interest involved was but believed that Ms MLM 'had processed an amount of interest in the process of creating the loan.'[240] He explained the notion of 'capitalisation of interest' that he was referring to in his 'original concept', as follows:
What's capitalisation of interest as defined in your original concept?---In terms of the overall payment, overall mortgage, a bank would obviously charge out an interest amount per month, but then that would come back into one or other of the accounts from where it went out. So either into the mortgage itself or into the Streamline account. In other words, somewhere along the line I would receive a credit for those payments that came back out, that came out. The money had to be returned somewhere. I'm not a banker. I wouldn't know what that mechanism was.
So in regard to capitalisation some amount of interest is being paid pursuant to some rate?---Correct.
Prior to signing the loan contracts on 16 December 2008 you have not in any way communicated with the bank about what the rate applicable to the capitalisation is; correct?---That's correct.
So you don't know the rate at which interest is being calculated, on your evidence?---No.
And so you don't know how that part of your original concept is being filled in at all?---That's correct.
So you don't know how much interest you are going to pay at all?---That's correct.[241]
163 Mr Stephens confirmed that they were not worried about the rate of interest and said that '[b]ased on the original loan, it was going to be handled by the bank.'[242] He said that at the time he completed the handwritten application that was submitted to Ms MLM, the only thing he knew about the interest was that 'it was to be capitalised until we actually started selling the lots, the finished separate titles.'[243] He had no idea about the interest rate. He said he was not told what it would be but only that it would be less than the standard rate.[244] He also said that there was nothing specific in the actual body of the application form to mention capitalisation of interest; rather, the reference to capitalisation was put in a cover note that accompanied the completed form.[245]
164 Mr Ringeri did not recall Mr Stephens asking him, during the coffee meeting, to take the documents away to have them checked by a solicitor. It was put to Mr Ringeri that Mr Stephens did make such a request at the meeting and that Mr Ringeri responded by saying words to him to the effect: 'They're standard mortgage documents, both sets are identical, and if you take them away we will not be able to settle Marie Court in time'. Mr Ringeri did not recall having any conversation to that effect during the meeting, but acknowledged 'it is possible.'[246]
165 Mr Stephens said that after the contracts were signed, Mr Ringeri took the papers away, and he did not receive copies of them until they were provided by means of the discovery process in this proceeding.[247]
The Marie Court property settled on 19 December 2008
166 The purchase of the Marie Court property settled on 19 December 2008. Mr Stephens said that following the settlement '[t]he various moneys went to the account' but he received nothing, save for two letters from the Bank dated 2 January 2009[248] which dealt with managing your home loan. Mr Stephens said that was 'something that was a bit curious', but he simply filed the letters away.[249] The letters were in substantially the same form, and stated that repayments of $7,360.00 (in the case of the first loan agreement for $1,100,150) and $6,692.00 (in the case of the second loan agreement for $1,000,150) would be debited to Mr Stephens' nominated account on 22 January 2009 and monthly thereafter.
167 Mr Stephens said that in January 2009, while he was running his own consulting business, they were 'fully into the development of the [Wooralla Drive] property.'[250] By the middle of 2009 he was still working to pay their normal bills, but at this stage things began to go wrong. In his evidence in chief, Mr Stephens said:
. . . But at this stage things began to go wrong with the payments for the house. We were watching this. The size of the outgoings per month had been noted, about 14,000. But we thought this was quite normal, this was the way the bank had done these things and the amounts would be credited as per the original recapitalisation of interest. So nothing was questioned.
Ever?---Not for the first couple of months, until we received an arrears warning.
You have said that you didn't do anything until that notice. What did you do, if anything, after that?---I was working. I was working for my clients, with my clients in my normal business. The development was proceeding in parallel.
Are you able to say what you did, if anything?---At what stage?
Sorry?---At what stage?
At the stage post the default notice?---I didn't do anything specifically with respect to these accounts. Everything was automatic. We had a couple of other transactions to complete. There was an old house that I had for my so-called pension plan, Spray Street. That had been sold, and the moneys popped into the common account because I thought that was the correct thing to do. So there were one or two other transactions occurring, but nothing overt.[251]
168 In circumstances where Mr Stephens had given evidence to the effect that when he signed the documents on 16 December 2008 he (and Ms Henderson) were working on the basis that the 'original loan' (i.e., of $2.5/2.55/2.65 million with interest being capitalised) was still in place,[252] it is telling that he did not make contact with the Bank at or around the time of receiving the letters, or when the monthly repayments were debited to his account, to query why interest was not being capitalised (i.e., taken out of the loan funds rather than from his personal resources). That is, Mr Stephens was aware that 'about 14,000' was being deducted each month, but he thought this was quite normal' and so 'nothing was questioned'.
169 The version of events given by Ms Henderson presents quite a different picture as to the level of communication with the Bank in the post-settlement period. She said that on the day of the settlement, 19 December 2008, Mr Ringeri had rung her to say 'congratulations' and let her know that the purchase of the 2 Marie Court property had settled that afternoon. Ms Henderson asked Mr Ringeri to confirm what date he would be available for an appointment with her in January to discuss the balance of the funds. He said that he would be away until mid-January and she could contact him then to book an appointment to meet with him. Ms Henderson said she also discussed with Mr Ringeri the continuation of the subdivision, asking whether they were 'safe to continue with the subdivision' and whether Ms MLM's funds of $300,000 were available. Mr Ringeri apparently asked her whether the account was open - and Ms Henderson said she believed so - to which, she said, Mr Ringeri responded along the lines of 'then the funds will be there deposited'[253] but added that he did not know whether that would be prior to Christmas or in January.
170 After the Christmas break, Ms Henderson returned to work on or about 14 or 15 January 2009. She noted that Ms Graham had arranged, via email, an appointment over coffee with Mr Ringeri for Ms Henderson, a mortgage broker named Linda Marks, and herself.[254] But separately, Ms Henderson contacted Mr Ringeri by phone and asked whether the two of them could meet at the end of the catch-up to discuss the balance of the funds for the subdivision for Mr Stephens' loan. She said he confirmed that would be fine. It transpired that Ms Marks and Ms Graham later notified the others that they would not be able to attend the coffee meeting as scheduled, and so Ms Henderson rang Mr Ringeri on about 26 or 27 January 2009 to say that she did need to discuss Mr Stephens' loans with him and wished to confirm that their meeting would still be going ahead but at the original start time and at Brentwood rather than Doncaster, which was the original venue. During that conversation, Ms Henderson said that Mr Ringeri said words to the effect of 'Yes, that's absolutely fine, Trish. It's all in hand. I'm taking care of it now.'[255]
171 Ms Henderson said that she and Mr Ringeri met at the Brentwood Shopping Centre on the afternoon of Thursday, 29 January 2009. She said that they sat down and went through Mr Stephens' requirements for the subdivision, and Mr Ringeri confirmed that he had it in hand and was sorting it out.[256] She recalls also that Mr Ringeri asked her for another loan application for Mr Stephens, which she queried the necessity for, saying that Mr Stephens 'already had a loan application for the full amount.' Mr Ringeri responded saying 'Leave it with me.'[257] Ms Henderson said that they did discuss how it was a big project to undertake, and he asked whether there were any pre-sales, but she confirmed there were not.
172 Ms Henderson said that following the meeting she reported to Mr Stephens that there were no problems with the subdivision and that Mr Ringeri was sorting it out and would continue to do so. She maintained that between the end of January and 29 April 2009 she had at least three or four telephone conversations with Mr Ringeri. She said she had made diary entries to follow-up with Mr Ringeri by phone every two or three weeks after their face to face meeting, and the first such phone call was initiated by her between 17 and 23 February 2009, when she called to ask him what was happening with the balance of the funds for Mr Stephens' subdivision. Mr Ringeri responded along the lines of 'Trish, I'm getting it sorted for you. It's a long process within the bank. The loan was still under investigation.'[258] He added that she should leave the matter with him and he was taking care of it. Ms Henderson said that another such call took place between them in mid to late March 2009, where Mr Ringeri reiterated that everything was in hand, he was going through the processes and the funds would be available.
173 Ms Henderson gave evidence that another call took place between them on 29 April 2009, initiated by Ms Henderson, essentially because none of the funds had been released. In her evidence in chief she said:
. . . The 300,000 that Joe had confirmed was available and for which the account was opened had not been deposited. There was still an additional shortfall on top of that. We had contractors that had been employed, so I rang to chase for those funds.
So what was said during this conversation?---Mr Ringeri said, 'Do you have any pre-sales?' I said, 'No, we don't.' He said, 'I am sorting it out as quickly as I can.' And the conversation ended effectively there.
Yes?---Subsequent to that I again tried in the following month and Mr Ringeri was not available to take any calls. I later found that he had left the CBA.[259]
174 Despite the fact that no correspondence with the Bank has been produced to the Court, Ms Henderson maintained that in 2009, Mr Ringeri had continually assured them that the balance of the funding was being taken care of. When challenged about this during cross-examination, the following exchange occurred:
[MR CAREW:] In 2009, notwithstanding what you recollect about the discussions on your evidence, in 2009 you don't write one email or letter or fax to the bank and neither does your partner, saying 'We signed up on a contract for $300,000', do you?---During that time Mr Ringeri continually assured us that it was being taken care of.
But in answer to my question, the answer is, yes, you didn't do that; correct?
---I did write to Mr Ringeri. I don't have the emails, but on 29 April [2009] Mr Ringeri wrote back and asked me if we had any contracts of sales on the individual lots of 96 Wooralla Drive.[260]
175 Some aspects of Ms Henderson's version of events post-settlement were put to him by counsel for the defendant. During cross-examination, it was put to him that Ms Henderson would give evidence that after the coffee shop meeting on 16 December 2008, she rang him on a number of occasions during December and January to ask where the balance of the $2.55 million was.[261] Further, that she would say that on those occasions Mr Ringeri assured her that he was chasing up on that and the funds would be available shortly. Mr Ringeri said he did not recall those conversations and does not recall saying words to the effect alleged.[262]
176 It was also put to Mr Ringeri that Ms Henderson would say that she had a meeting with him at the Knox City Shopping Centre food court area in late January 2009 at which she specifically raised the topic of the loan contract for $300,000 that was initially arranged through Ms MLM, and that Mr Ringeri asked whether Mr Stephens had signed it. She said he had, and that Mr Ringeri confirmed that it was binding on the Bank. Mr Ringeri did not recall having such a meeting.[263] He said that each year he goes on annual leave from Christmas and through January, normally for a period of four weeks, and did not know whether he was on annual leave that day, but he did not recall such a meeting.[264] Earlier in his evidence he had mentioned that he lives in the Knox City area and said he would remember if he had a meeting in a coffee shop there.[265] Mr Ringeri also disputed that he had any discussion with Ms Henderson along the lines indicated, as follows:
[MR MATTERS:] Ms Henderson will say that at that meeting you stated to her that you were sorting out the balance of the funds for the 2.55 million?
---No.
You don't recall or you dispute that?---I dispute that.
You say that you didn't say that at any - - -?---I'm not aware of the $2.55 million loan that I had to handle.[266]
...
. . . If we come back then once again to the meeting that Ms Henderson says occurred at Knox City on 29 January 2009, but turning back to page 325, I understand what you said about your knowledge about this contract schedule, but she will say that you asked whether Bruce had signed this loan contract for $300,000 and she replied 'yes'?---I don't recall.
She will then say that you confirmed that this contract at page 325 [i.e., Consumer Credit Contract Schedule for loan of $300,000 dated 19 September 2008] was binding on the Commonwealth Bank?---I don't recall that.[267]
177 It was also put to Mr Ringeri that Ms Henderson would say that at this meeting, he conveyed to her information about Ms MLM and the Bank's investigation into her conduct. Mr Ringeri said he did recall conveying to Ms Henderson at some point during the loan discussions that Ms MLM had initially been suspended from duties soon after Ms Henderson reported the request about altered pay slips.[268] He also informed her that Ms MLM 'would have been investigated because of her conduct, which was outside the bank's policy.'[269] He may also have said that she had been dismissed.[270] But he reiterated that he did not recall any meeting with Ms Henderson in late January 2009, and did not convey this information about Ms MLM to her at that time.[271]
178 I do not accept the evidence given by Ms Henderson concerning the post-settlement communications she alleges took place with Mr Ringeri. I note that none of it was mentioned in the statutory declaration she filed with the Financial Ombudsman Service. Having had the opportunity to observe the witnesses giving their evidence, I prefer the evidence given by Mr Ringeri.
Renovation works continued to be undertaken at 96 Wooralla Drive
179 Following the settlement of Marie Court, Mr Stephens and Ms Henderson moved into that property and it became their home. Meanwhile, renovation works continued to be undertaken at 96 Wooralla Drive.
180 Mr Stephens gave evidence that he employed contractors, Sandra and Michael Mahony, to do the renovation of the original house at Wooralla Drive that was located on lot 4. He said that the major renovations to make the house liveable were probably completed in very late 2009 but they actually went on through to early 2010.[272] The cost of these renovations amounted over time to about $180,000 to $200,000 but Mr Stephens said that amount has not been paid, nor has the interest on it.[273] He said that they have come to a tentative agreement with the Mahonys that 'because of the delays and settling on all of this, we will probably try and pay them 300,000 if we can recover that from sale.'[274] Sandra and Michael Mahony lodged a caveat over 96 Wooralla Drive that was registered on 19 October 2009.[275]
181 Ms Henderson said that as contractors had been employed, they had bills to pay, and so she rang the Bank to chase the funds. It was in May 2009, when she attempted to contact Mr Ringeri, that she ascertained he no longer worked with the Bank. She said '[t]hat was at the same time that Bruce received his first default notice.'[276]
183 Ms Henderson said that from the point when the default notice was received, she 'got stonewalled' whenever she contacted the Bank[280] - she made multiple calls to the Noble Park branch where Mr Ringeri was based, and she also attempted to speak with Mr Salvatore Dema, whom she understood was Ms MLM's original manager - but she did not get any response from Mr Dema and no calls were returned. At this point, Mr Stephens took over dealing with the Bank. She said they attempted to source other funds to complete the development,[281] which by then was partially done, and Mr Stephens continued with the contractors to complete the development as soon as possible.[282]
Mr Stephens authorises the Bank to deal with Ms Henderson
184 Ms Henderson said that she and Mr Stephens conduct separate bank accounts and had 'completely separate financials.'[283] She did not know the set-up of Mr Stephens' loans or that he had a direct debit facility in place on his Streamline account which was being debited with monthly payments for the home loan contracts.[284] Her evidence was that in February 2009 she 'did not understand or have any knowledge of Mr Stephens' payment arrangements other than that the interest was to be capitalised.'[285] She said that by May or June 2009, when 'obviously the funds for the subdivision had not come through as promised by and committed by the CBA', she 'knew payments were being made from the gross capitalisation of the interest' by which she meant 'that the borrowed money was being used to make payments.'[286] She explained this answer further by saying:
. . . I'm confused by the question, I guess. I knew that there were payments being made, but I expected it to come out of the subdivision funds. I had no knowledge of where it was coming from, from which account or to which account.[287]
185 By letter dated 14 August 2009, Mr Stephens wrote to the Bank and requested that for all further transactions the Bank should deal with his 'Financial Manager, Patricia (Trish) Henderson', who has his authority to act on his Streamline account and the two home loan accounts.[288] When asked about this, Ms Henderson said that Mr Stephens had effectively asked her to sort out his accounts.[289] She commenced that task by paying arrears of $22,020.00 and $19,700.00 respectively on 20 August 2009,[290] which she said was her decision, adding that 'we were trying to extricate ourselves out of the situation.'[291] Under cross-examination, her explanation was tested, as follows:
[MR CAREW:] You don't send any letter to the bank at the time saying, 'We're paying these arrears under protest'; you just paid out the arrears; correct?
---Correct.
And that is because there was no deal that the monthly payments weren't due; correct?---That's absolutely incorrect.[292]
...
And you will see on page 917 that you make another payment on 20 August, $19,700; do you see that?---Yes.
And again that's part of the same approach. You were curing this account of arrears; correct?---We were trying to extricate ourselves from the position created by the CBA, yes.
And you send no letter saying, 'These moneys are paid under protest because interest was to be capitalised'; correct?---I had no idea of process, correct.[293]
186 It was put to Ms Henderson that such conduct was inconsistent with the notion that interest on the loans made to Mr Stephens was to be capitalised, but she disagreed:
[MR CAREW:] The reason this payment is made is because there was absolutely no representation made to you that interest was to be capitalised and, if there had been, you would have paid these moneys under protest; do you agree?---Absolutely incorrect. Fully we had been approved for a loan with capitalisation of the interest.
I suggest your evidence is false because your actions make no sense of that account of matters, Ms Henderson. Do you agree?---No, I do not agree.[294]
187 It was also put to her that she had no knowledge of the rate of interest that was payable on the advance. Ms Henderson said that she was unaware of the specific rate, but said:
[Ms MLM] had confirmed that it would be at the CBA standard variable rate which was advertised on their website at the time and Joe Ringeri offered Mr Stephens a wealth package which gave a percentage off, I think 0.25 per cent off the advertised standard variable, but no bank officer discussed those rates with us.[295]
188 At a later point in her cross-examination Ms Henderson explained her understanding of the interest position, as follows:
---[Ms MLM] had worked out the interest payable during the 12-month period and put in an interest amount of 120,000 into our original calculation of figures and so that's what I worked off.
What do you mean 'worked off'?---For the total development project cost.
When do you say Ms [MLM] did that?---When we initially met post our Manyung Gallery meeting.
But you still didn't know the interest rate she was calculating that on the basis of; correct?---No, but I trusted her professionalism to be calculating it on the interest rate based on the drawdowns.
Sorry? What does that mean?---Well, when the funds would come out of the account, the money would then have interest applied to it, wouldn't it? Until that time there wouldn't be interest applied to it.[296]
...
MR CAREW: . . . (To witness.) How do you say interest was to be paid, Ms Henderson?---I've answered this previously. At the completion of the development, but, for example, if the loan amount was $100,000 and we drew down $20,000 to do a part of the development or to pay a contractor, the loan balance would then be 120,000 and that's what the interest would have been calculated on. When you do a development loan, not all of the money would have been drawn down at one time.
This is just something you are saying now rather than something that was discussed at the time; is that correct?---That is my understanding of how [Ms MLM] calculated the amount that we would require for interest and then put in the balance of the $50,000 buffer.
But you don't know that for a fact. This is you introspecting after the fact; correct?---No, that's how she told me she would do it.
You didn't give that evidence when you were asked questions by Mr Matters; do you understand that?---Yes, I understand that.
So is that something that has just occurred to you now, is it?---Yes, conversations a number of years ago, obviously things trigger when you ask a question.
Indeed. I suggest to you the evidence you gave before lunch about what was said at the meeting on 16 December 2008, you gave very detailed evidence about discussions.
I suggest to you that's not from your memory at all.
That's just a formula for your evidence that - - -?---You are incorrect.
That you have thought of after the fact?---You are incorrect.[297]
189 As indicated above, initially Ms Henderson gave evidence that it was Ms MLM that had worked out the interest component at $120,000. Later she gave evidence that the interest figure of $120,000 was something that she, Ms Henderson, had worked out by reference to something called the 'standard variable interest rate'. At the end of her evidence, the Court sought to clarify with Ms Henderson which of two contradictory versions she had given was the correct one.[298]
190 In essence, she said that prior to the Manyung Gallery coffee shop meeting on 29 August 2008 she had looked at the Bank's website and identified the standard variable interest rate for borrowings on an investment loan basis. She looked at the total borrowings that Mr Stephen would have out at the start of the loan and worked out that over approximately the next 12 months the funds for the subdivision would be drawn down. She then calculated the approximate amount of interest at 50 per cent of an annual rate as if the full amount had been drawn down. At that point, however, 2 Marie Court had not been purchased, so she allowed a figure of between $600,000 to $620,000 for a purchase. At the Manyung Gallery coffee shop meeting, she explained to Ms MLM what she had done, and asked her to confirm that she was about right with her calculations. Sometime later Ms MLM came back to her by phone and confirmed that she had added in a buffer of $50,000 to cater for the fact that the development might take longer, in the sense that it might take 18 months rather than 12 months to realise the sales of the individual lots. Under further cross-examination, Ms Henderson was unable to say what was the standard variable interest rate for borrowings on an investment loan basis that she had identified on the Bank's website for use in her calculations.[299]
191 The confusing picture Ms Henderson presented when she gave evidence about the calculation of the interest that would be applicable to the 'development loan' is a fairly typical example of how she gave her evidence generally. She would give one version of events initially and then add something new to it, and embellish it, as and when required to firm things up when she was challenged or tested about it.
192 On 2 October 2009, Mr Stephens entered into a contract for the sale of 2 Marie Court, for a price of $685,000.00.[300] The contract provided that settlement was due on 29 January 2010 or earlier by agreement, but Mr Stephens said that they moved back into 96 Wooralla Drive over the Christmas/New Year period because they could not afford to pay the arrears being demanded by the Bank, and that was the only way he could see that they could try and move forward and 'get back in contact with the bank to sort out the whole shambles.'[301] He explained that in early 2010 they were:
---Trying to consolidate where we were. It had become apparent that our original loan structure was incorrect, we were racking up arrears, and the only way I could see forward was to sell our home at 2 Marie Court and move back to try to reduce the debt.[302]
193 Mr Stephens said that even though they were forced to move back into Wooralla Drive, they had not given up on the development:
[MR CAREW:] So at this point you haven't given up on the development, as it were; correct?---No, of course not. We had a contract. I had an application for a loan. I had commitments to do the development with regard to the original application to the bank. I wasn't going to break my commitment to do it. If I had stopped doing the loan I would have been in breach of contract.[303]
194 Mr Stephens said that from the middle of 2009 onwards and through the sale and settlement of 2 Marie Court in early to mid-2010, he tried to make contact with the Bank by telephone, and after many unsuccessful attempts, by letter. He said that:
During that period we had these arrears coming through or notices of arrears coming through. The contract was not obviously capitalising the interest payments as we expected. I made many, many, many phone calls to various branches, mainly the Lilydale branch, and each time I would get somebody completely different, so there was no personal or one-off contact. So these various phone calls went all over the CBA. However, in every single case, as soon as I mentioned that the loan was created by [Ms MLM], everything was stonewalled. It was very overt.[304]
195 Mr Stephens referred to the handwritten notes he had made,[305] observing that 'I rang Lilydale branch and I was put through from Tom to Gary, obviously I've never met them, and then sent off to the mortgage services centre, Lilydale branch, et cetera, et cetera, so a complete run-around.'[306] He said that he was 'trying to get the original loan application in place as I had signed up with 2.5 plus the $300,000 contract and to get rid of those interest payments and arrears. The whole arrangement was a mess.'[307]
196 By the end of October 2009 the position was no better. On or about 30 October 2009 he was busily faxing, and re-faxing correspondence to the Bank to make sure the settlement of the sale of 2 Marie Court would take place on 29 January 2010. He said:
. . . At that stage, I think from memory I have entered into a contract to sell because we were desperate to try and get out of here. I was not getting any help from the CBA, so we went down the path to lessen the load, reduce our liabilities, try and resolve the issue. So we made full attempts to try and resolve the issue and the sale of number 2 Marie Court was part of that procedure to resolve the issue.[308]
197 And from February 2010, once they had settled on the sale of 2 Marie Court and moved back into Wooralla Drive, Mr Stephens said:
---I was still trying to contact people within the Commonwealth Bank myself, trying to sort out the overall problems. At that stage we were still in trouble. We were still being charged the same rates of mortgage [sic] and it wasn't being capitalised. I think about that time I started the process of going to FOS, the Financial Ombudsman Service.[309]
198 In contrast to Mr Stephens' evidence, the matter detail reports[310] do record a good deal of contact between the Bank and Mr Stephens from the time the account went into arrears.
199 On or about 23 June 2010, the Bank's solicitors, Gadens Lawyers, served on Mr Stephens a combined 'Default Notice & Demand' pursuant to sections 80 and 85 of the old Code[311] and section 76 of the Transfer of Land Act 1958 (Vic).[312] The notice specified the default as being the failure to pay the amounts of $35,555.00 and $16,400.00 being respectively the total arrears outstanding as at 23 June 2010 under the Bank's mortgage and the first loan agreement, and under the Bank's mortgage and the second loan agreement, such that the total debt outstanding as at that date was $51,955.000 together with enforcement expenses of $552.86. The notice stated that the default could be remedied by paying the sum of $52,507.86 within 31 days of service, and provided contact details for the relevant Bank officer in its 'Realisations Team' at Parramatta, New South Wales. The notice also informed Mr Stephens that if the total debt outstanding was not paid, the whole of the balance outstanding under both the first and second loan agreements would become immediately due and payable and the Bank would commence enforcement proceedings and take possession of the mortgaged property and exercise its power of sale.
Application made to the Financial Ombudsman Service
200 On or about 30 June 2010, Mr Stephens lodged a formal application with the Financial Ombudsman Service.[313] In his application form, he set out what he would regard as a fair and reasonable resolution of his dispute with the Bank as being:
6 months to complete the project plus the balance of the funds originally agreed to [] $2.6 m plus the capitalisation of the interest until the end of the project as agreed to, in a single mortgage.[314]
201 Mr Stephens followed up his application by sending through to the responsible officer the relevant documentation that he had, including providing account numbers, and in the course of doing so had quite a few communications with him. By this time, which was late June or early July 2010, Mr Stephens had reduced the mortgage indebtedness as a result of the various sales undertaken of 2 Marie Court and also the sale of 16A Lowe Street, but he said 'we were still losing money from the account at a rate of 14,000 per month, which I could never afford.'[315] He added that at the same time they were trying as best they could to continue the development of the 96 Wooralla Drive property. He said:
. . . We had funds there. We had cleared out, for example, the tennis courts, the pool shed, the renovation of the house was all but complete, trees, all the landscaping had been bulldozed out. We initiated removal of fences, all the basic stuff necessary to adhere to the original contract needed to actually split the lots up and receive individual titles.[316]
202 During August 2010, Mr Stephens entered into contracts of sale on two of the five lots in the proposed subdivision at 96 Wooralla Drive - with Mr and Mrs Fennel on both lot 4 (which was the house) and lot 5 at prices of $1,050,000 and $500,000 respectively, inclusive of GST.[317] However, the Fennels rescinded the contracts exactly two years later because Mr Stephens was unable to complete the subdivision of the land and obtain titles for the individual lots. In the meantime, Mr Stephens said they were using their own funds and savings, realising a small share portfolio, and obtaining some assistance from family to carry on with the development, and '[w]e were desperate to try and complete everything so we could get out of this bind.'[318] With assistance from Maddocks, solicitors, they prepared a section 173 agreement under the Planning and Environment Act 1987 (Vic) in order for the Bank and others to execute so as to permit the subdivision of the land to proceed. He also continued correspondence and interaction with the Financial Ombudsman Service, but the relevant officer had indicated that it was unlikely that the Financial Ombudsman Service would be able to reach any satisfactory result for him because of the lack of documentation, and in particular because Mr Stephens did not have copies of the original loan documents that he had signed.[319]
203 During that process with the Financial Ombudsman Service, Mr Stephens was also in contact with the Bank. He completed a 'Personal Money Plan' form,[320] but he made it clear to the Bank officer involved, Ms Leotta, that he was 'not looking for yet another sustainable payment arrangement' and instead was seeking 'to access approximately $400,000 of the original request (for $2.6) for a period of 3 to 6 months' in order to complete the development of the Wooralla Drive property, adding that if he was 'forced to seek the $400,000 development finance elsewhere, the costs will have to be meet [sic] fully by the CBA'.[321] He said that the sum of $400,000 he mentioned 'was probably an assessment of all of the bits and pieces we perhaps needed about then' and being aware that, at that point, the Financial Ombudsman Service had an effective limit of $400,000 for claims, he was trying to indicate to them that his request 'was within their bracket'.[322]
204 The Financial Ombudsman Service, by its relevant Case Manager, made a 'recommendation' to the parties in writing dated 22 March 2012.[323] In its recommendation, the Financial Ombudsman Service largely rejected Mr Stephens' submissions, although it did provide that small payments be made by the Bank to Mr Stephens in respect of the extra interest incurred due to the delayed settlement and for the stress and inconvenience associated with that delay. Mr Stephens responded by letter dated 15 April 2012 stating that he rejected the recommendation, and set out the reasons why, and requested that a 'determination' be made.[324] Pursuant to that request, the Ombudsman-Banking & Finance, Mr Philip Field, delivered his determination on 5 June 2012.[325]
205 In early October 2012, Ms Henderson[326] and Ms Graham[327] each prepared and made statutory declarations setting out factual matters pertaining to the making of Mr Stephens' loan applications with the Bank, and their involvement with Ms MLM and Mr Ringeri in relation thereto. When Ms Henderson was taken to her statutory declaration during cross-examination, it was put to her that she had signed it in the midst of Mr Stephens' complaint to the Financial Ombudsman Service. She agreed that that appeared to be correct,[328] but it is not clear whether the declarations were actually filed as part of the process conducted by the Financial Ombudsman Service. Counsel for the Bank then proceeded to take Ms Henderson through the matters she had set out in the statutory declaration, and pointing out inconsistencies between aspects of what she had declared in October 2012 and the evidence she had given in this proceeding. For example, in her statutory declaration she stated that about three weeks after Mr Stephens had submitted his loan application, Ms MLM had contacted her 'to say the loan was unconditionally approved.'[329] Ms Henderson then stated:
I confirmed with her at the time that the loan approval was for the purchase of Marie Court and the refinance and development costs for the Wooralla Drive subdivision. I asked her to confirm the amount and she told me it was $2.65 million. I duly notified Mr Stephens that I had received confirmation from Ms MLM that the full loan amount of $2.65 million was approved.[330]
206 As will be apparent, the loan amount of $2.65 million differs from the $2.5 million that both she and Mr Stephens said was applied for, even allowing for the buffer of $50,000 that she says Ms MLM added in, and there is no mention of interest being capitalised. She also gave evidence that she provided the sale contract for 96 Wooralla Drive to Mr Ringeri for valuation purposes only, and that he knew the sale was not proceeding. In her statutory declaration, however, she stated:
After that it was chaotic - when I queried Joe Ringeri about the mortgage documents the answer was that he was working as quickly as possible to rectify the situation so Marie Court could settle and other issues would be sorted out after settlement. I did not think to query if the 300k from which Mr Stephens had received the deposit was still valid and the CBA did not advise me that it was not to be available.
Joe Ringeri asked for a copy of the Contract of sale on 96 Wooralla Drive. He was aware that this was unlikely to proceed as Mr Stephens had been advised he had the full funds for the subdivision and he had begun the subdivision and renovation process. The contract of sale was to be supplied simply to expedite the valuation process for Wooralla Drive to allow Marie Court to settle as soon as possible.[331]
207 Under cross-examination, Ms Henderson was challenged about her description of the contract of sale for 96 Wooralla Drive as 'unlikely to proceed'. Ms Henderson said that Mr Ringeri 'was aware from day one from taking over from [Ms MLM] and it is recorded in the CBA documents on 6 December that the sale was not proceeding.'[332] She added that he 'was told quite clearly the contract was not proceeding' and observed that in her statutory declaration she had misused the word 'unlikely'.[333]
208 Another example of Ms Henderson having a different recollection of events at the time of making her statutory declaration is her account of the signing of the documents with Mr Ringeri on 16 December 2008 and what transpired between her and him in advance of that meeting. Ms Henderson said that after about 12 December 2008 it was 'chaotic' and -
. . . when I queried Joe Ringeri about the mortgage documents the answer was that he was working as quickly as possible to rectify the situation so Marie Court could settle and other issues would be sorted out after settlement. I did not think to query if the 300k from which Mr Stephens had received the deposit was still valid and the CBA did not advise me that it was not to be available.[334]
209 It will be recalled that the evidence given by Ms Henderson at trial (and indeed, what was put to Mr Ringeri in cross-examination) was to the effect that shortly after she received the email from Mr Ringeri at 11.32 am on 9 December 2008 confirming that 'loans of $1,100,000 and $1,000,000 have been approved',[335] she rang Mr Ringeri and asked him about the balance of the funds and 'clarified the amount that was required'.[336] The oral evidence she gave is at odds with that set out in her declaration, and Mr Ringeri denied that there was any such phone call from Ms Henderson or conversation with her.
210 As to the signing of the documents by Mr Stephens on 16 December 2008, she stated:
I attended the signing of the mortgage documents at a Dandenong coffee shop. Mr Ringeri had each page to be signed tagged and flicked over to each tag. Mr Stephens was not allowed to take a copy of the documents to review as they had to be returned to the CBA for internal processing in order to meet settlement on Marie Court. Mr Stephens was told he would receive his copies later. No reference was made to the bridging finance at this meeting. Mr Stephens queried the loan amounts and the response was that the priority was to get Marie Court settled and then sort it out.[337]
211 While Ms Henderson does state that Mr Stephens was not allowed to take a copy of the documents 'to review', she does not mention him having made any request about seeking legal advice on the documents. In the oral evidence given at trial, however, she maintained that Mr Stephens had asked Mr Ringeri whether he needed to seek legal advice about the documentation and Mr Ringeri effectively discouraged him from doing so because the settlement was pending.[338] During her examination in chief, Ms Henderson said:
---Bruce asked Mr Ringeri, 'Should I take these off and have them seen by someone legal?' I can't remember his exact wording. Mr Ringeri said, 'They are just standard mortgage documents. They are both identical.'
...
Was there anything else discussed?---When Bruce asked about if he could take the documents off for legal to have it looked at, I think Bruce used the term 'looked at', Joe said, 'You're on a rescission notice. If you take these documents off I won't be able to guarantee settlement.'[339]
212 In his evidence, Mr Stephens said he did not get legal advice but he did not mention having asked to take the documents away.[340] Also, it will be noted, that Ms Henderson declared that it was Mr Stephens who queried the loan amounts during the meeting, whereas the oral evidence given by Ms Henderson was to the effect that it was she who quizzed Mr Ringeri about the $300,000,[341] and Mr Stephens also gave evidence to similar effect, stating: 'She queried Joe. I didn't query.'[342]
213 Following the determination of Mr Stephens' application to the Financial Ombudsman Service, the Bank's solicitors, Gadens Lawyers, served on Mr Stephens in early August 2012, a further combined 'Notice of Default and Notice of Demand' pursuant to section 88 of the new Code and section 76 of the Transfer of Land Act 1958 (Vic), dated 31 July 2012.[343] The notice specified the default in terms of the arrears owing under the first loan agreement and the second loan agreement of $213,330.00 and $99,100.00 respectively and enforcement expenses of $619.92, being in total $313,049.92.
214 In late October 2012, Mr Stephens wrote to the CEO of the Bank, Mr Ian Narev, and formally sought copies of his original loan documents that had been lodged with the Bank. He said that he had been trying to obtain copies from staff at the Bank but had no success because of privacy issues and the like.[344] The Bank responded by letter dated 23 October 2012 enclosing copies of the documentation relating to his home loan accounts (relating to the first and second loan agreements) and copies of two earlier home loan applications that were not proceeded with (but with the names of individuals and evaluative information regarding the Bank's sensitive decision making processes blacked out).[345] A further letter was written by Mr Stephens to Mr Narev dated 5 November 2012, along similar lines, but also complaining about 'some serious anomalies' in his loan application documentation and in the Bank's loan serviceability calculations, and noting that the facts 'would seem to highlight a case of imprudent lending on the part of [the Bank], as a result of non-affordability and possible LAF [Loan Application Form] fraud.'[346]
215 Ms Henderson said that she played no part in getting the loan to Mr Stephens approved - 'Joseph Ringeri and [Ms MLM] had full approval.' She said that if she was the broker handling the loan she would have done things, like documenting the fundamental terms of the loan contract, but Mr Ringeri had told her to stay out of it and he had already confirmed the approved funds from [Ms MLM].[347] The instruction from Mr Ringeri was contained in an email he sent to Ms Henderson on 8 December 2008, stating as follows:
Thanks Trish
What have you decided to do with Mr Stephens loan.
Late Friday as we spoke, it is not advisable to proceed with [Ms MLM's] loan, although approved, it was approved on the wrong income details.
As discussed with you and my boss, this file has been referred to senior level, so you need to stay arms length away, knowing it is wrong. My advice is to start all over and re-do correctly. I will ensure that this loan is done correctly and processed for settlement.
What do you think?[348]
217 As to bridging finance, Ms Henderson's evidence at trial was that she was not aware that one of the loan contracts signed on 16 December 2008 referred to bridging finance until many months later. She said that she could not recall an exact date when bridging finance was raised but said it was not raised during the meeting on 16 December 2008. She said that it might have been sometime between January and April 2009 that Mr Ringeri told her 'that Mr Stephens did not qualify for bridging finance at or based on peak servicing debt of greater than 65 per cent of his declared income.'[351] She did not accept that the references she made to bridging finance in her statutory declaration were observations about events prior to 19 December 2008 but she could not recall the exact time frame.
218 The primary case advanced by the Bank, as plaintiff, is one in contract, whereby it seeks possession of the 96 Wooralla Drive property and to recover the moneys secured by its mortgage AG323120Q, being the balance of moneys outstanding under the first and second loan agreements that Mr Stephens entered into in December 2008, in the sums of $1,393,925.82 and $651,958.09 respectively, together with interest thereon.[352] In the alternative to its contractual claim, the Bank seeks to recover the sum of $1,426,950.61 (together with interest) pursuant to restitutionary principles, as money had and received to Mr Stephens' use which he is liable to pay the Bank.[353] Alternatively, the Bank seeks relief by way of subrogation to the rights of Perpetual as mortgagee pursuant to Perpetual's mortgage' that was registered on the title on or about 21 February 2007[354] and an order for possession of the 96 Wooralla Drive property. Alternatively, the Bank seeks an order for payment of the sum of $1,365,662.44 (being the total of the amounts the Bank paid to Perpetual) together with interest pursuant to the terms and conditions of the Perpetual mortgage up to 24 June 2010 and thereafter pursuant to statute.
Mr Stephens says he acted under a 'mistaken' belief
219 By his defence and counterclaim,[355] Mr Stephens says in response to the Bank's claim in contract, that when he entered into the two loan agreements with the Bank in December 2008 he acted under a 'mistake'. The relevant mistake is said to be that when Mr Stephens executed the loan documents, he did so believing that the financial accommodation to be provided by the Bank would be the total sum of $2,550,000 (and not the sum of $2,100,300 that was actually advanced) and that the interest payable would be 'capitalised', meaning (apparently) that no monthly payments of interest or principal would be required to be made until the completion of the proposed development. Mr Stephens alleges that this arrangement was made so as to allow him to subdivide the 96 Wooralla Drive property into five lots and to purchase the 2 Marie Court property, and that the Bank knew, or ought reasonably to have known that he was acting under such mistake. Accordingly, Mr Stephens pleads that he is not bound to perform either of the loan agreements or the mortgage registered by the Bank.
Mr Stephens contends the Bank engaged in misleading and deceptive conduct
220 Further or alternatively to his 'mistake' claim, Mr Stephens contends that the Bank engaged in conduct that is misleading and deceptive in breach of section 12BB and/or section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ('the ASIC Act') and that he has suffered loss and damage as a result of that conduct.[356]
221 Mr Stephens pleads that acting in reliance upon the representations made by the Bank, he entered into an unconditional contract to purchase the 2 Marie Court property and executed the loan agreements and mortgage with the Bank, whereby his indebtedness under the loan agreements was secured by the mortgage over both the 2 Marie Court and 96 Wooralla Drive properties. But he says the Representations so made were false and/or misleading in that the Bank only approved the provision of financial accommodation in the total sum of $2,100,300 (by way of the two separate consumer credit agreements for the provision of $1,100,150 and $1,000,150 respectively), and interest could not be capitalised under either agreement. Mr Stephens says that insofar as the Representations relate to future matters, he relies upon section 12BB of the ASIC Act and asserts that the Bank did not have reasonable grounds for making the Representations.
Mr Stephens contends the Bank engaged in 'unconscionable conduct'
222 Further or alternatively, Mr Stephens pleads that the Bank has engaged in 'unconscionable conduct' in contravention of section 12CB, alternatively section 12CA of the ASIC Act. In this regard he relies upon essentially the same particulars as those relied upon for his mistake claim, and adds that at no stage prior to executing the loan agreements or the mortgage on 16 December 2008 did he receive independent legal advice and at the time of execution the Bank knew or ought reasonably to have known that he needed funds urgently to settle the sale of the 2 Marie Court property.
Mr Stephens contends the loan agreements and the mortgage are 'unjust' contracts for the purposes of the National Credit Code
223 Further and alternatively he pleads that the loan agreements entered into are relevantly 'credit contracts' within the meaning of section 6 of the old Code, applying as if it were section 5 of the new Code, relying upon section 11(1) of the old Code, applying as if it were section 13 of the new Code, and similarly, that the mortgage is a mortgage to which the new Code applies. Mr Stephens contends that at the time of entering into the loan agreements and the mortgage, they were in each case 'unjust' within the meaning of section 76 of the new Code. Accordingly, Mr Stephens says that each of the loan agreements and the mortgage are liable to be set aside by the Court pursuant to section 77(c) of the new Code; alternatively that he is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable pursuant to section 77(b) of the new Code.
Mr Stephens contends that a failure to make restitution would not be unjust
224 In response to the Bank's claim for restitution, Mr Stephens relies on the positive averments advanced in his defence and pleads that a failure to make restitution of the $1,426,950.61 sought 'would not be unjust in the circumstances'. Further or alternatively Mr Stephens pleads that he is not liable to make restitution of that sum as he has changed his position in good faith, in reliance upon the Representations, and as a result of the Bank's contravention of sections 12CA, 12CB and/or 12DA of the ASIC Act. In his particulars supporting the alleged 'change of position' Mr Stephens relies upon matters including the following:
(a) [Mr Stephens] went unconditional on the Contract of Sale by payment of the balance of the deposit on 25 September 2008 and proceeded with settlement of the purchase of [the 2 Marie Court property] in December 2008.
(b) [Mr Stephens] relied on the receipt of funds in the sum of $30,000.00 on 25 September 2008 from the [Bank] which were drawn from bank account number 06 3535 10390495 [i.e., the Streamline Account[357] ] and the majority of those funds were used to pay the balance of the deposit on the purchase of [the 2 Marie Court property].
(c) On or about 13 October 2008, the plaintiff opened Account No. 5203801[358] in the name of [Mr Stephens] which was for the financial accommodation to be provided by the [Bank] to [Mr Stephens] in the sum of $2,550,000.00 (less $30,000.00 already paid to [Mr Stephens]).
Mr Stephens contends the Bank is disentitled from asserting a right to subrogation
225 Mr Stephens also contends that the Bank is disentitled from asserting a right to subrogation under the Perpetual mortgage by reason of the conduct of the Bank relied upon by him in support of his claim for mistake and misleading and deceptive conduct.[359]
226 Mr Stephens also seeks to set off so much of his damage as is required to extinguish the Bank's claim.[360]
227 By way of counterclaim, Mr Stephens effectively repeats each of the substantive matters raised by way of defence, namely that he executed the loan agreements and the mortgage under a mistake; the Bank engaged in misleading and deceptive conduct; the Bank engaged in unconscionable conduct, and the loan agreements and the mortgage were, in each case, 'unjust' within the meaning of section 76 of the new Code. Mr Stephens seeks relief by way of damages pursuant to section 12GF of the ASIC Act, declarations that each of the loan agreements and the mortgage were void ab initio, wholly null and of no effect; alternatively an order setting each of them aside pursuant to section 77(c) of the new Code; alternatively an order declaring each of them void ab initio, alternatively void, pursuant to section 12GM of the ASIC Act. Mr Stephens also seeks an order that the title for the 96 Wooralla Drive Property be amended so as to cancel the entry pertaining to the registration of the Bank's mortgage and such further orders as may be appropriate to ensure the cancellation of the mortgage and the rectification of the title. Further or alternatively, Mr Stephens seeks an order pursuant to section 77(b) of the new Code relieving him from payment to the Bank of such sum in excess of an amount that the Court considers to be reasonably payable in respect of each loan agreement and the mortgage.
228 The Bank's primary case is a claim in contract, relying upon the loan agreements that were entered into between the Bank and Mr Stephens on 16 December 2008, whereby the Bank agreed to advance to him the aggregate sum of $2,100,300. At the time when the loan agreements were entered into, Mr Stephens owned the 96 Wooralla Drive property and had signed a contract to purchase the 2 Marie Court property which was (by then) unconditional.
229 The Bank's case is essentially that the $2,100,300 to be advanced by the Bank was to enable the settlement of Mr Stephens' purchase of the 2 Marie Court property to proceed and to refinance the existing mortgage in favour of Perpetual on the 96 Wooralla Drive property. Mr Stephens disputes this. He contends that over a period of about four months, commencing in about August 2008 and ending in mid-December 2008, the Bank had agreed to advance him a total sum of $2,550,000 (or possibly $2,650,000), which included a sum of about $380,000 which would cover the cost of subdividing the 96 Wooralla Drive property into five lots (which he would sell in 12 to 18 months' time) and a component of approximately $170,000 that would effectively enable all interest payable on the loan to be capitalised until such time as the lots were sold.
230 At all relevant times, Mr Stephens' domestic partner of some 27 years, Ms Henderson, who was working as a mortgage broker for residential loans, represented him in his dealings with the Bank. Mr Stephens accepts that Ms Henderson was relevantly acting as his agent with respect to the approval of the loans and throughout this process with the Bank.[361]
231 The Bank relies upon the loan agreements and mortgage in the form in which they were executed by Mr Stephens. They contend that once Ms Henderson (on behalf of Mr Stephens) raised with the Bank on 5 December 2008 an issue about the unsatisfactory conduct of Ms MLM, the Bank started afresh in dealing with Mr Stephens' request for finance. That is, on and from about 8 December 2008, Mr Ringeri (rather than Ms MLM) dealt with Mr Stephens' application for finance, and liaised with Ms Henderson as required to approve the loan and finalise the documentation of the transaction, in order that the settlement of his (then) unconditional purchase of the 2 Marie Court property could proceed and his Perpetual mortgage could be re-financed.
232 The Bank agreed to advance the total sum of $2,100,300 to Mr Stephens by way of two 'Consumer Credit Contracts' for the sums of $1,100,150 and $1,000,150 respectively, and with interest payable by monthly instalments. The two loan agreement documents that were executed by Mr Stephens on 16 December 2008 provided in each case for the repayment of both capital and interest over a 30 year period.
233 Under the first loan agreement for the sum of $1,100,150, item E of the Consumer Credit Contract Schedule provided for '[r]epayments of principal and interest' to be made over a period of 30 years, comprising 359 repayments of $7,352.00 with a final repayment of $7,036.47'.[362] Under item L of the Consumer Credit Contract Schedule it was also noted that the $1,100,150 of credit so provided included a component which was 'bridging finance' and that it was a condition of the bridging finance arrangement that Mr Stephens would sell the 96 Wooralla Drive property 'within 6 months from the Funding Date and use the proceeds of sale (or so much of the proceeds of sale as [the Bank] require) to reduce [his] overall home loan debt to [the Bank].'[363]
234 Under the second loan agreement for the sum of $1,000,150, item E of the Consumer Credit Contract Schedule provided for '[r]epayments of principal and interest' to be made over a period of 30 years, comprising 359 repayments of $6,684.00 with a final repayment of $6,062.44'.[364] No component of the credit so provided under this loan was expressed to be by way of bridging finance.
235 By the mortgage entered into by Mr Stephens on 16 December 2008 ('the Bank's mortgage'),[365] he mortgaged all of his estate and interest in the 'Property'[366] to secure the payment or repayment of the 'Amount Owing' to the Bank (as defined in the Bank's mortgage and the Memorandum of Common Provisions) in accordance with the first and second loan agreements.
236 In reliance upon the terms of the respective loan agreements and the Bank's mortgage, the Bank advanced the sum of $1,100,150.00 (the subject of the first loan agreement) and the sum of $1,000,150.00 ((the subject of the second loan agreement) to or for the benefit of Mr Stephens (and at his request paid the sum of $1,365,662.44 then due to Perpetual so as to effect the discharge of Perpetual's mortgage over the 96 Wooralla Drive property). The Bank's mortgage was subsequently registered in the register book as dealing number AG323120Q.
237 There were terms of the Bank's mortgage, as follows:
(ii) be in default under the Bank's mortgage if Mr Stephens did not pay on time any of the amount owing;[369] and
(iii) pay to the Bank its reasonable enforcement expenses reasonably incurred or spent by the Bank in exercising its rights in relation to Mr Stephens' default;[370] and
(i) if Mr Stephens was in default and the Bank chose to enforce its mortgage, would give a notice to Mr Stephens before doing so.[371] The notice must:
(B) require Mr Stephens to fix the default within the period stated in the notice, which if given under the Consumer Credit Law will have at least 30 days to fix the default; and
(C) contain any other information the law required the Bank to give Mr Stephens; and
(ii) if Mr Stephens did not fix the default of which he had been notified, without further notice the Bank may decide that the Amount Owing (as defined) is due and payable immediately.[372]
238 The mortgage also provided that a written statement made up from the Bank's books and signed by one of the its Authorised Officers about an amount payable under the mortgage 'is sufficient evidence of the amount and any other matter referred to in the statement in connection with the amount, unless it is contested in any proceedings between [Mr Stephens] and [the Bank].'[373]
239 Mr Stephens executed the package of documents provided by the Bank, including the two loan agreements, the mortgage and the 'wealth package' document, at a meeting with Mr Ringeri at a coffee shop at Dandenong on 16 December 2008. Ms Henderson accompanied him and was also present at the meeting. Mr Stephens said that he did not have an opportunity to peruse the documents prior to executing them nor to obtain any legal advice in relation to them.
240 Relevantly, the Bank served two notices of default and demand on Mr Stephens. As at 23 June 2010, Mr Stephens was in arrears by the amount of $51,955, he having failed to make the payments due in accordance with the loan agreements and the Bank's mortgage. The first notice, dated 23 June 2010,[374] served by the Bank's solicitors on Mr Stephens, demanded payment of the sum of $51,955, together with enforcement expenses of $552.86, to be paid by 24 July 2010, failing which payment of the full amount owing pursuant to the loan agreements would be accelerated and without further notice Mr Stephens would be required to pay the full amount owing (which as at 23 June 2010 was $1,604,120.55) and the Bank would, amongst other things, take possession of the 96 Wooralla Drive property and exercise its power of sale (the 'first demand').
241 Mr Stephens' response to the first demand was effectively to prepare and file a dispute notice with the Financial Ombudsman Service on 30 June 2010.[375] It appears that this was the first time Mr Stephens had put anything in writing by way of complaint about any of the matters now before the Court.
242 While the complaint to the Financial Ombudsman Service was on foot, Mr Stephens did not make any of the further payments required under the loan agreements or the Bank's mortgage. As at 31 July 2012, Mr Stephens was in arrears by the amount of $312,430.00.[376] The Bank's solicitors served a second notice on Mr Stephens, dated 31July 2012,[377] demanding payment of the sum of $313,049.92 (which included enforcement expenses of $619.92), and requiring it to be paid no later than 7 September 2012 in order to remedy the default. The notice informed Mr Stephens that if he failed to pay those amounts as directed, payment of the full amount owing pursuant to the loan agreements would be accelerated and without further notice Mr Stephens would be required to pay the full amount owing (which as at 31 July 2012 was $1,881,915.58[378]) and the Bank would, amongst other things, take possession of the 96 Wooralla Drive property and exercise its power of sale (the 'second demand').
243 As the default set out in the second demand was not remedied by 7 September 2012, the total amounts owing pursuant to the loan agreements and the Bank's mortgage became immediately due and payable as at 8 September 2012. In circumstances where Mr Stephens did not then, or at any time thereafter, pay the amount due to the Bank, the Bank commenced this proceeding.
244 Against that background, I am satisfied that the Bank has proven the essential elements of its case in contract against Mr Stephens. The Dobbs Certificate that was tendered by the Bank through Mr Deligiorgakis certified the amount of moneys secured by the Bank's mortgage in relation to first loan agreement and the second loan agreement as at 18 April 2016 as being $1,605,723.30 and $889,840.04 respectively, and in total $2,495,563.34.[379] If the Bank is ultimately successful, it will be necessary for an updated certificate of debt to be provided in advance of any final orders being made.
Mr Stephens says he acted under a 'mistaken' belief
245 In response to the Bank's claim in contract, Mr Stephens pleads that when he entered into the two loan agreements with the Bank in December 2008 he acted under a 'mistake'. Mr Stephens said that he did not have an opportunity to peruse the package of documents prior to executing them nor to obtain any legal advice in relation to them. Mr Stephens claims that when he executed the loan documents, he did so believing that the financial accommodation to be provided by the Bank would be the total sum of $2,550,000 (or possibly the sum of $2,650,000) and not the sum of $2,100,300 that was actually advanced, and that the interest payable would be capitalised so as to allow him to subdivide the 96 Wooralla Drive property into five lots, and that the Bank knew, or ought reasonably to have known that he was acting under such mistake. Accordingly, Mr Stephens pleads that due to 'unilateral mistake' he is not bound to perform either the loan agreements or the Bank's mortgage.
246 Put another way, relying upon the decision of the High Court in Taylor v Johnson,[380] he contends that it would be unconscientious for the Bank to enforce the loan agreements and its mortgage. In effect, he submits that where a party such as the Bank in the present case, knows that the other party is labouring under a mistake as to the relevant terms of their bargain, which has been contributed to 'by sharp practice or misrepresentation' on the part of the Bank, then the other party may be relieved of the obligation to perform the agreements.
247 Taylor v Johnson was a sale of land case. By a written option and an ensuing written contract of sale, a vendor sold two adjoining parcels of land, each of about five acres, for a total price of $15,000. Before settlement, the vendor brought proceedings for rectification of the contract, alternatively for an order setting aside the contract, on the ground that when she executed the contract, she believed that it provided for a consideration of $15,000 per acre. The purchaser separately brought proceedings for specific performance. The trial judge found that the vendor had mistakenly believed the price was $15,000 per acre but that the purchaser was not aware of her mistake, and he ordered specific performance of the contract. On appeal, the Court of Appeal concluded that the purchaser believed that the vendor was probably mistaken as to what the contract stipulated as the price, and set the contract aside. The High Court affirmed the decision of the Court of Appeal.
248 In their joint judgment, Mason ACJ, Murphy and Deane JJ held that it was open to the Court of Appeal to substitute its own conclusions as to the knowledge, state of mind and motivation of the purchaser for those of the trial judge. For the purposes of the appeal, their Honours identified a number of inferences which they considered were plainly to be drawn from the evidence, as follows:
In our view, a general inference which flows from the evidence is that Mr. Taylor and Mrs. Johnson each believed that the other was acting under a mistake or misapprehension, either as to price or value, in agreeing to a sale at the purchase price which he or she believed the other had accepted. It is this belief of mistake or misapprehension on the part of the other that explains both the conduct of Mr. Taylor in procuring the execution of the option in the circumstances in which it was procured and the alacrity of Mrs. Johnson in agreeing to requests by Mr. Taylor for an option and for a right of way. It also explains the extraordinary conduct of Mr. Taylor, on one side, and Mr. and Mrs. Johnson, on the other, in refraining from again mentioning the purchase price after what Reynolds J.A. in the Court of Appeal called the 'idle curiosity' conversation. We also consider that the evidence leads to an inference that Mr. Taylor, by refraining from again mentioning price and by the manner in which he procured the execution by Mrs. Johnson of the option, deliberately set out to ensure that Mrs. Johnson was not disabused of the mistake or misapprehension under which he believed her to be acting.[381]
In the Court of Appeal, the essential question was seen by their Honours as being whether Mr. Taylor knew or believed or was aware of facts that would lead any reasonable man to believe that Mrs. Johnson, at the time she executed the option and at the time she executed the contract, was under a mistake about what the relevant document actually said about the price. Their Honours, after detailed consideration of the facts, each reached the conclusion that Mr. Taylor believed that Mrs. Johnson was probably under such a mistake. For our part, we find it unnecessary to go beyond the inferences set out in the preceding paragraph of this judgment.[382]
250 Their Honours then canvassed the competing theories as to the nature of the assent necessary to constitute a valid contract: on the one hand, the 'subjective theory' that a contract is void if one party enters into the contract under a serious mistake as to the content or existence of a fundamental term and the other party knows of that mistake; and on the other the 'objective theory' that the law is concerned not with the real intentions of the parties, but with the outward manifestations of those intentions. Their Honours continued, to note that '[a]s a matter of legal technique there is a significant difference between the two theories.'[383] They said:
According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect. Of course in deciding whether the contract is void ab initio for the unilateral mistake, regard will be had to the doctrine of estoppel in order to determine whether effect should be given to the claim that there has been unilateral mistake. On the other hand, according to the objective theory, there is a contract which, in conformity which the common law, continues to be binding, unless and until it is avoided in accordance with equitable principles which take as their foundation a contract valid at common law but transform it so that it becomes voidable. The important distinction between the two approaches is that, according to the subjective theory, the contract is void ab initio, whereas according to the objective theory, it is voidable only.
While the sounds of conflict have not been completely stilled, the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field.[384]
251 Their Honours then went on to state, in narrow terms, the particular proposition of law they considered appropriate and adequate for disposing of the appeal before them, as follows:
It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. What we have said is sufficient to demonstrate the broad basis of support which the authorities provide for that proposition. Moreover, and perhaps more importantly, it is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party's actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it. Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened.[385]
252 Applying that principle to the appeal before them, their Honours said it was apparent that it must fail. That is because it was by then 'common ground between the parties that, at the time she signed both option and contract, Mrs. Johnson mistakenly believed that the relevant document stipulated that the purchase price was $15,000 per acre whereas the stipulated purchase price was $15,000 in total.' The stipulation as to price was a fundamental term, and the Court found that:
The avoidance of mention of the purchase price after the 'idle curiosity' conversation and the circumstances in which Mr. Taylor procured the execution of the option, including his wrong statement that he did not have a copy of the option which he could make available to Mrs. Johnson, lead, in our view, plainly to the inference that he deliberately set out to ensure that Mrs. Johnson did not become aware that she was being induced to grant the option and, subsequently, to enter into the contract by some material mistake or misapprehension as to its terms or subject matter.[386]
253 Against that background, in the present case, Mr Stephens contends that his evidence, and that of Ms Henderson, is to the effect that after the application was made to the Bank via Ms MLM for $2,550,000, the Bank repeatedly assured Ms Henderson (and thereby Mr Stephens) that the Bank would advance him the total sum of $2,550,000 and that the interest payable would be 'capitalised', knowing that this was Mr Stephens' understanding of the agreement. Mr Stephens said he operated under a mistaken belief when he entered into the loan agreements because he, through Ms Henderson, had been given assurances to this effect and the terms of the loan agreements were not explained to him during the coffee shop meeting with Mr Ringeri on 16 December 2008 nor did he have the opportunity to seek any legal advice before signing them.
254 In my view, the factual scenario in the present case is very different to that which prevailed in Taylor v Johnson. Once Mr Stephens, through Ms Henderson, contacted Mr Ringeri and complained about the conduct of Ms MLM, the Bank (through Mr Ringeri) informed him that any approval that had been given or communicated by Ms MLM was based on wrong information. The Bank then proceeded swiftly to re-appraise Mr Stephen's request for funding, in an effort to assist him to settle on the purchase of the 2 Marie Court property (which by then had become unconditional) and avoid the loss of his deposit. Mr Ringeri informed Ms Henderson that he was starting afresh with Mr Stephens' request for funding and he worked with Mr Coulton with a view to securing approval.
255 From the time Mr Ringeri was first contacted and became involved, Ms Henderson (and thereby Mr Stephens) was aware that to the extent any loan approval, be it for $2.5 million or $2.55 million or $2.65 million, had been communicated by Ms MLM it was in error. They knew or ought to have known that Mr Stephens' income was not high enough to support a loan advance of that amount because Ms MLM had faxed through the altered pay slips (showing a higher salary) that were required to be submitted in order for a loan of that amount to be approved. Furthermore, Ms Henderson knew from the email correspondence that ensued with Mr Ringeri that any loan approval Ms MLM might have communicated to them was based 'on the wrong income details'. It will be recalled that after Ms Henderson's initial phone call to Mr Ringeri on Friday 5 December 2008, she was in email contact with him on the morning of Monday 8 December 2008. Mr Ringeri responded to an email from Ms Henderson by asking what she had decided to do with Mr Stephens' loan and observing:
it is not advisable to proceed with [Ms MLM's] loan, although approved, it was approved on the wrong income details. ... My advice is to start all over and re-do correctly. I will ensure that this loan is done correctly and processed for settlement.[387]
256 Mr Ringeri then proceeded with the preparation of loan documents for a total sum of $2,100,000. His evidence was that he started afresh and did not work from Ms MLM's file. He sent an email to Ms Henderson the next day, in which he confirmed that 'loans of $1,100,000 and $1,000,000 have been approved' but subject to certain stated conditions, to which Ms Henderson responded a few hours later stating:
No probs Joe - aim for thursday for all of this - if so when will we be in a position to settle...discharge authorities are already signed and sent through Janice Cocard at Southern peninsula conveyancing and both parties - spray st and wooralla (challenger and capital first) are ready to book settlement...[388]
257 Importantly, in that response, Ms Henderson did not raise any issue with Mr Ringeri about the amount being advanced by the Bank. And as noted above, I do not accept the evidence Ms Henderson gave to the effect that after receiving the email from Mr Ringeri, but before sending her response, she phoned and informed him that the loan amount that had been approved was incorrect.
258 Mr Ringeri never informed Ms Henderson that any sum of $2,550,000 would be available to Mr Stephens, or that interest on the loan would be capitalised. Nor, after Mr Ringeri had informed her that 'loans of $1,100,000 and $1,000,000 have been approved', did Ms Henderson raise with Mr Ringeri that there was a shortfall in the funds being provided to Mr Stephens, to the extent of $450,000 or thereabouts. Ms Henderson said that she did query with Mr Ringeri on at least two occasions whether the application for the $300,000 loan they had submitted to Ms MLM was still available, and that he assured her it would be. Much of the relevant evidence is canvassed in the chronology and for the reasons set out above, I do not accept her evidence in that regard and prefer that of Mr Ringeri.
259 In the circumstances, I am not satisfied that Mr Ringeri gave any assurances of the kind deposed to by Ms Henderson. Further, in my view it is unlikely that Mr Ringeri would have given any such assurance. Given the steps that the Bank took in early December 2008 to accommodate Mr Stephens' risky position, in that the Marie Court contract had become unconditional but he did not have the funds available to settle on the scheduled date, and the steps taken by the Bank to re-process the loan application afresh so as to enable the sum of $2,100,300 to be advanced, any notion that the Bank would be lending additional funds to Mr Stephens at or around this time was fanciful.
260 Mr Stephens has not established that the Bank knew that he was operating under the mistaken belief that a total sum of $2,550,000 would be available to him, or that interest on the loan would be capitalised. Nor was there any evidence that the Bank had deliberately engaged in a course of conduct which was designed to inhibit Mr Stephens' discovery of those matters.
261 Accordingly, Mr Stephens' defence that he was operating under a mistake must fail.
262 Mr Stephens alleges that the Bank engaged in misleading and deceptive conduct in contravention of section 12DA of the ASIC Act, by reason of which he has suffered loss and damage. He effectively alleges that the Bank represented to him that it had unconditionally approved a loan and would provide financial accommodation in the total sum of $2,550,000, that the interest on the loan would be capitalised so as to allow him to subdivide the 96 Wooralla Drive property and complete the development before repayment was required, and that the loan documents and mortgage to be entered into would reflect that arrangement. Mr Stephens says that, acting in reliance upon those representations, he entered into an unconditional agreement to purchase the 2 Marie Court property, and executed the loan documents and mortgage. However, he alleges that the representations made by the Bank were false and/or misleading in that the Bank now contends it approved only the provision of financial accommodation totalling $2,100,300, that interest could not be capitalised under the loan documents, and the loan documents so executed by him were two consumer credit agreements for the provision of the sums of $1,100,150 and $1,000,150 respectively, with interest payable by monthly instalments. Mr Stephens says that as a result of the complete package of financial accommodation in the total sum of $2,550,000 not being provided by the Bank, and with interest on the loan of $2,100,300 being required to be paid monthly, he lost the opportunity to develop the 96 Wooralla Drive property and realise its true value, and has thereby suffered loss and damage.[389]
263 The parties are agreed that the relevant framework for considering the alleged conduct is section 12DA of the ASIC Act[390] which applies to 'financial services', rather than section 52 of the Trade Practices Act 1974 (Cth) ('TPA') (or the Competition and Consumer Act 2010 (Cth)).[391]
Whether conduct is misleading and deceptive is an objective question of fact
264 In Butcher v Lachlan Elder Realty Pty Ltd,[392] McHugh J made clear that whether particular conduct is misleading and deceptive is an objective question of fact that the Court must determine for itself. In considering whether a contravention of section 52 (or section 12DA) has occurred, the Court must look at the relevant course of conduct as a whole, and in light of the relevant surrounding facts and circumstances. Importantly, his Honour observed:
[109] ... It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.[393]
265 In Butcher, McHugh J also explained what constitutes 'misleading or deceptive conduct'. He said:
[111] Conduct is misleading or deceptive if it induces or is capable of inducing error. A corporation does not avoid liability for breach of s 52 because a person who has been the subject of misleading or deceptive conduct could have discovered the misleading or deceptive conduct by proper inquiries. Conduct that objectively leads one into error is misleading.
[112] The words 'or is likely to mislead or deceive' were inserted into s 52(1) by s 29 of the Trade Practices Amendment Act 1977 (Cth). Those words make it clear that it is unnecessary to prove that the conduct in question actually deceived or misled anyone. The amendment expands the scope of s 52 and makes it, in the oft quoted words of Fox J in Brown, 'a comprehensive provision of wide impact'. The section establishes a norm of conduct with which corporations must comply. The failure by a corporation to observe that norm of conduct has the consequences provided for in Pt VI of the Act. It is unnecessary to show on the balance of probabilities whether the impugned conduct was misleading or deceptive. For example, in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd, the Full Federal Court held that conduct is likely to mislead or deceive if there is a real and not remote chance or possibility that a person is likely to be misled or deceived. This is so even though the possibility of that occurring is less than 50 per cent.[394]
Oral representations must be proven with precision
266 Further, in circumstances where the case for misleading and deceptive conduct relies upon representations made in the course of conversations between the parties, the Courts require that the words alleged to have been spoken be proven with a degree of precision sufficient to enable the Court to be reasonably satisfied that the representations were made and in the terms alleged.[395]
Causal link between conduct and persons led into error must be demonstrated
267 Generally speaking, conduct is characterised as 'misleading or deceptive' or 'likely to mislead or deceive' if it has 'a tendency to lead into error'. In ACCC v TPG Internet Pty Ltd,[396] the High Court explained this notion in terms requiring that there must be demonstrated 'a sufficient causal link between the conduct and error on the part of persons exposed to it', and noting that 'the prohibitions in ss 52 [of the TPA] and 18 [of the CCA, Sched. 2] were not enacted for the benefit of people who failed to take reasonable care of their own interests.'[397]
268 General principles of causation apply in respect of misleading and deceptive conduct.[398] That is, Mr Stephens must establish that he suffered loss 'by the conduct' of the Bank. As a practical matter, what that means is that he must establish that the conduct on the part of the Bank was 'a' cause of his loss and that the alleged contravening conduct had a substantial effect in respect of his entering into the loan documents and mortgage.[399] Reliance is addressed from the subjective perspective of the party making the claim 'at least until the point where it might be argued that their reliance was so unreasonable as to break the chain of causation.'[400]
269 In the present case, Mr Stephens relies upon certain 'Representations' (below) that he says were made by or on behalf of the Bank in the period between August and December 2008, to him but for the most part via his agent, Ms Henderson. In a real and practical sense, Ms Henderson was the conduit for communications between Mr Stephens and the Bank. Indeed Mr Stephens had virtually no personal contact with the Bank's officers, save for his attendance at a meeting with Mr Radich at the Mt Eliza branch in September 2008, and when he signed the documents at the coffee shop meeting with Mr Ringeri on 16 December 2008. He gave evidence that he did not have any discussion with Ms MLM and has 'never had the courtesy of meeting her'.[401] He also gave evidence that he never spoke with Mr Ringeri on the phone but added that '[t]here may have been a telephone message somewhere along the line.'[402]
270 When giving evidence, Mr Stephens seemed keen from the outset to convey the impression that he had little or no understanding of financial matters,[403] or 'banking procedure,'[404] and left virtually the entirety of the dealings with the Bank to 'Trish', his agent, and was relying on what she told him.[405] Mr Stephens also appeared to be labouring under the misapprehension that he had entered into 'a contract' with the Bank for the provision of financial accommodation by the Bank of $2,550,000 (or perhaps $2,500,000 or $2,650,000 - he was unsure about the precise amount), whereby he was committed to developing the 96 Wooralla Drive property, and would have been in breach if he did not complete it.[406] But no such contract was pleaded by him and even the two (unsigned) 'loan application' documents he relied on as support for his claim - for $300,000[407] and $2,250,000[408] respectively[409] - do not mention any requirement on his part to develop the 96 Wooralla Drive property.
271 Mr Stephens' claim of misleading and deceptive conduct on the part of the Bank is based on the representations he alleges were made by or on behalf of the Bank concerning the provision of financial accommodation to him of $2,550,000 and a term of such loan allowing for the capitalisation of interest. The relevant representations relied upon ('the Representations') are pleaded as being that the Bank represented to Mr Stephens that:
(a) the [Bank] had unconditionally approved a loan to [Mr Stephens] pursuant to which the [Bank] would provide financial accommodation in the total sum of $2,550,000.00;
(b) the interest for the loan would be capitalised so as to allow [Mr Stephens] to subdivide the [96 Wooralla Drive property]; and
(c) the documents constituting the First Agreement and the Second Agreement constituted an agreement to provide to [Mr Stephens] financial accommodation in the sum of $2,550,000.00 upon which the interest could be capitalised in order for [Mr Stephens] to subdivide the Property.[410]
272 Importantly, no representation is pleaded concerning the repayment of capital, and as counsel for the Bank observed, until questions were asked of Ms Henderson under cross-examination, there was no direct evidence of any agreement that capital would not be repaid other that on the terms of the loan agreements, being on a monthly basis.
273 The particulars set out in Mr Stephens' defence and counterclaim state that the Representations were 'partly oral and partly to be implied from the conduct of the [Bank].' Insofar as the Representations were oral, Mr Stephens pleaded that:
In or about mid-September 2008 [Ms MLM], as agent for the [Bank], told Ms Henderson, as agent for [Mr Stephens], that the [Bank] had unconditionally approved a loan to [Mr Stephens] in the sum of $2,550,000.00 for the purposes of [Mr Stephens] subdividing the [96 Wooralla Drive property] and purchasing the [2 Marie Court property]. [Ms MLM] also stated that the interest on the loan would be capitalised in order for [Mr Stephens] to complete the subdivision of the [96 Wooralla Drive property]. The conversation was by way of a telephone call from [Ms MLM] to Ms Henderson.
On or about 25 September 2008, [Mr Stephens] attended the Mt Eliza branch operated by the [Bank]. The manager of the branch telephoned [Ms MLM] to confirm the approval of the loan and then told [Mr Stephens] that the loan for $2,550,000.00 had been unconditionally approved and that $300,000.00 of the loan sum had been allocated.
On or about 25 September 2008, the [Bank] opened account number 06 3535 10390495 and allowed [Mr Stephens] to withdraw the sum of $30,000.00 for the purposes of the payment of the deposit for the purchase of the [2 Marie Court property].
During November and December 2008, Ms Henderson telephoned [Ms MLM] on several occasions to enquire about the delivery of loan documentation and was assured by [Ms MLM] on each occasion that the loan had been unconditionally approved for the sum of $2,550,000.00 and that the documents would be prepared by the [Bank].[411]
274 Insofar as the Representations were said to be 'implied' from the conduct of the Bank, Mr Stephens relies upon the following conduct he alleges was engaged in by or on behalf of the Bank:
(a) making the Representations pleaded in paragraph 3D(a) and 3D(b);[412]
(b) presenting the documents constituting the First [Loan] Agreement and the Second [Loan] Agreement to [Mr Stephens] on or about 16 December 2008 for signing forthwith;
(c) failing or omitting to inform [Mr Stephens] that the documents constituting the First and Second [Loan] Agreement did not provide financial accommodation as represented by the [Bank], namely the Representations pleaded in paragraphs 3D(a) and 3D(b);
(d) On or about 16 December 2008 Joe Ringeri, as agent for the [Bank], and [Mr Stephens] met in a coffee shop in Dandenong in order for [Mr Stephens] to execute the relevant loan documentation. Mr Ringeri produced to [Mr Stephens] 2 sets of printed documents which [Mr Stephens] was asked to sign. [Mr Stephens] signed the documents and Mr Ringeri left without giving [Mr Stephens] any copies of the documents, in breach of section 18(1) of the old Code. The meeting took approximately 3 minutes and Mr Ringeri did not explain the content of the said documents, nor was [Mr Stephens] provided an opportunity to seek any advice regarding the said documents.[413]
275 Mr Stephens also refers to and relies upon the following documents which are said to 'partly constitute the Representation that the [Bank] had unconditionally approved a loan to [Mr Stephens] in the total sum of $2,550,000', namely:
(i) Consumer Credit Schedule signed by Owen Eaton, on behalf of the [Bank], dated 19 September 2008.
(ii) Consumer Loan Authority (Borrowers) dated 19 September 2008 in respect of Loan number 520356801 authorising the [Bank] to pay Southern Peninsula Conveyancing in respect of the settlement for the purchase of the Mt Eliza Property.
(iii) On 23 September 2008, a letter was sent by the [Bank] to [Mr Stephens] enclosing his new Commonwealth Bank keycard.
(iv) Economiser Home Loan Statement for account number 520356801 which was opened on or about 13 October 2008.
(v) Home Loan Application/Investment Loan Application No. 90000033722 (printed 22 October 2012 at 15.19) which discloses the amount of the loan in the sum of $2,250,300.00.
(vi) Home Loan/Investment Home Loan Application No. 3899080918278877 (printed 22 October 2012 at 15.24) which discloses the amount of the loan in the sum of $300,000.00.
(vii) Two letters from CBA to Southern Peninsula Conveyancing (one signed by [Ms MLM]) dated 19 September 2008.[414]
276 The factual chronology set out earlier in these reasons canvasses much of the detail of the evidence that was given at trial. But it is useful to delve a little further into the evidence referenced in the particulars as supporting the 'oral' representations contended for and the representations that are said to be 'implied'.
(a) The telephone call from [Ms MLM] to Ms Henderson on about 17 September 2008
277 Ms Henderson gave evidence that a week or so after she had posted Mr Stephens' completed loan application to Ms MLM, she was chasing up Ms MLM and leaving messages for her, enquiring as to the status of Mr Stephen's loan application. Initially when giving her evidence in chief, Ms Henderson said that on about 17 September 2008, while she was at a coffee shop at the shopping centre in Knox with Ms Graham and Mr Ringeri, she received a call from Ms MLM 'to say that the funds could be fully and unconditionally approved.'[415] She added that at the time she confirmed to Ms MLM 'that we were talking about the funds for the full subdivision up to the amount of $2.5 million' and said '[Ms MLM] actually said to me at the time "I will put in a buffer of $50,000 for you because of the 12 to 18 months for the development."'.[416] Seconds later, as counsel for the Mr Stephens commenced to ask another question, Ms Henderson interrupted him and started afresh with her account of the phone call, saying that she was sitting at the coffee shop with Ms Graham and Mr Ringeri, and she looked at her phone, saw the name [Ms MLM] and made a comment to the effect of '[a] miracle, it's [Ms MLM] giving me a call'. She said she then picked up the phone and spoke with her and Ms MLM said 'the loan is fully and unconditionally approved'.[417] As it was noisy in the coffee shop, she then walked away to the side 'and just asked her to confirm the amount of the loan and the total borrowing', and Ms Henderson said 'that was where [Ms MLM] told me she had put in the extra 50,000 to cover the component of the length of the loan.'[418]
278 Mr Ringeri did not recall being at any such coffee shop meeting with Ms Graham and Ms Henderson in mid-September 2008. He said that the only time he recalls having coffee with them was at the Glen Waverley Shopping Centre, The Glen, and he does not recall going to Knox City or Doncaster. Further, he did not recall any phone call between Ms Henderson and Ms MLM taking place during any such meeting nor any discussion afterwards about what transpired.[419]
279 Ms Graham also gave evidence about a coffee shop meeting that she had with Mr Ringeri, whom she knew, and Ms Henderson, which she said took place 'in very late 2008'.[420] Ms Graham said that while they were sitting at a table at Knox, Ms Henderson took a call on her mobile phone. When Ms Henderson picked up, she said it was Ms MLM on the phone and 'was absolutely surprised and shocked that [Ms MLM] had called her'.[421] Ms Graham said that Ms MLM 'was very, very loud, so even on a mobile phone you always recognised her voice'. Ms Graham said she heard part of the conversation. She said that Ms MLM 'said, you know, "Your loan's been approved. Everything's fine. I'm just waiting - I'm just struggling to print documents, but everything is okay with your loan"'[422] and she recalled Ms Henderson saying words along the lines of 'Thank you, that's fantastic. Any idea when you think the documents will be available'.[423]
280 In her accounts of the phone call, Ms Henderson does not say that Ms MLM told her that the Bank had 'fully and unconditionally' approved a loan of $2,550,000 to Mr Stephens. Nor does she say that Ms MLM made any statement about interest on the loan being capitalised. And while Ms Graham recalls being present when a conversation took place, she did not mention any loan amount, nor any capitalisation of interest, and says the call took place at a much later point in the chronology of events.
281 Ms Henderson also gave evidence that two days later, on 19 September 2008, Ms MLM rang her and confirmed that she could do the full lending and told her that 'the funds were fully and unconditionally approved'[424] and that there would be documents coming immediately to Mr Stephens. But when the documents arrived, they were for a consumer credit loan of only $300,000. Mr Stephens said he had called Ms Henderson that day and told her that he had received a loan contract from the Bank but for only $300,000. He showed her the documents that evening. Mr Stephens said the documents included a 'Consumer Credit Contract Schedule', and this showed him as the borrower for an amount of $300,000, with interest at the 'Investment home loan base variable rate' of (then currently) 8.2 per cent, with repayments of interest and principal monthly over a period of 30 years from the funding date. Item K of the Schedule stated that the 'Security' for the loan was a 'Registered mortgage' over the 2 Marie Court property. Mr Stephens said he did not know why the loan contract was for only $300,000 but he signed the documents and returned them to Ms MLM.
282 If, as Mr Stephens says, he signed a loan contract for only $300,000, and knowing that it provided for the repayment of interest and principal monthly, it is difficult to understand how he could have been misled or deceived into thinking that the interest would be capitalised, or why he understood that a loan of $2,550,000 had been 'fully and unconditionally' approved.
283 The receipt of the documentation for the $300,000 loan contract apparently gave rise to another phone conversation between Ms Henderson and Ms MLM that took place on 21 September 2008, in which Ms Henderson said she again sought confirmation from Ms MLM of the loan amount. When giving evidence Ms Henderson said that Ms MLM had responded by saying that 'the full loan was fully and unconditionally approved' and that she was 'confirming that the loan was fully and unconditionally approved' but Ms Henderson added that she went on to confirm with Ms MLM 'that what we are talking about here is that we are talking about the 2,500,000 which is broken down into the Pepper [Perpetual] loan,[425] the refinance of that, the purchase of Marie Court, the legal costs, the subdivision costs and the capitalisation of the interest component.'[426] Ms Henderson she said that Ms MLM responded by saying that 'she could actually approve $2.65 million'.[427] That Ms Henderson sought such confirmation of itself suggests that she was unclear about what Ms MLM was saying earlier during their conversation.
284 Ms Henderson said that a day or two later she left a phone message for Ms MLM to the effect that Mr Stephens did not require $2.65 million and would be borrowing the sum of $2.55 million, which was the $2.5 million he had applied for plus the buffer of $50,000 which Ms MLM had added.[428] Once again, the phone message suggests that in their conversations to date there was no certainty about the loan amount required, and that it was necessary for Ms Henderson to clarify the amount that Mr Stephens was actually seeking to borrow.
285 The evidence that Ms Henderson gave orally at the trial (as summarised above) is at odds with that set out in the statutory declaration she made to support the dispute notice Mr Stephens had filed with the Financial Ombudsman Service. In her statutory declaration dated 8 October 2012 she described what took place following the submission of Mr Stephen's loan application to the Bank:
Approximately 3 weeks later the CBA representative [Ms MLM] contacted me to say the loan was unconditionally approved.
I confirmed with her at the time that the loan approval was for the purchase of Marie court and the refinance and development costs for the Wooralla Drive subdivision. I asked her to confirm the amount and she told me it was $2.65 million. I duly notified Mr Stephens that I had received confirmation from [Ms MLM] that the full loan amount of $2.65 million was approved.[429]
286 Not only does she maintain that the full amount of the loan that was approved was $2.65 million rather than $2.55 million, she makes no mention of the capitalisation of interest.
287 Under cross-examination, Ms Henderson was pressed as to what she meant by the various statements she had made about the capitalisation of interest, as follows:
Ms Henderson, what do you mean by that statement that interest is meant to be capitalised?--- [Ms MLM], according to [Ms MLM], was fully trained to do full development funding, of which part of that would be the gross realisation of the capitalisation of the interest at the end of the project. It would come out of the profits of the project.
But if it comes out of the profits of the project, that's got nothing to do with any moneys in your accounts in early 2009; correct?---I didn't have an account with the CBA in 2009 and I didn't have access to Mr Stephens' accounts in 2009.[430]
288 A little later she said that she was not party to how the payments were set up in Mr Stephens' accounts and so was unable to answer counsel's question about what borrowed money was being used to make any payments.[431] She acknowledged that she and Mr Stephens discussed the amounts that were being debited from his accounts but said that she did not know the exact figure, and disputed that she knew it was about $14,000 per month. When asked how much she thought it was, she responded by saying 'I thought the interest was being capitalised and we were waiting on the balance of the funds.'[432]
289 Ms Henderson was unable to explain what she understood the arrangement as to capitalisation of interest was, and how it worked. So much was demonstrated by the following exchange that took place whilst she was under cross-examination:
If the interest is being capitalised in the way you said earlier, that means it's being paid out of the gross proceeds of the development; correct?---Correct.
So that would mean no interest is being paid at all in this period because you hadn't completed the development, correct?---I didn't understand how that worked. That was for [Ms MLM] to work out with Mr Stephens. She was the loans manager for the CBA. I was not authorised to do that.
Ms Henderson, I will ask the question again. I will remind you of what your evidence has been to date. You have given evidence that interest was to be paid upon completion of the subdivision and from the profit; correct?---Yes.
That means no interest is meant to be paid at all in 2009 on your understanding; correct?---I thought it was being capitalised into the loan, so the loan would increase in relation to the payments.
But Mr Stephens in this period is discussing with you the fact that his savings account is paying the interest, Ms Henderson; do you understand that?---Yes, hence why I was chasing Joseph Ringeri for the balance of the funds for the subdivision.[433]
290 Her evidence changed or moved interchangeably from a situation where she had calculated an amount of $120,000 initially which was referable to interest, to which Ms MLM added the buffer of $50,000, so that $170,000 was a component part of the corpus of the loan of $2.55 million and the interest was to be paid to the Bank upon completion of the sale of the subdivided lots, to one where the Bank would deduct monthly repayments of interest from Mr Stephens' account, that were to be funded from amounts advanced by the Bank from time to time up to the total sum of $2.55 million.
(b) The meeting with Mr Radich at the Mt Eliza branch on or about 25 September 2008
291 The evidence given concerning the meeting with Mr Radich is also canvassed in the factual chronology.
292 It will be noted that, to this point, on Mr Stephens' version of events, he has not signed any loan documentation other than the Consumer Credit Contract Schedule document for the $300,000. Furthermore, when giving evidence about the application he later made to the Financial Ombudsman Service he acknowledged that he had difficulty recalling what was 'the full loan amount' he had sought via Ms MLM, and was not confident as to whether it was $2.5 million, or $2.65 million, or $2.55 million, but believed that she had approved an amount of $2.65 million.[434] It was also especially important to him that the interest on the loan be capitalised, given his salary level, yet this feature was not mentioned by him, or indeed Ms Henderson, when recounting what they contend took place during their conversation with Mr Radich.
293 On 25 September 2008 when the meeting took place, Mr Radich was a branch manager. He had not had any dealings with either Mr Stephens or Ms Henderson and was not involved in processing or approving any loan to them. Ms Henderson said that Mr Radich had been informed that they had only signed documents for the $300,000 but required $2.55 million before they could go unconditional and proceed. To the extent that the evidence given by Mr Stephens and Ms Henderson suggests or conveys the impression that Mr Radich himself confirmed that loan funds of $2.55 million were fully approved and available to Mr Stephens, I do not accept their evidence.
(c) On or about 25 September 2008 the Bank opened a 'Streamline' account for Mr Stephens and allowed him to withdraw $30,000 for payment of the deposit on 2 Marie Court
294 If, as Mr Stephens says, he had signed a loan contract for $300,000, in advance of his meeting with Mr Radich, it is not surprising that the Bank allowed him to withdraw $30,000 from the Streamline account, that was established by Ms MLM in relation to the purchase of 2 Marie Court, in order to pay the deposit. As Mr Radich explained, the Bank treated the advance of $30,000 to Mr Stephens as an overdraft transaction on his Streamline account. The Streamline account was regularised to a zero balance when a portion of the funds advanced by the Bank on 19 December 2008 were repatriated to this account.
(d) Assurances given by Ms MLM in November and December 2008 that the loan had been unconditionally approved for the sum of $2,550,000.00
295 Ms Henderson gave evidence to the effect that she telephoned Ms MLM on several occasions during November and December 2008 to enquire about the delivery of loan documentation and was assured by her on each occasion that the loan had been unconditionally approved for the sum of $2,550,000 and that the documents would be prepared by the Bank. If an assurance had been given along the lines Ms Henderson contended, it makes no sense that she would continue to seek further assurances to the same effect during her successive phone calls with Ms MLM. As noted earlier, such conduct of itself suggests that any earlier 'assurance' given was inadequate or regarded by her as no real assurance at all. But whatever passed between Ms Henderson and Ms MLM, Ms Henderson was certainly aware by the time of her phone call with Ms MLM on 5 December 2008 that further evidence of Mr Stephens' income was required in order to support a loan approval for the sum of $2,550,000.
296 As shown in the chronology, the phone call from Ms MLM on 5 December 2008, and her request that Ms Henderson should fax through altered payslips showing Mr Stephens' monthly income as $40,000.00, was the impetus for Ms Henderson to contact Mr Ringeri and complain about Ms MLM's conduct. However, it seems clear that at or about this point, Mr Stephens was also aware that there was no loan approval in place for a loan in the sum of $2,550,000.[435]
297 Mr Stephens described what had taken place in a letter to the Financial Ombudsman Service, which accompanied the dispute form he filed on or about 30 June 2010. Mr Stephens stated that the settlement of 2 Marie Court did not proceed as scheduled because:
Just FOUR DAYS before settlement, I was advised by [Ms MLM] via telephone that the loan had NOT been approved and could I please 'forward pay-slips showing higher income amounts'!
That is, it is clear that prior to the signing of the Bank's documents with Mr Ringeri on 16 December 2008, Mr Stephens knew that the loan Ms MLM was arranging had not been approved.
298 Under cross-examination, Mr Stephens was not challenged directly about the statement he made in his letter, but the Bank nevertheless sought to rely upon it in their closing submissions.[437] The letter in support of the Financial Ombudsman Service dispute notice bore Mr Stephens' name, and was prepared by him or Ms Henderson or both of them in consultation, at a date that was closer in time to the events taking place (by some six years) than was their evidence given in the proceeding. Mr Stephens acknowledged that he had filed the dispute notice with the Financial Ombudsman Service following service of the Bank's combined default notice and demand. In my view, his statement set out above that Ms MLM had informed him that the loan had 'not been approved' calls into question the reliability of the recollection of each of Mr Stephens and Ms Henderson in giving their evidence at the trial.
299 It was put to Mr Ringeri that Ms Henderson would give evidence that she had a phone call with him on or about 5 or 6 December 2008 and told him that Ms MLM had telephoned her to say words to the effect of 'brilliant news' because she 'had received the printed documents for $2.25 million'. Mr Ringeri did not recall that event at all and added '[m]ay I ask if that was the case then why was I doing this loan?'[438]
300 It is clear that from the time Mr Ringeri was contacted by Ms Henderson and became involved, Ms Henderson (and thereby Mr Stephens) was aware that to the extent any loan approval for $2.5/$2.55/$2.65 million had been communicated by Ms MLM to Mr Stephens or Ms Henderson, it was in error. They knew that Mr Stephens' income was not high enough to support a loan advance of that amount because Ms MLM had faxed through to them the altered pay slips (showing a higher salary) that were required to be submitted to the Bank in order for a loan of that amount to be approved. Furthermore, Ms Henderson also knew from the email correspondence that ensued with Mr Ringeri that any loan approval Ms MLM might have communicated to them was based 'on the wrong income details'. In that regard, it will be recalled that after Ms Henderson's initial phone call to Mr Ringeri on Friday 5 December 2008, she was in email contact with him on the morning of Monday 8 December 2008. Mr Ringeri responded to an email from Ms Henderson by asking what she had decided to do with Mr Stephens' loan and observing:
it is not advisable to proceed with [Ms MLM's] loan, although approved, it was approved on the wrong income details. ... My advice is to start all over and re-do correctly. I will ensure that this loan is done correctly and processed for settlement.[439]
301 Mr Ringeri then proceeded with the preparation of loan documents for a total sum of $2,100,000. His evidence was that he started afresh and did not work from Ms MLM's file. He sent an email to Ms Henderson the next day, 9 December 2008, in which he confirmed that 'loans of $1,100,000 and $1,000,000 have been approved' but subject to certain stated conditions, to which Ms Henderson responded a few hours later stating:
No probs Joe - aim for thursday for all of this - if so when will we be in a position to settle...discharge authorities are already signed and sent through Janice Cocard at Southern peninsula conveyancing and both parties - spray st and wooralla (challenger and capital first) are ready to book settlement...[440]
302 As noted earlier, in that response, Ms Henderson did not raise any issue with Mr Ringeri about the amount being advanced by the Bank.
303 Under cross-examination, Mr Stephens was shown Mr Ringeri's email of 9 December 2008 confirming that 'loans of $1,100,000 and $1,000,000 have been approved', and he agreed that he had seen it at or around the time it was sent.[441] But in answering the questions that followed, he resiled from that position, noting that it was 'an email to Trish, so I perhaps would not have seen it exactly at that time' and then said he could not remember when he first saw that email. A little later he said that it may not have seen it 'until after the failed settlement, so December 11th' but added it may not have been until the following week.[442]
304 When all of the conduct that took place between the customer (namely Mr Stephens and Ms Henderson on his behalf) on the one hand, and the Bank (through Ms MLM, Mr Radich, Mr Ringeri and others on its behalf) on the other, is examined it will be seen that there is a lack of specificity in the account given by or on behalf of Mr Stephens about what took place and what representations were made prior to him entering into the first and second loan agreements totalling $2,100,300 on 16 December 2008. Mr Stephens' case also seeks to ignore the fact that on 8 December 2008 the Bank informed him, by email, that it would be starting afresh with his loan application, and on 9 December 2008 confirmed that 'loans of $1,100,000 and $1,000,000 have been approved', and Ms Henderson, as his agent, clearly acquiesced in that course.
Representations alleged to be 'implied' from the conduct of the Bank
305 Mr Stephens also relies upon conduct engaged in by or on behalf of the Bank as giving rise to the representations he relies upon. As much of the relevant evidence relied upon has already been discussed above, they can be dealt with summarily.
(a) making the Representations pleaded in paragraph 3D(a) and 3D(b)
306 The two representations that Mr Stephens alleges were made, are set out below for convenience:
3D(a) the [Bank] had unconditionally approved a loan to [Mr Stephens] pursuant to which the [Bank] would provide financial accommodation in the total sum of $2,550,000.00;
3D(b) the interest for the loan would be capitalised so as to allow [Mr Stephens] to subdivide the [96 Wooralla Drive property],
307 Each has been addressed above in the context of the oral representations.
(b) presenting the documents constituting the First [Loan] Agreement and the Second [Loan] Agreement to Mr Stephens on or about 16 December 2008 for signing forthwith
308 The evidence concerning the signing of the documents by Mr Stephens on 16 December 2008 has also been canvassed in detail above. It is clear that by the time of signing, Mr Stephens was well aware that the Bank, through Mr Ringeri, had confirmed that two loans of $1,100,000 and $1,000,000 respectively had been approved, subject to satisfaction of the stated conditions. He was also aware that the loan arrangement that had been the subject of Ms Henderson's earlier discussions with Ms MLM was not approved. Also, through Ms Henderson, he ought to have been aware that if any loan arranged through Ms MLM had been approved, it was approved on the basis of wrong income information. Ms Ringeri had clearly informed Ms Henderson on 8 December 2008 that he was starting afresh, and the next day he confirmed the approvals that had been given.
309 Under cross-examination, when Ms Henderson was taken to these email exchanges with Mr Ringeri and it was put to her that she did not take issue with the amount of the funding being $2,100,000, she maintained that was because 'Joe had already confirmed to me that the 300,000 was available and the balance would be sorted out after settlement.'[443] She said the 'balance' was '[t]he shortfall of $150,000.'[444] Counsel for the Bank then informed her that, on Mr Stephens' version of events, the $150,000 was not mentioned at all at the meeting on 16 December 2008,[445] and the following exchange ensued:
[MR CAREW:] . . . Is his evidence correct that that wasn't mentioned at all in the meeting?---I wasn't party to his evidence that he gave. But my understanding is that I did definitely clarify the 300,000 plus the shortfall.
Ms Henderson, being a broker you would be aware of the need to have issues documented in respect of the funding; yes?---Yes, if I was acting as a broker.
You are doing the work of liaising with the bank at this point in time and making sure they have got the information they need and so forth to approve the loan; correct?---However, Mr Ringeri had told me to stay out of it, quote unquote, so I did not relay any of that information.
But you didn't stay out of it. You were in here liaising with the bank to get a loan for your partner; correct?---Only by virtue of the fact that they kept dealing with me.
But that just means that you are involved. No matter what the impetus for that was, you were involved?---But I was neither the broker nor the client.
Let's not worry about the label for the time being. You are involved in getting this loan approved; correct?---No. I had no part in the approval. Joseph Ringeri and [Ms MLM] had full approval.
Then why are you writing back here referring to settlement dates and discharge authorities and two other parties being ready to book settlement, Ms Henderson? Why?---That's nothing to do with the loan approval.
In any event, courtesy of your five years plus as a finance broker, you know that generally it's important to have the loan sums and the fundamental terms of a loan contract documented; correct?---Correct, and if I was a broker I would have done that.
And Mr Ringeri writes to you and he says what the amount of the lending is and it's at the top of page 450; correct?---Correct.
But you don't write back to say, 'That's not right and we have had this discussion and here's what the real numbers are,' do you?---No, I had been told to stay out of it and Mr Ringeri had already confirmed the approved funds from [Ms MLM].[446]
310 I do not accept Ms Henderson's evidence as set out above. Mr Ringeri gave evidence to the effect that he did not hear from Ms Henderson or Mr Stephens about any particular problems they saw with the loan approvals he was arranging.[447] He also said 'Trish Henderson knew exactly what I was doing' and he was hoping that she was passing on the right information to Mr Stephens. She was Mr Stephens' agent and she acted in that role throughout, as his representative or interface with the Bank. The notion that, in the days leading up to the settlement of 2 Marie Court, she unilaterally decided not to relay information to Mr Stephens about progress with the loans is simply not believable. In any event, it is clear that she made Mr Stephens aware of the amount of the loans that were approved via Mr Ringeri, as Mr Stephens himself admitted.
(c) failing or omitting to inform Mr Stephens that the documents constituting the First and Second [Loan] Agreement did not provide financial accommodation as represented by the Bank; and
(d) Mr Ringeri, as agent for the Bank, met Mr Stephens in a coffee shop on 16 December 2008 and produced two sets of printed documents for him to sign, without explaining the contents of those documents, nor giving Mr Stephens an opportunity to seek advice regarding them
311 In my view, it is clear that Mr Stephens was well aware at the time of signing the documents with Mr Ringeri, that the Bank was advancing only the total sum of $2,100,300. Indeed, during examination in chief he gave evidence that at the signing he 'noted' the amounts of the loans but said 'we didn't read through the documents explicitly.'[448] The next day, whilst under cross-examination, he effectively sought to resile from that position:
[MR CAREW:] Yesterday in evidence, again in regard to questions about you signing up these contracts on 16 December, it was said that you noted the amounts but didn't read through the documents explicitly?---Well, Joe told us simply documents to facilitate the settlement. That's quite true. We didn't read through the documents and note the amounts explicitly.
But you did read the pages where you signed, because there were two of them of course, two contracts?---Yes, we turned to them, we signed them and that was the end of that.
So not only did you not read the amounts, which is on the first page of the contracts; you can take my word for that?---That's correct.
But you didn't even note the amounts?---We didn't get the option to go through these. We didn't have time. We were not allocated time to go through them.
The only figure that you said in evidence was referenced in any discussion at this meeting yesterday in your evidence was the amount of $300,000. Now, do you recollect that is your evidence?---We discussed the 300,000 because we knew that that was coming and Joe was going to address the shortfall in the New Year, and that was the complete context.
Thank you. Do you agree that that's the only number that was referenced by any of the three people present at this meeting?---The specific number 300,000 was the only number referenced, yes.
Thank you. So you didn't read the loan amounts in the contract; that's correct?---There's no time. That's correct.[449]
312 The evidence given to that point by Mr Stephens under cross-examination is to the effect that he signed the documents without knowing what the amount of the loans was. Counsel for the Bank then sought to test that position, as follows:
{MR CAREW:] Given that there's no discussion at all of the loan amounts on 16 December and given that you never read the loan amount or even took note of it in the contract?---That's correct.
You left that meeting not knowing whether you had signed a contract sufficient to buy Marie Court and pay out Perpetual?---These - - -
Is that 'yes' or 'no'?---Well, I had - I was told that these would be sufficient to buy out Marie Court and complete the transaction. I had no knowledge of the meaning of the documents or the amounts on the documents relative to anything else that the bank was doing.
Complete which transaction?---The purchase of Marie Court. That was it.
The purchase of Marie Court only contemplated required funding of some 300 or $400,000; correct?---In addition to the original 300 that we had, yes.
Sorry, I'm not following your answer?---The transaction for Marie Court was 605. [Ms MLM] in June 2008 had allocated us the 300,000 being originally provided. We needed another at least 305 plus settlement costs to actually purchase that property.
I'm trying to clarify this with you?---Explicitly just that property.
So that means that you left the meeting only knowing that you had enough money to complete on Marie Court; is that correct?---No, that is not correct. Because these documents were provided to us from Joe simply to facilitate the settlement process, there was no discussion of altering loan amounts or anything like that from the original loan. This was purely to facilitate the settlement because it was already past settlement date of December 11. The CBA hadn't produced the documents. We didn't know what was going on. Joe facilitated that through these papers that I was required to sign. They took them away - or Joe took them away. I haven't seen them since. I obviously hadn't had any advice on them. But this was to facilitate the purchase and settlement of the Marie Court property and obviously to take over the Wooralla mortgage at the same time because it was all part of the same contract, the same loan application.[450]
313 The two extracts from the transcript of Mr Stephens' evidence set out above serve as a good example of the technique he used when seeking to sidestep the effect of evidence which he had already given, namely that he was aware Mr Ringeri had confirmed that two loans of $1,100,000 and $1,000,000 respectively had been approved, and at the time of signing he had 'noted' the amounts of the loans,[451] in order to enable him to convey the impression first, that he needed assistance to understand what it was that he was signing up for with Mr Ringeri, and secondly, that at the time of signing he was operating under the misapprehension that it was the documentation for his 'original concept' (of the development loan with the capitalisation of the interest) that he was formally executing. To the extent that his evidence might appear to convey such an impression, I do not accept that it was the reality of the situation. Further, Ms Henderson gave evidence that at the time when the documents were signed, she saw the loan amounts.[452]
314 It will be recalled that Mr Stephens had earlier given evidence that in September 2008, Ms MLM had sent through to him Bank documents for the $300,000 loan for 2 Marie Court, which he simply signed and sent back. There was no suggestion made by him that at the time he required advice to understand them. And Mr Stephens has owned several properties at different times, some of which have been subject to mortgages, so it could not be said that when he met with Mr Ringeri on 16 December 2008 it was the first time he had been shown loan and mortgage documents, and was totally unfamiliar with the transaction he was entering into. Furthermore, when Mr Stephens signed those loan documents in September 2008, he did so without making any enquiry of, or seeking any clarification from Ms MLM or the Bank about the interest arrangements and whether the interest payable was being capitalised in some way.
315 Mr Ringeri gave evidence that copies of the first and second loan agreements 'would have' (by which he meant in the ordinary course of events) been sent to Mr Stephens by mail in advance of the meeting on 16 December 2008.[453] Mr Ringeri said that he received his copies on 12 December 2008. It is possible that Mr Stephens did not receive his copy of the documents. Importantly, however, there is no evidence of any request having been made by Mr Stephens to the Bank immediately after 16 December 2008 to provide copies of the loan documents that he had signed. If it were the case that he was unclear about what he had signed, and that he was operating under the belief that not all of the funds the subject of the approved loans had been advanced, it is surprising that he did not contact the Bank and seek copies, but there is no record of any such request having been made. Indeed, it is even more surprising that he did not do so at or around the time he received two letters from the Bank confirming the quantum of the loans and informing him of the quantum of the monthly repayments that would be debited to his Streamline account each month.[454] His evidence was that he simply 'filed' those letters, and thereby he conveyed the impression that they were of no real interest to him.
Conclusion: The Bank did not engage in conduct that was misleading or deceptive
316 When the totality of the conduct engaged in by or on behalf of the Bank is examined and viewed objectively, it was not misleading or deceptive in the relevant sense because it was not reasonably capable of inducing error.
317 In the first place, I am not satisfied that the Representations pleaded by Mr Stephens were made. In my view, there is virtually no cogent evidence of Ms MLM or Mr Radich making any representation to Mr Stephens or Ms Henderson as to a specific sum that the Bank would provide and over what term, or as to the 'capitalisation' of the interest on the loan. But to the extent that any statements were made by either Ms MLM or Mr Radich on behalf of the Bank as to the approval of any loan application made by Mr Stephens that might be capable of being characterised as a representation, those 'representations' lack the requisite specificity and do not amount to an actionable representation. Nor did Mr Stephens or Ms Henderson give any coherent or consistent evidence about the amount of the loan to be provided by the Bank, how or in what manner the interest accruing on the loan was to be 'capitalised', or indeed how or in what manner repayment of the principal sum was to take place under the arrangements.
318 Further, as McHugh J stated in Butcher, the effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. In the present case, when the discrete statements or actions relied upon by Mr Stephens are viewed in the context of the whole course of conduct that took place, it is clear that whatever may have been said or done by Ms MLM or Mr Radich prior to Mr Ringeri becoming involved was effectively overtaken by the later events that culminated in the execution of the package of documentation by Mr Stephens on 16 December 2008.
319 From the point in early December 2008 when Mr Ringeri became involved, he made clear from the outset of his dealings with Ms Henderson, as agent for Mr Stephens, that he was starting afresh because the loan Mr Stephens had discussed with Ms MLM 'was approved on the wrong income details'; he later confirmed that 'loans of $1,100,000 and $1,000,000 have been approved' but subject to certain stated conditions, and Ms Henderson responded to the effect that she had no problems with this. In addition, Mr Stephens recorded in his letter that accompanied the dispute form he filed with the Financial Ombudsman Service on or about 30 June 2010, that the settlement of the 2 Marie Court property, which was due to take place in December 2008, did not proceed as scheduled because he had been advised by Ms MLM by telephone four days before settlement that 'the loan had NOT been approved'. In circumstances where Mr Stephens acknowledges that he was aware that the loan under discussion with Ms MLM had not been approved and that he was aware that Mr Ringeri had confirmed that two loans of $1,100,000 and $1,000,000 had been approved, it is difficult to see how the conduct of the Bank, when viewed as a whole, could be regarded as having a tendency to lead Mr Stephens into error, or to mislead or deceive him.
320 Furthermore, the notion that the interest on the loan was to be capitalised is contradicted by the action taken by Mr Stephens and Ms Henderson. Aside from the fact that the evidence adduced does not support the making of any such representation, the evidence shows that in the first few months of 2009 Mr Stephens made regular monthly payments to the Bank of both principal and interest automatically from his Streamline account. It would appear that he did so notwithstanding that if (as he maintains) the interest was to be capitalised (and the principal not repayable), he had no obligation to do so. Once the loan accounts fell into arrears, and the Bank made demands for payment, Mr Stephens wrote to the Bank by letter dated 14 August 2009 authorising Ms Henderson to deal with the Bank on his behalf.[455] He also telephoned the Bank to confirm that position.[456] The sum of $41,720 (apparently representing arrears of principal and interest and the next payment due) was paid by Ms Henderson immediately following that call.[457]
321 The matter detail reports for the two loans, that were produced by Mr Deligiorgakis,[458] record much of the communication that took place between the Bank and Mr Stephens. They serve to confirm that in 2009, Mr Stephens was aware that the loans were in arrears, and that he was endeavouring to make payment of the amounts outstanding voluntarily. However, it was not until the Bank served its first formal notice of default on or about 30 June 2010, that the matters now raised in Mr Stephens' defence and counterclaim surfaced for the first time.
Mr Stephens' reliance upon section 12BB of the ASIC Act
322 Mr Stephens submitted that if the Court were satisfied that the Representations were in fact made by the Bank, then section 12BB of the ASIC Act would apply and deem the Representations to be misleading.[459] As I am not satisfied that the Representations were made, it is not necessary for me to deal with this submission. However, lest the matter go further, it is convenient to summarise the arguments that were advanced and indicate generally the views I would have reached were the position otherwise.
323 Section 12BB of the ASIC Act, which is the counterpart to section 51A of the TPA (now section 4 of the ACL), deals with misleading representations with respect to 'future matters'. The expression 'future matter' is not defined in the Act but is generally taken to mean anything that is to occur in the future, such as a prediction, a profit forecast or a projection. Section 12BB(1) provides as follows:[460]
For the purposes of Subdivision D (sections 12DA to 12DN), if a person makes a representation about a future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading.[461]
324 Section 12BB(2) of the ASIC Act further provides that:
For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made by a person about a future matter, the person is taken not to have had reasonable grounds for making the representation, unless it adduces evidence to the contrary.
325 Counsel for Mr Stephens submitted that Ms MLM was not called by the Bank, and thus no contrary evidence was adduced from her, and nor did any witness called by the Bank give any evidence about Ms MLM having any reasonable grounds to make the Representations. Accordingly, he contended that the 'effectively uncontradicted testimony of Ms Henderson concerning the Representations coupled with the operation of section 12BB of the ASIC Act lead to the legal conclusion that the Plaintiff [Bank] engaged in misleading conduct in contravention of section 12DA of the ASIC Act.'[462]
326 It is the case that Ms MLM was not called to give evidence. But it is not the case that Ms Henderson's evidence was 'effectively uncontradicted'. Leaving to one side the fact that I am not satisfied that the pleaded Representations were made, it is necessary to comment upon some aspects of the evidence that was given by Ms Henderson. In accordance with the pre-trial orders, an outline of the evidence Ms Henderson proposed to give was filed and served. When cross-examining the Bank's witnesses, counsel for Mr Stephens put to them matters that were set out in Ms Henderson's outline, in order that they might have an opportunity to respond to them. However, when Ms Henderson gave her evidence in chief, not only did she depart from what was in the outline, she mentioned for the first time aspects of conversations and important details or things that she had said to one or other of the Bank's officers, or asserted were said by them. As a consequence, evidence that was later given by her about particular conversations was not able to be put to the Bank's witnesses, who were called in advance of Ms Henderson giving her evidence, thereby making it difficult to rigorously test the veracity of her oral evidence. Further, when giving evidence, both during examination in chief and under cross-examination, Ms Henderson would often finish her answer, and then as the next question was being asked, she would re-visit or add to the answer she had just given.
327 Ms Henderson also reiterated on many occasions throughout her evidence words to the effect that 'the loan had been fully and unconditionally approved' or that the relevant Bank officer had confirmed that 'the loan had been fully and unconditionally approved', without providing any detail of what loan she was referring to. An example of this is the evidence she gave in the context of her meetings with Mr Radich at the Mt Eliza branch of the Bank in September 2008. In respect of several other matters, such as the amount of the loan that was 'fully and unconditionally approved' by Ms MLM,[463] the issue of 'bridging finance'[464] and whether she queried Mr Ringeri about whether the $300,000 was available,[465] the evidence she gave orally was at odds with that which was contained in her statutory declaration made on 8 October 2012.
328 Accordingly, I do not accept that the evidence Ms Henderson gave concerning the Representations was 'effectively uncontradicted' testimony. In the circumstances, were it necessary to decide this point, my view is that section 12BB of the ASIC Act does not operate or entail the outcome that the Bank is taken to have engaged in misleading conduct in contravention of section 12DA of the ASIC Act.
329 In the event that Mr Stephens were to establish a breach of section 12DA then he would be entitled to damages. Mr Stephens contends that he is entitled to be put in the position he would have been in if the Representations were made good. That is, he seeks damages for the loss of opportunity to develop the 96 Wooralla Drive property, an opportunity that he says would have come to fruition if the Bank had advanced him the total amount of $2,550,000. To this end, expert evidence was led concerning the development costs and the current valuation of the 96 Wooralla Drive property.
330 The Bank, on the other hand, contends that is not the measure of his loss, observing that such an approach would be the manner for establishing a loss based on contractual principles. Rather, the Bank says, Mr Stephens needs to have adduced evidence of what loss he would have suffered had the representations not been made at all.[466]
331 In the present case, given the findings I have made, no occasion arises for the Court to consider the alleged loss and damage claimed by Mr Stephens for misleading and deceptive conduct, or what is the appropriate measure. However, as a substantial body of evidence was adduced concerning the development costs and the current valuation of 96 Wooralla Drive, I have set out (as a separate section) below the substance of that evidence, lest the matter go further.
Was there a failure on the part of Mr Stephens to take reasonable care?
332 If, contrary to the view I have formed, Mr Stephens had made out his claim for damages for misleading and deceptive conduct, then the Bank seeks to have the quantum of any damages reduced to reflect the fact that Mr Stephens failed to take reasonable care in entering into the relevant agreements.
(1B) Despite subsection (1), if:
(a) a person (the claimant) makes a claim under subsection (1) in relation to:
(i) economic loss; or
(ii) damage to property;
caused by conduct of another person (the defendant) that was done in contravention of section 12DA; and
(b) the claimant suffered the loss or damage:
(i) as a result partly of the claimant's failure to take reasonable care; and
(ii) as a result partly of the conduct referred to in paragraph (a); and
(c) the defendant:
(i) did not intend to cause the loss or damage; and
(ii) did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage.
334 The Bank submits that, in the present case, the Court should conclude that Mr Stephens failed to take reasonable care in entering into the relevant agreements. The Bank said that Mr Stephens' case is effectively one where he says that he signed the agreements after some four months of dealings with the Bank, during which time it was represented to him that the Bank would provide for a loan amount of $2,550,000 with interest to be capitalised. By the time he signed the agreements on 16 December 2008, he had let the 2 Marie Court contract become unconditional, he had received a number of explanations from the Bank via Ms MLM as to why he had not received the contract of loan for $2,550,000 and he was aware, at the time of signing, that those agreements did not provide for lending in that sum. Furthermore, he signed the agreements apparently without reading or perusing them in any detail, and did so in the presence of his domestic partner, and without demur from her, notwithstanding that she is an experienced mortgage broker (for residential loans) and was acting as his agent throughout the dealings with the Bank. The Bank contended that if those circumstances were made out, it is to be concluded that he failed to take reasonable care in entering into the relevant agreements with the Bank on 16 December 2008, and accordingly, that any award of damages should be reduced pursuant to section 12GF(1B) 'to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage.'
335 Given that Mr Stephens has failed to make out his claim for misleading and deceptive conduct, it is not necessary to determine this issue.
Lot 5 - an area of 1,501 square metres.[471]
This sale occurred after the valuation by Hugh McLean but was available to Grant Sutherland when completing his valuation. The evidence of this sale does have an appreciating effect on the value of the subject land.
Hugh McLean has revised his calculations after discussions on the quantum values applied in relation to the GST of $100,000 which has been included. Profit and Risk reduced from 20% to 18%, Development Costs accepted as the $684,700 as produced and Interest on the Land Cost (where an error has been made) reduced to $133,000.
The assessed In Globo Value for Hugh McLean now becomes $1,580,000.
Grant Sutherland of Sutherland Farrelly with a value of $1,640,000 with no amendment.
Hugh McLean of Hugh McLean Valuers who was previously at $1,460,000 and is now prepared to increase his valuation to $1,580,000, based on the recent sale at 263-267 Canadian Bay Road.
Both Valuers have adopted the appropriate methodology of analysis for our sales evidence thereby assisting in reaching some common agreement in the abovementioned Certified Valuation Figures.[481]
MR SUTHERLAND: We obviously have a difference of opinion there, but I would comment that the difference in the total gross realisation over $3,200,000-odd is actually only $80,000. So it's not a massive amount and I imagine we could sit here for three hours discussing the merits or otherwise, which is probably not worthwhile over an $80,000 difference on the top line.[485]
MR McLEAN: That's reflected in the bottom line, too. We are only $60,000 apart in the bottom line.[486]
HER HONOUR: I just want to get a feeling for values in this area over, say, the last 10 years. What has been the profile of land sales in terms of value? The reason I'm asking this question is because the court has received evidence about expressions of interest in sale, if not completed contracts for sale, in 2008 of a significantly higher figure for the land with a house on it, just as an offering of 96 Wooralla Drive. I'm just wanting to get a feel for how land values generally have changed over the period between, let's say, 2008 through to the present day, so a period of eight years.
MR McLEAN: I would have thought that they would have increased, Your Honour.
MR McLEAN: I suppose over the last 30 years in Mount Eliza, Your Honour, the times that have affected the values in Mount Eliza most have been around the Iraq war when petrol prices have gone up and also the global financial crisis, I would say. Wouldn't you, Grant? That petrol prices were probably the main reason that there was any decrease in Mount Eliza prices at any stage.
MR SUTHERLAND: Mount Eliza hasn't exhibited the amount of growth that has occurred in Melbourne.[488]
[A]pply for a planning permit, prepare supporting reports, negotiate with relevant service authorities, make applications for services, undertake feature survey of the site and adjacent lands, prepare design plans, obtain necessary approvals, source tenders to carry out the works, appoint a contractor/s, construct new infrastructure works, obtain acceptance of the works and seek releases from the relevant authorities for statement of compliance.[491]
Without knowledge of any new planning permit application documentation requirements, additional costs would be difficult to determine. Taking into account recent knowledge with planning permit applications and increasing requirements, additional allowance for a permit application should be made. This together with access to external land could quite easily add an additional $100,000[492] to the cost of the subdivision.[493]
Development costs experts conferred to discuss their estimates
Evidence given by the experts during the conclave
---It was the construction items. So we met, me and Stephen met. He had some relevant information from a parcel adjacent to this site from around 2008, so I've adjusted my construction cost estimates for the works based on those rates that have been subsequently provided to me.[507]
As a result of my meeting with Stephen where I was able to reassess the construction costs component of those estimates based on more relevant information that was from 2008 which was an adjacent site, I fed that information that Stephen provided to me from the time, tenders and what have you from contractors, and reassessed my construction costs estimate on that basis. That's the primary changes in my estimate was as a result of construction costs changes due to more relevant information than I had at the start of the process. [508]
All of those costs [i.e., the costs set out in his 2008 estimate] would have been incurred to develop the property. There are some costs there, or clearly it's all an estimate because no two sites are the same and I would agree with Darren that the biggest area of concern would be the outfall drainage and/or access to external properties not owned by the developer. There were certain things that I'd allowed there in that cost estimate that were applicable to a body corporate development ...
... So generally in a body corporate subdivision we would agree with the developer as to what extent of services they might provide, and that can be including services, underground services. Darren and I discussed, for example, the provision of power. We had allowed for provision of underground conduits but not cables in those conduits. That was a point of difference between the two of us. Most of the rest of the things we generally sort of agreed, premised on the evidence that I provided from the costs of the development next door.
I have noted on my estimates that I have not allowed for a development levy because at the time it tended to be a matter of negotiation with the local counsel [sic], as did the public open space. The original permit gave a couple of different lines about how the public open space was to be determined and I've not allowed anything in there based on the fact that it needed to be confirmed. So, we've agreed that an allowance should be made in our cost estimates between the two of us; obviously to complete the development you would have to pay some sort of public open space.
So the only other area was the cost of gaining access to external properties and/or compensation, cost of easement creation, et cetera. Based on my experience for the development next door, we had some reasonable modicum of success where we negotiated with other properties because they could see there was a benefit in us constructing stormwater and sewer through the rear of their properties which enabled them to develop as well. I guess in time, if we were dealing with 96 at the same time as the other one, we could have included them in that activity and might have saved a lot of effort for them.
But other than that, yes, access, compensation, easement creation, that sort of stuff. Reinstatement is a very open-ended component of what we do and until such time as you sit down and talk to people and negotiate with people and if we've got three or four people we won't get the same answer amongst the four of them; they will all come up with a different attitude as to what they want for us to get access. So I agree for the purpose of the exercise, if we allow $50,000 to provide some compensation for access through properties, that may or may not be enough.
HER HONOUR: So where does that fit in now with the $50,000 that you have allowed as effectively an allowance?
MR CRAIG: I suppose if I hadn't allowed very much at the start and Darren and I discussed the $50,000 might be more appropriate, I would agree that halfway between the $100,000 and the zero, I would agree that $50,000 would be a reasonable allowance to make.
HER HONOUR: Yes, I'm just clarifying. So the $100,000 that you referred to on page 114 - - -
HER HONOUR: So it would now, rather than it being $100,000 you would say probably $50,000 is a fair estimate of what might be prudent to allocate, recognising it might be more or less.
MR CRAIG: Similarly I have agreed with Darren that there are allowances that should be made to ensure the completion of the development. Some of those items weren't included in my original costing in 2008 and were left unclosed, if you like, because of information at the time available to me. However, the total cost of the development would be in the order that he alludes to. I might disagree as to the total, but not by very much.
HER HONOUR: Just to be clear for my purposes, the estimate that you provided back in 2008 which appears as annexure B to your report at pages 116 and 117 gave a development cost in total of about $390,000.
HER HONOUR: And it was broken down to per block of about 70, almost $78,000 per block.
HER HONOUR: Now as a result of the consultation that you have had with Mr Barker and the updated information that you have received your assessment now of those comparable costs given what you now know?
MR CRAIG: Just taking into account what we have discussed, it would be closer to $500,000.
HER HONOUR: Closer to 500,000, thank you. That, as I understand it, would break down to closer to $100,000 per block on a five lot subdivision.
Observations on the expert evidence given during the conclaves
382 Further or alternatively, Mr Stephens alleges that the Court should find that, in the circumstances, the Bank has engaged in unconscionable conduct in contravention of section 12CB of the ASIC Act,[518] which is the 'statutory' form of unconscionable conduct that is not limited by the unwritten law of the States and Territories.[519] In particular, Mr Stephens relies upon the fact that he was not afforded the opportunity to seek and receive independent legal advice prior to the execution of the loan documents and mortgage, in circumstances where the Bank knew or ought reasonably to have known that he needed funds urgently to settle the purchase of 2 Marie Court.
Section 12CB: alleged unconscionable conduct in connection with financial services
383 As noted earlier when dealing with Mr Stephens' claim for misleading and deceptive conduct, each of the loans in the present case was relevantly a 'credit facility' within the meaning of regulation 2B(1)(a) of the Australian Securities and Investments Commission Regulations 2001 (Cth) and thus, by reason of section 12BAA(7)(k) of the ASIC Act, was a 'financial product' for the purposes of Division 2 of the Act, which deals with 'Unconscionable conduct and consumer protection in relation to financial services'.
384 Section 12BAB of the ASIC Act sets out the meaning of 'financial service'. Relevantly, for present purposes, a person provides a financial service if they 'deal in a financial product': s 12BAB(1)(b). The meaning of 'dealing' is set out in subsection 12BAB(7).[520] Relevantly, 'issuing a financial product' constitutes dealing in a financial product: s 12BAB(7)(b).
385 At the relevant time, section 12CB(1) provided:
(1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person engage in conduct that is, in all the circumstances, unconscionable.
386 If section 12CB of the ASIC Act is engaged, then the provisions of section 12CA, which operate to incorporate into the Act the 'unwritten law' in relation to unconscionable conduct (and thereby extend the remedies available under the Act to the extent that they are part of the common law or equitable principles recognised by the courts), do not apply: see s 12CA(2).
387 The term 'unconscionable conduct' is not defined in the statutory provisions but the decided cases shed some light on what meaning is conveyed by the term 'unconscionable conduct' in the statutory context.
388 It has been said that unconscionable conduct in the context of such statutory provisions is constituted of 'serious misconduct, something clearly unfair or unreasonable'[521] showing 'no regard for conscience'.[522] But it is not enough that the conduct complained of is objectively unfair, unjust, wrong or unreasonable. As Hargrave J pointed out in Director of Consumer Affairs (Vic) v Scully (No 3),[523] the cases concerning the content of statutory unconscionability 'disclose a consistent requirement that the relevant conduct must include a significant element of moral obloquy.'[524] His Honour explained the concept of 'moral obloquy' by reference to the decision of the Court of Appeal in New South Wales in Tonto Home Loans Australia Pty Ltd v Tavares,[525] where Allsop P (with whom Bathurst CJ and Campbell JA agreed) 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.'[526] Hargrave J then summarised the position stating:
It follows that the conduct in question must be more than negligent. It will usually involve some deliberate wrongdoing, although there may be cases where recklessness will suffice.[527] For example, cases involving wilful blindness. Ultimately, as the cases demonstrate, each case must depend upon its own circumstances and the Court must make a value judgment as to whether to characterise the conduct with 'the opprobrium of unconscionability'.[528]
389 His Honour's analysis was upheld on appeal[529] and cited with approval in Violet Home Loans Pty Ltd v Schmidt.[530] In Violet Home Loans, the Court of Appeal (Warren CJ, Cavanough and Ferguson AJJA) said the task of determining whether particular conduct was unconscionable is not one that is undertaken by simply looking at the type of lending that is involved, such as 'asset based lending', but rather it 'requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable.'[531]
390 Each of sections 12CB(2) (Unconscionable conduct) and 12CC(2) (Unconscionable conduct in business transactions) set out a non-exhaustive list of matters that the Court may have regard to for the purpose of determining whether a person has contravened section 12CB or section 12CC respectively, in connection with the supply or possible supply of financial services. In the present case, counsel for the defendant submitted that, based on the evidence before the Court, the following matters listed in section 12CC all have relevance:
(a) the relative strengths of the bargaining positions of the supplier and the service recipient; 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
...
(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
...
(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) the extent to which the supplier and the service recipient acted in good faith.[532]
(In that regard, it will be noted that Mr Stephens does not seek to rely upon 'the requirements of any applicable industry code' as referred to in subsections 12CC(1)(g) and (h), such as the Banking Code of Conduct.)
391 The claim for unconscionable conduct was outlined in the defendant's written submissions and addressed, albeit only briefly, in oral submissions.[533]
392 As to listed factor (a), the relative strengths of the bargaining positions of the supplier and the service recipient, counsel for the defendant referred to the fact that the contracts in question were effectively 'standard form contracts' and observed that while '[t]here wasn't really much evidence on this' he did not think it is 'seriously suggested there's a great deal of latitude for bargaining in relation to the standard terms of this contract[]'.[534]
393 In relation to listed factor (c), whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services, counsel for the defendant made clear that the submission was being put forward not on the basis of any inherent inability on the part of Mr Stephens to understand but rather on the basis that Mr Stephens' background does not indicate a great deal of familiarity with bank documents, and he was given only a short time to consider the Bank's documents when Mr Ringeri presented them to him for signing on 16 December 2008.
394 As to listed factor (d), whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient, counsel for the defendant sought to rely upon two matters as possibly falling within it.
395 First, he said, it was not made abundantly clear 'that the original 2.55 million was clearly off the table', despite there being reference to two loans in the sum of $1.1 million and $1 million respectively having been approved, and contended there was 'no clarity about the rest being absolutely scrapped' and on the defendant's version of the events, 'there were contrary assurances'.[535] Further, he submitted that at the meeting in the coffee shop on 16 December 2008 there was, on the defendant's version of events, a request made to take the documents away to consider them and take them to a solicitor, but that was met with the response from Mr Ringeri that if Mr Stephens took them away, then they would not be able to settle, because the settlement for 2 Marie Court was imminent. It was said that there was 'pressure' for Mr Stephens to settle within a matter of three days, and that was known to the Bank.
396 Secondly, he contended that the conduct of the Bank in the circumstances of that meeting would constitute an 'unfair tactic':
We say that having him sign at a coffee shop, even on Mr Ringeri's evidence I think first it was 30 minutes, then it became maybe 15 to 30 minutes, but in a relatively short meeting where Mr Ringeri didn't suggest that he went through each term chapter and verse with the defendant, in those circumstances that would constitute an unfair tactic by a person acting on behalf of the supplier.[536]
397 In relation to listed factor (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, counsel for the defendant acknowledged that there was 'no particular specific evidence about like loans', but submitted that there were aspects of the transaction, from September to the end, including the investigation of Ms MLM and her being stood down, that would suggest 'this doesn't seem to be the usual way that the plaintiff would be conducting business.'[537]
398 As to listed factor (i), the extent to which the supplier unreasonably failed to disclose to the service recipient: first, any intended conduct of the supplier that might affect the interests of the service recipient; and secondly, any risk to the service recipient arising from the supplier's intended conduct, counsel for the defendant returned to the coffee shop meeting discussions. He contended that not only was there an unreasonable failure on the part of the Bank to disclose that it intended to loan only the $2.1 million, and that interest would be accruing and payable throughout, it represented to the contrary when questioned about the remainder of the funds and failed to draw to the attention of the defendant and make him specifically aware of the fact that interest would be ongoing and payable immediately.[538]
399 In relation to listed factor (j), where the focus is on the terms and conditions of the relevant contract, and conduct under it by way of compliance etc, and any conduct engaged in after they entered into the contract, counsel for the defendant acknowledged that it did not appear to be of much assistance, other than perhaps to capture the notion that the Bank failed to provide all of the funds the defendant contends were to be provided.[539]
400 Finally, as to listed factor (k), the extent to which the supplier and service recipient acted in good faith, counsel for the defendant submitted that aside from the irregular conduct of Ms MLM which led to her suspension or dismissal, the subsequent negotiations were rushed through, and the Bank's final position was not made 'as crystal clear as it could have been'. Further, he said the Bank was concerned to protect its position, which it did by having Mr Stephens sign documents which 'limited their liability to something more manageable based on the securities that were available' and in so doing 'wasn't necessarily acting completely in good faith vis-à-vis [Mr Stephens].'[540]
401 When pressed by the Court to identify with some precision what it was about the transaction and the conduct on the part of the Bank that constituted the alleged unconscionable conduct, counsel for the defendant effectively contended that it was the fact that when the documents were signed on 16 December 2008, the Bank 'knew or ought to have known the defendant[] had a different understanding of what the loan arrangement was.'[541] In those circumstances, he submitted:
. . . If the bank had clearly sat down in some sense and either produced a clear, clear document, not the email referred to about starting again, a clear document making it clear that the $300,000 document and any other promises by Ms [MLM], whatever they may be, given that the bank was still investigating, it appears, were not going to be honoured by the bank in any shape or form, perhaps have Mr Stephens seek legal advice about that, but at least have time to consider that; if those things had been done, then we might not get to the unconscionability. But we do because that wasn't done; none of that was done, in my submission.
What happened was the bank moved reasonably quickly towards having these documents signed up, in circumstances where the defendant says repeated assurances were given, including on 16 December 2008, that notwithstanding signing these documents that were said to be standard documents, there was no problem with signing them, the bank assured that the remainder of the funds that the defendant thought they were getting and the bank knew the defendant thought there was a different deal to this 2.1 originally, the bank has assured that these funds would be forthcoming. That's unconscionable.
Additionally, again on 16 December, knowing that that's the case and knowing that it's not clear to the defendant, it's not abundantly clear to the defendant that the original loan agreement is not going to be honoured just because there are these legal documents that say something different, knowing that, when asked by the defendant whether he can take them away and consider them and whether he can take them to a lawyer, that's actively discouraged by Mr Ringeri again in the context of a signing on 16 December, some three days - bearing in mind there's a weekend as well - before there's due to be a settlement. So there is some amount of pressure on the defendant to get this funding in place before a second settlement of the contract of Marie Court fails to be achieved.
So again that's unconscionable to be discouraging the defendant from properly considering these documents and, more to the point, taking them to a lawyer to have them explained, potentially, despite a request, and then explaining the reasoning for discouraging that to be, 'This needs to be done or you're not going to receive the money you need in three days.'
So, the unconscionability really comes from the failure to clear up the situation, to put it in general terms, once the bank knows that there was this other arrangement with Ms [MLM] which is something they are not going to honour, the failure to do that clearly, and then on 16 December going ahead with having the defendant sign up to the contracts in all of the circumstances that I have just set forward. So that is unconscionable and the non-exhaustive factors in 12CC pick up on some of those.[542]
402 Counsel for the Bank submitted that in the present case there is no foundation for any argument that the Bank has acted in any reckless manner, having regard to the position of the defendant, such that it could be found to have acted unconscionably.[543] He said that while Mr Stephens makes many complaints about the Bank's handling of his loan applications, it is clear that on 9 December 2008 he was informed about the amount of the loan by Mr Ringeri (and through Ms Henderson) and on 16 December 2008 he was presented with the relevant agreements to sign. Those agreements superseded the parties' previously dealings and he executed them. Further, counsel submitted, there is absolutely nothing in writing at the time that indicates there was anything amiss with either the agreements or Mr Stephens' understanding of them.
403 In my view, when regard is had to all of the dealings between the parties, and all of the facts relied upon in relation to the alleged impugned conduct, it is clear that the Bank's conduct is not such as would warrant being characterised with 'the opprobrium of unconscionability'.
404 To be sure, there are aspects of the Bank's conduct that, with the benefit of hindsight, one might describe as being less than satisfactory - some of which were alluded to by counsel for Mr Stephens - but that does not render the conduct unconscionable in the relevant sense. This is not a case where it could be said that the Bank engaged in unfair tactics or exerted any undue influence or undue pressure. Once the Bank became aware that Mr Stephens' earlier application had been 'approved' on the basis of 'wrong information', it moved swiftly to provide whatever assistance it could to him, cognizant that his purchase of 2 Marie Court was, by now, unconditional.
405 Mr Ringeri commenced afresh with Mr Stephens' loan application, on the basis of the information Mr Coulton had initially given him, as well as the documentation Ms Henderson provided as time went on. Throughout the approval process, Mr Ringeri liaised with Ms Henderson, in her capacity as Mr Stephens' agent, to keep her apprised of progress. He knew her as a broker, and thought that Ms Henderson was faithfully and accurately passing on information to Mr Stephens. I accept his evidence that he was unaware that she was Mr Stephens' domestic partner.
406 Mr Ringeri contacted Ms Henderson once the loan approval was given, confirming by email that there would be two loans of $1,100,000 and $1,000,000 respectively available. It is clear that Mr Stephens was aware of that confirmation and the amount of the loans.
407 At the time of the coffee shop meeting, when Mr Stephens signed the Bank's loan agreements and the mortgage in the presence of Ms Henderson, Mr Ringeri believed that Mr Stephens had seen them because a copy of each of them would have been posted to him in the ordinary course. There was no particular rush at the signing meeting itself, other than the obvious need to be ready for settlement on the re-scheduled date of 19 December 2008. Mr Ringeri walked Mr Stephens through the complete package of documents in a summary way, Mr Stephens 'noted' the loan sums, and when it came to interest, Mr Ringeri informed him that with the 'Wealth Package' in place, the applicable interest rate on the loans would be reduced. Mr Ringeri did not recall Mr Stephens having asked to take the documents away, but he agreed that 'it is possible' that he said to Mr Stephens words to the effect of 'if you take the documents away we will not be able to settle Marie Court in time'.[544] Mr Stephens then proceeded to sign the documents, which are framed in standard commercial terms, in the knowledge that they provided for loans totalling $2,100,300.
408 In the final outcome, while the settlement of 2 Marie Court was delayed by a few days as a result of the need for a fresh loan approval, the settlement took place on the re-scheduled date that Mr Ringeri had requested be arranged.
409 In my view, it is not open on the evidence before the Court to infer that Mr Ringeri, as an officer of the Bank, was acting 'unconscionably' in the language of the ASIC Act, or even to the level of 'wilful blindness' which Hargrave J observes may in some cases satisfy the statutory definition of unconscionable conduct.[545]
In the alternative, if section 12CB does not apply, Mr Stephens relies on the 'unwritten law' via section 12CA
410 If section 12CB of the ASIC Act does not prohibit the conduct complained of, then the provisions of section 12CA, which operate to incorporate into the Act the 'unwritten law' of the States and Territories in relation to unconscionable conduct, are engaged. Section 12CA is headed 'Unconscionable conduct within the meaning of the unwritten law of the States and Territories' and provides as follows:
(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.
412 The relevant concept of 'unconscionable conduct' was explained by Kitto J in Blomley v Ryan in the following terms:
This is a well-known head of equity. It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.[548]
413 In Blomley v Ryan, Fullagar J observed that the 'common characteristic' of the circumstances adversely affecting a party which may induce a court of equity to intervene 'seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.'[549]
414 In Amadio, Mason J referred to the observations of Fullagar J and Kitto J in Blomley v Ryan and observed:
It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.[550]
415 Mason J then continued to discuss the notion of 'special disadvantage', explaining that he qualified the word 'disadvantage' by the adjective 'special', in order to:
... disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.[551]
His Honour added that '[b]ecause times have changed new situations have arisen in which it may be appropriate to invoke the underlying principle.'[552] He referenced, as an example, 'entry into a standard form of contract dictated by a party whose bargaining power is greatly superior'[553] noting however that in 'situations of this kind it is necessary for the plaintiff who seeks relief to establish unconscionable conduct, namely that unconscientious advantage has been taken of his disabling condition or circumstances.'[554]
416 In Kakavas v Crown Melbourne Ltd,[555] the High Court considered a claim made by a gambler who alleged that the respondent casino had engaged in unconscionable conduct. The appellant, who was a known problem gambler, alleged that the respondent had incited him to gamble at its casino by providing incentives such as rebates on losses and the offer of transport on its corporate jet. The appellant was unsuccessful at trial and on appeal. In the High Court, the thrust of the gambler's case shifted away from the proposition that the respondent had lured or enticed him into its casino, and its focus became one of 'special disadvantage'. In essence, the appellant contended that the respondent exploited 'the appellant's inability, by reason of his pathological urge to gamble, to make worthwhile decisions in his own interests while actually engaged in gambling.'[556] He also relied upon another special disadvantage, arising from the fact that at the time of his losses he was subject to an interstate exclusion order (IEO) made in New South Wales by the Commissioner of Police. Under the IEO, any winnings that were payable to the appellant by the casino as a result of his gambling activities were forfeited to the State of Victoria.
417 The Court dismissed the appeal, finding that the appellant was not under a special disadvantage by reason of his pathological interest in gambling or by reason of the IEO.[557] In their joint reasons for judgment, their Honours considered the basis in equity for a claim for relief from unconscionable conduct and the principles upon which equitable intervention is warranted.
418 For present purposes, the relevant principles may be summarised by reference to the Court's reasoning in Kakavas, as follows:
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'.[559] Where an appeal is made by a plaintiff to the standards of equity embodied in the Amadio principle, the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff's loss should be ascribed to unconscientious conduct on the part of the defendant.[560]
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.[569]
419 In the present case, counsel for the defendant submitted that Mr Stephens was relevantly under a 'special disadvantage', constituted by the following circumstances:
. . . [I]n the circumstances there is a relevant special disadvantage and that comes down to the fact of the whole context of the 16 December 2008 meeting where the client is not a banker, he's not a lawyer, he's given I think about six documents was the evidence and he effectively has to sign them, depending on the evidence accepted, in a meeting that goes for three minutes to half an hour at the very outside, without recourse to a lawyer, without having the chance to go through them term by term, step by step himself and without being given a copy either, on his evidence.
So, in those circumstances that constitutes a special disadvantage. It doesn't have to be something inherent like lack of familiarity with English or the Amadio types of things, they would qualify, but someone can suffer a special disadvantage just by nature of the circumstances they are in at the time.[570]
420 Counsel for the Bank submitted first, that Mr Stephens has not established any 'special disadvantage' at all, and secondly, that he has not established that any special disadvantage affected his ability to judge his own interests.
421 In my view, when the whole of the course of dealing and the relations between the parties are subjected to scrutiny, the present case is not one where notions of the justice of the case would require that, as between the parties, responsibility for the loss and damage Mr Stephens claims should be ascribed to (alleged) unconscientious conduct on the part of the Bank. No 'special disadvantage' of the relevant kind is demonstrated. This is not a case where the Bank, as the stronger party, has taken advantage of an inability on Mr Stephens' part to make decisions in his own interests or has procured a benefit for itself by means of unfair exploitation of any weakness of Mr Stephens. On the contrary, once a complaint was made about the conduct of Ms MLM, the Bank took steps directed to ensuring that the settlement of 2 Marie Court could proceed, Mr Stephens' contract having by then become unconditional and that funds would be available to enable the refinance of the Perpetual mortgage. In so doing, the Bank dealt with Ms Henderson as the agent for Mr Stephens, and kept her apprised of developments in the lead up towards settlement. I accept Mr Ringeri's evidence that he was unaware that she was the domestic partner of Mr Stephens. He knew her as a referrer of domestic home loans from her time when she operated Ladybug Financial Services, and he conducted his dealings with her in this matter on a professional basis, believing that she was the agent for Mr Stephens.
422 At the coffee shop meeting held on 16 December 2008 to sign the documents, Mr Ringeri stepped through the essentials of the transaction briefly, pointing out that there were two loan agreements, and Mr Stephens noted the amount of the respective loans. Mention was also made of the 'wealth package' and its effect on the applicable interest rate. Mr Stephens did not inform Mr Ringeri that he had not seen the loan agreements before the day of signing - and he was aware from his earlier experience with the $300,000 loan offer, that the Bank had posted the documents to him - but he did not inform Mr Ringeri that he was unfamiliar with them. Mr Ringeri did not recall Mr Stephens asking whether he should seek advice about them, but could not say it did not happen.[571] I note that on the earlier occasion, when Mr Stephens received the documents for the $300,000 loan offer from Ms MLM, he simply signed and returned them to Ms MLM without the need to seek any advice. To be sure, at the time when the subject loan agreements and mortgage were signed, the settlement of 2 Marie Court was looming, in the sense that it had been scheduled to take place in three days' time, a matter Ms Henderson was well aware of, and it was important that the Bank documents be signed in order that the settlement could proceed. But the Bank was not obliged to arrange, nor was it responsible for arranging, legal advice for Mr Stephens in relation to the Bank's loan agreements and the mortgage. If he wished to seek advice, it was a matter for him to arrange. And to raise the question of whether he needed advice at the eleventh hour, as Mr Stephens maintains he did, suggests that hitherto he had not really turned his mind to what he was doing vis-à-vis the Bank, and had little regard to looking after his own interests in the transaction.
423 Counsel for Mr Stephens submitted that Mr Ringeri had effectively discouraged him from seeking advice, by saying words to the effect of 'This needs to be done or you're not going to receive the money you need in three days.' Even if Mr Ringeri did respond along those lines, in my view, such a response indicates a concern on the part of Mr Ringeri for Mr Stephens' position, rather than manifesting some kind of exploitation of a special disadvantage on the part of Mr Stephens. Had Mr Stephens nevertheless wished to seek advice about the documentation or the transaction that day, he could have stated that he wished to do so.
424 The Bank also submits that even if, contrary to their arguments, Mr Stephens did establish that he suffered from some kind of special disadvantage, it is difficult to see how it can be said that in advancing the sum of $2,100,300, on the Bank's ordinary commercial terms, the Bank has somehow exploited the special disadvantage from which he suffers. In my view, so much is clear from Kakavas, where the High Court made clear that 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.'[572]
425 Accordingly, Mr Stephens' claim for unconscionable conduct fails under both section 12CB and also section 12CA.
426 Having found that there was relevantly no unconscionable conduct on the part of the Bank, it is not necessary for me to deal with a further submission advanced by the Bank, to the effect that whatever relief Mr Stephens might seek, he must nevertheless 'do equity', but for completeness, I shall simply record the gist of the argument raised.
427 In essence, the Bank submitted that, even if the Court found that, for instance, the Bank did act unconscionably in entering into the relevant agreements, then whatever be the relief sought by Mr Stephens, he must 'do equity'.[573] In this regard, the Bank relied upon the decision of the High Court in Maguire v Makaronis[574] it was concluded that the borrower could not be relieved of the burden of repaying the advance made notwithstanding the loan agreement was attended by a breach of fiduciary duty. The plurality said:
. . . To set aside the Mortgage purely in its operation as a security, without conditioning that upon repayment, would be to reform the transaction in an impermissible fashion. It would be to strike down the security interest without ensuring repayment of that which was paid in return for it. The respondents would be left with the fruits of the transaction of which they complain, whereas their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position.[575]
428 The Bank submitted that, in the present case, as the relief sought by Mr Stephens is predicated on him being relieved of the obligations entrained by the Agreements but nevertheless allowing him to retain title to the Wooralla Drive property, that relief cannot flow.
429 In his defence and counterclaim, Mr Stephens pleads an alternative or 'fallback' argument relying on the provisions of the National Credit Code (the 'new Code').[576] In December 2008, when Mr Stephens entered into the first and second loan agreements and the mortgage with the Bank, the Consumer Credit (Victoria) Act 1995 (Vic) (and thus the 'old Code') was in force.[577] Since then, however, the new Code was introduced and it commenced operation in 2010. Pursuant to transitional provisions (explained further below), the new Code applies to transactions that were entered into while the old Code was in force.
430 In effect, Mr Stephens contends that when he entered into the first and second loan agreements and the mortgage with the Bank, each of them was relevantly 'unjust' within the meaning of the new Code and is liable to be set aside by the Court pursuant to section 77(c) of the new Code, or alternatively, that he is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable pursuant to section 77(b) of the new Code.[578]
431 Mr Stephens gave particulars of the circumstances, matters and things he alleges operated to render the respective contracts 'unjust' at the time they were entered into, as follows:
The defendant refers to and repeats the particulars subjoined to paragraph 3A of his defence above and says that at no stage prior to executing the First Agreement, the Second Agreement and the Mortgage did he receive independent legal advice. At the time of execution of the First Agreement, the Second Agreement and the Mortgage, the [Bank] knew or ought reasonably to have known that the defendant needed funds urgently to settle the sale of the Mt Eliza Property [i.e., Marie Court].[579]
Funds were required by the defendant to pay the vendors in respect of the settlement. The [Bank's] knowledge in this regard is as follows:
(a) Pursuant to the Contract of Sale dated in or about late August 2008 for the purchase of the Mt Eliza property, and which contract was provided to the [Bank] sometime in September 2008, the settlement date was 11 December 2008 and which was delayed until 19 December 2008.
(b) Home Loan/Investment Home Loan Application No. 389908091827877 for the sum of $300,000.00 and the Consumer Credit Contract Schedule dated 19 September 2008 for the sum of $300,000.00 which confirmed the [Bank's] registered security was over the Mt Eliza Property.
(c) The [Bank] sent a letter to Southern Peninsula Conveyancing dated 19 September 2008 confirming the loan offer made by the [Bank] to the defendant in the sum of $300,000.00 and which related to the purchase of the Mt Eliza Property and requested various documents and information.
(d) The [Bank] sent a letter to Southern Peninsula Conveyancing dated 11 December 2008 regarding a loan offer of $1,000,000 regarding the purchase of the Mt Eliza Property and requested various documents and information.
Copies of the documents are available for inspection at the offices of the solicitors for the defendant by prior appointment.[580]
432 For convenience, the lengthy particulars that were subjoined to paragraph 3A of Mr Stephens' defence (referred to above) are reproduced below:
In or about mid-September 2008, [Ms MLM], as agent for the [Bank], told Trish Henderson, as agent for the defendant, that the [Bank] had unconditionally approved a loan to the defendant in the sum of $2,550,000.00 for the purposes of the defendant subdividing the [96 Wooralla Drive] Property and purchasing the Mt Eliza Property [i.e., Marie Court]. Ms [MLM] also stated that the interest on the loan would be capitalised in order for the defendant to complete the subdivision of the [96 Wooralla Drive] Property. The conversation was by way of a telephone call from Ms [MLM] to Ms Henderson.
On or about 25 September 2008, the defendant attended the Mt Eliza branch operated by the [Bank]. The manager of the branch, Mr Jason [Radich] (now the manager of the Somerville branch) telephoned Ms [MLM] to confirm the approval of the loan and then told the defendant that the loan for $2,550,000.00 had been unconditionally approved and that $300,000.00 of the loan had been allocated. The defendant spoke to Mr [Radich] on 24 September 2008 and 25 September 2008 at the Mt Eliza branch in relation to the financial accommodation to be provided by the [Bank] to the defendant.
On or about 25 September 2008, the [Bank] opened account number 06 3535 10390495[581] and allowed the defendant to withdraw the sum of $30,000.00 for the purposes of the payment of the balance of the deposit for the purchase of the Mt Eliza Property in the sum of $19,500.00 on 25 September 2008 and payment of the defendant's credit card.
After confirmation was obtained from Ms [MLM] by Mr [Radich] that the financial accommodation had been approved in the sum of $2,550,000.00, a bank cheque for the sum of $19,500.00 was given to the defendant on 25 September 2008 by Mr [Radich] at the Mt Eliza branch. Copies of the bank statements and receipts for payment of the deposit are available for inspection at the offices of the solicitors for the defendant by prior appointment.
During November and December 2008, Ms Henderson telephoned Ms [MLM] on several occasions to enquire about the delivery of loan documentation and was assured by Ms [MLM] on each occasion that the loan had been unconditionally approved for the sum of $2,550,000.00 and that the documents would be prepared by the [Bank].
On or about 16 December 2008, Joe Ringeri, as agent for the [Bank], and the defendant met in a coffee shop in Dandenong in order for the defendant to execute the relevant loan documentation. Mr Ringeri produced to the defendant 2 sets of printed documents which the defendant was asked to sign. The defendant signed the documents and Mr Ringeri left without giving the defendant any copies of the documents, in breach of section 18(1) of the Consumer Credit Code (Victoria) ('the old Code').[582] The meeting took approximately 3 minutes and Mr Ringeri did not explain the content of the said documents, nor was the defendant provided an opportunity to seek any advice regarding the said documents.[583]
434 In its reply and defence to counterclaim, the Bank effectively admits that each of the loan contracts is a 'credit contract' and the Bank's Mortgage is a mortgage to which (in each case) the relevant provision(s) of the old Code apply as if they were the relevant provision(s) of the new Code, but otherwise the Bank denies the allegations made.[586]
The old Code was in force when the lending transaction took place
435 At all relevant times in 2008 when the lending transaction between the Bank and Mr Stephens took place, the Consumer Credit (Victoria) Act 1995 (Vic) regulated the provision of credit within Victoria. Section 5 of that Act provided:
The Consumer Credit Code set out in the Appendix to the Consumer Credit (Queensland) Act as in force for the time being -
(a) applies as a law of Victoria; and
(b) as so applying may be referred to as the Consumer Credit (Victoria) Code.
Accordingly, at that time, the Consumer Credit Code as set out in the Appendix to the Consumer Credit (Queensland) Act 1994 (Qld) applied as a law of Victoria, and in its application to Victorian matters, was referred to as the 'Consumer Credit (Victoria) Code' (referred to herein as 'the old Code').
436 Section 8(1) of the old Code relevantly provided that the old Code applies to a mortgage if it 'secures obligations under a credit contract' and the mortgagor is a natural person. Section 4(1) of the old Code set out the meaning of 'credit' and the provision of credit as follows:
(1) For the purposes of this Code, credit is provided if under a contract -
(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b) one person (the debtor) incurs a deferred debt to another (the credit provider).
437 Section 5 of the old Code provided that a 'credit contract' is a contract under which credit is or may be provided, 'being the provision of credit to which [the old] Code applies.' The latter expression is further described in section 6, relevantly as follows:
(1) 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 pre-contractual obligations) is proposed to be entered into -
(a) the debtor is a natural person ordinarily resident in this jurisdiction ...; and
(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household 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 or as part of or incidentally to any other business of the credit provider.
...
(4) For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.
(5) 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 or services are intended to be most used.
(emphasis added)
438 Section 11 sets out a number of 'presumptions' relating to the application of the old Code. Relevantly, section 11(1) provides that:
(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
439 Provision was made in section 11(2) of the old Code for a debtor, prior to entry into the credit contract, to make a declaration as to purpose declaring that the credit 'is to be applied wholly or predominantly for business or investment purposes (or for both purposes)', in which event the credit is to be presumed conclusively for the purposes of the old Code not to be provided wholly or predominantly for personal, domestic or household purposes. In the present case, however, the Bank did not avail itself of the protection offered by that course.
440 Accordingly, it is clear that the old Code only applied to transactions where the credit provided or intended to be provided was 'wholly or predominantly for personal, domestic or household purposes'. And where a party alleges that the old Code applies, the presumption in section 11 operates such that the old Code is presumed to apply unless the contrary is established.
The introduction of the new 'National Credit Code '
441 In 2008, the Council of Australian Governments agreed that the States would transfer responsibility for the regulation of consumer credit, and a related cluster of additional financial services, to the Commonwealth.[587]
442 On 1 July 2010 the 'National Credit Code' set out in Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth) commenced. Transitional provisions provided for the effective transition from the regime embodied in the old Codes of the referring States and Territories to the new regime provided for in the National Credit Code (referred to herein as the 'new Code'). In Victoria, the Parliament enacted the Credit (Commonwealth Powers Act) 2010 (Vic) (the 'Referral Act') and thereby referred its legislative power to the Commonwealth under section 51(xxxvii) of the Constitution, in order that the provisions of the National Consumer Credit Protection Act 2009 (Cth) and the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) (the 'Transitional Provisions Act') would commence to apply in Victoria.[588]
443 Against that background, on and from 1 July 2010, the new Code and the Transitional Provisions Act commenced operation and applied within Victoria. Pursuant to items 2A and 3(1) of Schedule 1 to the Transitional Provisions Act, the new Code does not apply in relation to contracts made prior to commencement, subject to item 3(2). Relevantly, item 3(2) provides that the new Code applies only to certain types of contracts, called 'carried over instrument[s]', made before the new Code came into force.
444 Pursuant to section 4(1) of the Transitional Provisions Act a 'carried over instrument':
... means a contract or other instrument that:
(a) was made before commencement; and
(b) was in force immediately before commencement; and
(c) the old Credit Code of a referring State or a Territory applied to immediately before commencement.
445 Section 4(1) also relevantly defines 'old Credit Code' to mean:
. . .
(b) for Victoria - the Consumer Credit (Victoria) Code, and the Consumer Credit (Victoria) Regulations, within the meaning of the Consumer Credit (Victoria) Act 1995 of Victoria, as in force from time to time before commencement.
446 Pursuant to section 16(1) of the Referral Act, to the extent that the new Code applies to a contract pursuant to item 3 of Schedule 1 to the Transitional Provisions Act, the old Code ceases to apply to that contract except as otherwise provided for by the Referral Act and the Transitional Provisions Act. Thus, the position is that only the new Code applies to a 'carried over instrument', but item 3(3) of Schedule 1 provides for some adjustment of the relevant provisions of the new Code, by effectively adopting and reinstating certain of the provisions of the old Code as if they were provisions of the new Code. Item 3(3) provides:
(3) Despite subitem (2), sections 5, 13 and 172 of the new Credit Code do not apply in relation to a carried over instrument. Instead, sections 6, 11 and 150 of the old Credit Code of a referring State or of a Territory, as in force immediately before commencement, apply from commencement in relation to a carried over instrument as if those provisions respectively were sections 5, 13 and 172 of the new Credit Code.
447 Thus, it follows that if either of the loan agreements or the mortgage Mr Stephen entered into in December 2008 is found to be a 'carried over instrument' to which the new Code applies, then sections 6 and 11 of the old Code as in force immediately before commencement (and upon which Mr Stephens relies) will continue to apply in relation to the carried over instrument 'as if' those provisions respectively were sections 5 (Provision of credit to which this Code applies) and 13 (Presumptions relating to application of Code) of the new Code. And if the new Code does apply, then questions as to the relief available will fall to be determined by reference to provisions of the new Code. In that regard, Mr Stephens relies on sections 76 and 77 of the new Code, which empower the Court to 'reopen unjust transactions' and make appropriate orders.[589]
448 Furthermore, it is clear that if the new Code does apply, then this Court has jurisdiction to hear and determine the matter by reason of the general civil jurisdiction conferred on it under section 187(1) of the National Consumer Credit Protection Act 2009 (Cth).
Did the old Code apply to the provision of credit to Mr Stephens such that there was a 'carried over instrument' to which the provisions of the new Code applied?
449 In the present case, a preliminary question arises as to whether the old Code applied to the provision of credit to Mr Stephens and thus whether on and from 1 July 2010 there was relevantly any 'carried over instrument' to which the provisions of the new Code applied.
450 In its closing written submissions, the Bank contended that the requirement in section 6(1)(b) of the old Code[590] that the credit is 'provided or intended to be provided wholly or predominantly for personal, domestic or household purposes' is to be construed from the point of view of the credit provider.[591] In that regard the Bank relied on the decision in Australian Finance and Leasing Ltd v Phillips,[592] where one of the issues before the Court was whether or not the old Code applied to the credit contract in question. Therein Judge Kennedy (as her Honour then was) explained the operation of section 6 as follows:
[50] Section 6(1)(b) speaks of credit intended to be 'provided' rather than of credit, 'obtained, used or applied.' The paragraph looks to the purpose for which credit was provided by the credit provider. The purpose for which credit was being provided by the credit provider is to be looked at from the point of view of a person in the shoes of the credit provider. What is relevant is what was known to the credit provider or its agents or what a credit provider in these circumstances ought reasonably to have known at the time of entering the contract.[593] The court should also consider the question in terms of the 'substance of the transaction in the context of its performance' and on an 'objective basis.'[594]
...
[61] . . . The difference between s 6(1)(b) as compared with s 6(5) appears to be that s 6(1)(b) concentrates attention on the purpose for which credit is 'provided' whilst s 6(5) may permit an examination from the borrower's perspective, in each case, consistent with Linkenholt, the issue turns on an objective examination of the true purpose of the transaction. This is to be preferred over permitting a person to claim the protection of the Code by later claiming what he or she subjectively intended to do with the finances. . . . [595]
451 As will be apparent, while her Honour was of the view that the purpose for which the credit was being provided is to be looked at from the point of view of a person in the shoes of the credit provider, she also endorsed the 'objective' nature of that enquiry by referring to the approach taken by Gillard J in Linkenholt Pty Ltd v Quirk.[596]
452 By the time the Bank made its oral closing submissions, however, it had effectively moved away from that position and contended that the Code(s) did not apply to the loan agreements or the mortgage, because the evidence given in support of the defendant's case at trial demonstrated that the loan agreement was for the purposes of subdividing, developing and selling the Wooralla Drive property, and therefore the credit provided by the Bank was demonstrably not 'wholly or predominantly for personal, domestic or household purposes'.[597]
453 Mr Stephens gave evidence to the effect that the credit he sought from the Bank was to be by way of a development loan to permit the subdivision and sale of the individual lots comprising the Wooralla Drive property. But counsel for the defendant contended, in the alternative, that if the Court did not accept that evidence, then each of the loan agreements and the mortgage was a 'carried over instrument' to which the provisions of the new Code applied and implicitly that the December 2008 loan transaction was relevantly one made 'wholly or predominantly for personal, domestic or household purposes'.
Characterisation of the loan transaction - was it for 'personal, domestic or household purposes'?
454 Over the years, a number of courts and tribunals have considered the meaning and effect of section 6(1)(b) of the old Code, and in the context of determining whether credit is provided for a particular purpose, different views have been taken as to whether the relevant intention is that of the credit provider or the debtor, or both.
455 The competing views expressed in the decided cases are conveniently summarised and analysed by Croft J in Knowles v Victorian Mortgage Investments Ltd.[598] As his Honour noted, the approach taken initially, in cases such as Rafiqi v Wacal Investments Pty Ltd,[599] Park Avenue Nominees Pty Ltd v Boon[600] and Taylor v Third Szable Holdings Pty Ltd,[601] was that section 6(1)(b) of the old Code focusses on the intention of the credit provider. In Rafiqi, Brabazon DCJ said:
Once a particular purpose can be isolated it must be shown that the intention of the credit provider was that it be provided wholly or predominantly for that purpose . . . s6(1)(b) allows an objective approach to be adopted to allow the courts to decide that the relevant intention for the purposes of the code will be that which a reasonable person standing in the shoes of the credit provider would have understood the predominant purpose for which the credit is provided.[602]
[98] In my opinion, 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.
457 The Linkenholt interpretation of the relevant purpose was applied by McGill DCJ in Dale v Nichols Construction Pty Ltd,[605] which was followed by Shaw J in Jonsson v Arkway Pty Ltd,[606] and by Davies J in Bank of Queensland Ltd v Dutta.[607] In Bahadori v Permanent Mortgages Pty Ltd,[608] in the New South Wales Court of Appeal, Tobias JA (with whom Giles JA and Campbell JA agreed) was prepared to accept for the purposes of the exercise before the court both that the test 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'[609] and that there is force in the argument that the use of the expression 'provided or intended to be provided' required the issue to be determined from the perspective of the credit provider.[610] But, as his Honour noted, in the circumstances of that case, 'it makes no difference to the outcome.'[611]
458 Similarly, in Shakespeare Haney Securities Ltd v Crawford,[612] a decision of the Queensland Court of Appeal, Muir JA (with whom Mullins and Douglas JJ agreed) observed that while these provisions of the Code 'give rise to considerable difficulties of construction' it was unnecessary to resolve them in order to decide the appeal because '[t]he same outcome would follow whichever construction is adopted' and the Court had not heard full argument on them. Nevertheless, Muir JA did consider that '[a]n approach to the construction of s 6(1)(b) which considers the substance of the subject transaction and requires an objective assessment would . . . be preferable to one which looks to the actual intention of either the borrower or the lender.'[613] This view was endorsed by Beach J in Brott v Shtrambrandt.[614]
459 Against that background, in Knowles, Croft J said that while the meaning to be ascribed to purpose in the context of section 6(1)(b) 'continues to be the subject of varying judicial views', in his opinion the relevant intention is that of the borrower and the weight of the authorities favour the Linkenholt test. His Honour stated:
[47] In my opinion, on the basis of the provisions of paragraph 6(1)(b) of the CCC [the old Code] and the cases to which reference has been made the purpose, the relevant intention, is that of the borrower. If the purpose could simply be determined by looking only to what is stated in the loan application or by looking to what the credit provider intended the loan to be used for, there would be no need for a declaration as to the borrower's true intention and it would follow that the operation of the legislation could easily be defeated. The use of the loan application provisions would prove an easy means of doing so and would thereby provide an easy means of effectively contracting out of the legislation. This is at odds with the clear purpose of the CCC as ameliorating, consumer protection legislation; legislation should be strictly construed in favour of the consumer, in this case the borrower.[615] For these reasons I am of the opinion that the weight of the authorities favour the Linkenholt test, particularly as explained and applied by Davies J in Bank of Queensland v Dutta. As has been seen, the structure of the legislation provides the credit provider with the ability to make certain that the credit contract is not one to which the CCC applies by ensuring that the borrower signs a declaration which complies with s 11(4) and Regulation 10. If the credit provider does not obtain a signed declaration in the required form from the borrower then the credit provider is not afforded the protection of the presumption provided under s 11(2) of the CCC, and thereby invites the difficulty of proving that the loan was not intended to be used wholly or predominantly for personal, domestic or household purposes.[616]
460 In the present case, by early December 2008 Ms Henderson, as agent for Mr Stephens, had contacted Mr Ringeri and complained about the conduct of Ms MLM, and the Bank was aware that Mr Stephens' purchase of the Marie Court property had become unconditional and settlement was pending, but no loan contract or mortgage documents had been signed. As a result of that complaint, it seems Ms MLM was stood down, and Mr Coulton and other senior personnel at the Bank were involved in dealing with that aspect.
461 Mr Ringeri gave evidence to the effect that after he passed on Ms Henderson's complaint about Ms MLM to his superiors he became involved in the lending aspect of the matter at the request of his line manager, Mr Coulton, because Ms MLM's conduct was being investigated internally. Once Mr Ringeri became formally involved, it appears that he was effectively handling the matter, in place of Ms MLM, and in accordance with instructions from Mr Coulton. Mr Ringeri dealt with Ms Henderson, because she was acting for Mr Stephens, but he was unaware at the time that she was also Mr Stephens' domestic partner.[617]
462 At the outset, Mr Ringeri informed Ms Henderson that he would be starting 'afresh' with Mr Stephens' loan because any approval that had earlier been given by Ms MLM was based on wrong information. Mr Ringeri told Ms Henderson he would re-do it correctly, so that the settlement of Mr Stephens' (by then) unconditional purchase of the 2 Marie Court property could proceed.
463 Later that morning Mr Ringeri started a fresh application for Mr Stephens based on what Mr Coulton had told him to do, as he did not have Ms MLM's file to work from. Mr Ringeri prepared loan documentation providing for a loan to Mr Stephens in the sum of $2,100,000, split into two tranches: one for the sum of $1,000,000 and the other for the sum of $1,100,000.
464 In seeking internal approval for the loan, Mr Ringeri informed Mr Segrave (one of the Bank's internal credit managers) that the loan was being re-submitted on the basis that Mr Stephens had sold his existing residence, the Wooralla Drive property, 'for $2.7mil which settlement is to take place on 14/1/09' and that he was seeking 'Bridging Finance' until the sale 'takes place at which time debt [is] to be reduced to $300,000'.[618] Mr Ringeri summarised the position stating that:
End result that customer will have is Ppty at Marie crt Mt Elisa for
$605,000-00 with loan of $300,000 (Refer NSM) C/L 32.06 with LVR at 49.58% and clear title to ppty at 16A Lowe St Mt Eliza.[619]
465 Accordingly, if the matter is viewed from the perspective of the lender, it would appear that the loan sought was intended to be used wholly or predominantly for personal, domestic or household purposes. And in its defence to counterclaim the Bank, consistently with this notion, has admitted the allegation that the first and second loan agreements are 'credit contracts' to which the Code applies and that the Bank's Mortgage is a mortgage to which the Code applies.
466 Mr Stephens on the other hand contends that at all relevant times he was seeking 'Development Finance' from the Bank to facilitate the subdivision of 96 Wooralla Drive. Each of Mr Stephens and Ms Henderson gave evidence to the effect that from the outset he was seeking the loan of (variously) $2.5/2.55/2.65 million from the Bank to facilitate the subdivision of 96 Wooralla Drive into several lots in order for sale and for the purchase of the Marie Court property (at a cost of approximately $600,000) as a residence for the family to live in, and with all interest on the loan being capitalised. Accordingly, if the matter were viewed from the perspective of the borrower, the proposed subdivisional activity would suggest that the loan was other than a loan for personal, domestic or household purposes, even though a large component of the amount sought was demonstrably to enable the refinancing of the Perpetual mortgage (which was given originally to facilitate the purchase of a residential property), under which (as at 16 December 2008) the sum of $1,365,662.44 was owing.
467 Against this background, Mr Stephens submits that if the Court finds that the purpose of the loan was to 'develop' the Wooralla Drive property and purchase the Marie Court property, then the new Code does not apply. But if, contrary to his primary submission, the Court holds that the loan the subject of the first and/or second loan agreements and the Bank's Mortgage were predominantly for personal, domestic or household purposes, then the new Code will apply.
468 In response, the Bank submits that if regard is had to the evidence given by or on behalf of Mr Stephens, then the new Code does not apply to the credit facilities advanced to him. They contend that this is so because, notwithstanding the admission made by the Bank, the facts demonstrate that the credit to be provided under either the First (Loan) Agreement (which contained the bridging component) or the Second (Loan) Agreement was not wholly or predominantly for personal, domestic or household purposes, such that the old Code did not apply to the transaction and thus there is no 'carried over instrument'. In this regard, it will be recalled that Mr Ringeri gave evidence that the 'split' of the $2,100,300 into two loans effected no change and was within the scope of the approval given by Mr Segrave.
Conclusion: each of the loan agreements and the mortgage is a 'carried over instrument' to which the new Code applies
469 In my view, each of the loan agreements and the mortgage entered into between the Bank and Mr Stephens in December 2008 is a 'carried over instrument' to which the new Code applies. Hence sections 6 and 11 of the old Code as in force immediately before commencement continue to apply in relation to the provision of credit by the Bank under each carried over instrument 'as if' those provisions were respectively sections 5 (Provision of credit to which this Code applies) and 13 (Presumptions relating to application of Code) of the new Code.
470 In reaching that view, I acknowledge that there continues to be an unresolved divergence in judicial views as to the meaning to be ascribed to purpose in the context of section 6(1)(b) of the old Code. In the present case, the parties' respective closing submissions were not directed to resolving the competing views; rather they proceeded on the basis that the legal requirement was to be construed from the point of view of the credit provider but nevertheless noting that the Court would have to grapple with the reality of the factual matters advanced by Mr Stephens to the effect that the loan he sought was for 'development purposes'.
471 For present purposes, essentially for the reasons given by Judge Kennedy in Australian Finance and Leasing Ltd v Phillips,[622] I am prepared to accept the Bank's contention that the requirement in section 6(1)(b) of the old Code that the credit is 'provided or intended to be provided wholly or predominantly for personal, domestic or household purposes' is to be construed from the point of view of the credit provider. In its defence to counterclaim, the Bank has accepted that the Code applied to the lending transaction, and that each of the loan agreements and the Bank's Mortgage is an instrument to which the new Code applies. Furthermore, each of the loan agreements pursuant to which the Bank agreed to advance the total sum of $2,100,300 to Mr Stephens was styled as a 'Consumer Credit Contract', and expressly stated that:
Borrowers of credit provided wholly or predominantly for business or investment purposes (or for both purposes) do not have the protection of the Consumer Credit Code. Part F of the UTC [i.e., the Bank's 'Usual Terms and Conditions for Consumer Mortgage Lending] does not apply to such loans.
Some of the disclosures we make for loans subject to the Consumer Credit Code are based on assumptions we are required to make about future events. The assumptions may not prove to be correct. [623]
472 In the present case, the Bank did not avail itself of the protection afforded by having Mr Stephens, as debtor, make a declaration as to purpose under section 11(2) of the old Code. Furthermore, as Mr Stephens has pleaded that the new Code applies to the loan agreements and the mortgage, the presumption in section 11 of the old Code (but applying in relation to a carried over instrument as if it were section 13 of the new Code) is enlivened. Thus, the Bank bears the onus of proving that the loan was not intended to be used wholly or predominantly for personal, domestic or household purposes. I am not satisfied that the Bank has discharged that onus.
473 In my view, on the material before the Court, it is clear that at all relevant times the Bank proceeded on the basis that each of the loan agreements and the mortgage pertaining to the moneys advanced by the Bank in December 2008 was regulated under the old Code and following the commencement of the new Code that each was relevantly a carried over instrument and regulated by the nw Code. The loan that was approved by Mr Segrave on 8 December 2008 was referred to by Mr Ringeri in his comments on 'ComSee' as a 'CHL' or 'Complete Home Loan'.[624] The formal 'Loan Offer' made by the Bank by letter to Mr Stephens dated 11 December 2008 was styled as a 'Complete Home Loan'.[625] Each of the loan agreements expressly referred to the old Code,[626] as did the Memorandum of Common Provisions that pertained to the Bank's mortgage;[627] the first 'Combined Default Notice & Demand' served by the Bank on Mr Stephens dated 23 June 2010 was expressed to be 'a notice under Sections 80 & 85 of the [old Code] and Section 76 of the Transfer of Land Act (Vic) 1958';[628] the second 'Notice of Default and Notice of Demand' served by the Bank on Mr Stephens dated 31 July 2012 was expressed to be 'given under Section 88 of the [new Code] and Section 76 of the Transfer of Land Act (Vic) 1958';[629] and in its defence to counterclaim, the Bank has expressly admitted that the first and second loan agreements are 'credit contracts' to which the new Code applies and that the Bank's Mortgage is a mortgage to which the new Code applies.[630]
474 But even if, contrary to the view I have taken, one were to apply the Linkenholt test formulated by Gillard J, and it were appropriate 'to consider what the money was used for in order to determine the purpose of the provision of the credit', and 'to consider the substance of the transaction in the context of its performance', in my view, no different outcome would be reached. The position is that when the Bank advanced the total sum of $2,100,300 to Mr Stephens in December 2008, the loan funds were used substantially to purchase the Marie Court property and discharge the Perpetual mortgage that had been entered into by Mr Stephens to finance the initial purchase of the family home at 96 Wooralla Drive, and the Bank registered its mortgage over each of those properties. As the discharge amount paid to Perpetual was in the order of $1,365,662.44 (not to mention the further amounts that were advanced for the purchase of 2 Marie Court), which was more than half of the amount advanced, section 6(5) of the old Code (applying as if it were section 5 of the new Code) effectively deems that purpose, which is demonstrably one for 'personal, domestic or household purposes' to be the predominant purpose for which the credit is provided. In those circumstances, each of the loan agreements and mortgage entered into by Mr Stephens in December 2008 would be found to be a 'carried over instrument' to which the new Code applies.
475 Having found that the new Code applies, I now turn to consider whether, as Mr Stephens contends, at the time of entering into each of the loan documents and the mortgage, they were 'unjust' within the meaning of section 76 of the new Code and accordingly, whether each is liable to be set aside by the Court pursuant to section 77(c) of the new Code; alternatively, whether pursuant to section 77(b) of the new Code, he is entitled to be relieved from payment of such amount in excess of an amount that the Court considers to be reasonably payable.
The Court's power to re-open 'unjust ' transactions
476 As noted above, section 76 of the new Code confers power on the Court to re-open 'unjust' transactions. The expression 'unjust' is relevantly defined in section 204 of the new Code[631] as 'includ[ing] unconscionable, harsh or oppressive' conduct.[632] That definition is expressed in identical terms to the definition that applies under the Contracts Review Act 1980 (NSW),[633] and much of the extensive body of case law concerning the meaning of the expression 'unjust' under that Act is of assistance when considering the meaning of the counterpart definition in the new Code.
477 Section 76(2) of the new Code provides that in determining whether a term of a particular credit contract or mortgage is 'unjust' 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 noncompliance, 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[634];
(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.[635]
478 It is clear that the criteria set out in section 76(2) are not exhaustive, and a credit contract or mortgage may be 'unjust' even if none of the section 76(2) criteria are present.[636] Whether or not any of the loan contracts or the Bank's mortgage or any of their provisions is unjust requires an examination of the position of both parties, in light of the circumstances prevailing at the time the credit contract or mortgage was entered into.[637]
479 Importantly, while section 76 requires the Court to have regard to the public interest and to consider all of the circumstances of the case, including those pertaining at the time of entry into the credit contract or mortgage, it is the document or its terms that must be unjust, not just the transaction or pre-contractual activity of which the transaction forms part.[638]
480 In West v AGC (Advances) Ltd,[639] a leading case concerning the Contracts Review Act 1980 (NSW), McHugh JA (with whom Hope JA agreed) explained that the notion of what is 'unjust' for the purposes of that Act is not limited to the 'tautological trinity' of 'unconscionable harsh or oppressive' but encompasses procedural and substantive injustice.[640] His Honour stated:
Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most contracts will be the product of both procedural and substantive injustice.
The definition of 'unjust' in s 4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable harsh or oppressive. Contracts which fall within any of those categories will be 'unjust'. But the latter expression is not limited to the so-called 'tautological trinity'. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4), and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances even though none of the provisions of s 9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on.[641]
481 It is clear that the mere fact that one or other of the criteria listed in paragraphs (a) to (o) of section 76(2) is present does not operate to automatically render the credit contract or mortgage 'unjust'. As McHugh JA observed in West v AGC (Advances) Ltd:
If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality and bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust. . . .
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, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract because she had no independent advice.[642]
482 His Honour noted, importantly, that the relevant concept embodied in the Act is that of a contract that is 'unjust' as against a party, as opposed to one that is simply 'unfair', and in so doing he reinforced the notion that it is the contract or its provisions which must be unjust, stating:
. . . a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means he has employed to make the contract. In this respect it stands in marked contrast with the provisions of the Industrial Arbitration Act 1940, s 88F, which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are 'unfair'.[643]
483 In West v AGC (Advances) Ltd, McHugh JA held that, based on findings made by the trial judge, he was not satisfied that Mrs West had proved that the deed was unjust because she had established that she executed the deed without independent legal or other advice. On the contrary, his Honour found that 'the legal and practical effect of giving the mortgage was clearly understood by Mrs West'[644] in circumstances where she had been given 'independent advice' from her son, an accountant, that she should not enter into the transaction at all and was also advised by a barrister that she should obtain more substantial guarantees from the directors. His Honour added that:
Whether or not a person has obtained independent legal or other expert advice is simply one factor to be taken into account. In some cases the absence of such advice may be decisive. In other cases it may be irrelevant. The presence of expert advice is relevant in considering whether a contract is unjust because it makes it likely that a person has an informed appreciation of the effect of the contract.[645]
484 Accordingly, McHugh JA held that in the circumstances, 'neither the contract nor any provision of the contract was unjust in providing that Mrs West should repay the loan to AGC and that she should provide a first mortgage over her home.'[646] In reaching that conclusion, however, his Honour left open 'a nice question', namely if the contract in question did no more than make reasonable provision for the protection of the lender, whether the contract would nevertheless be considered 'unjust' -
. . . because the lender had not insisted that the borrower get independent advice whether she should borrow money from it. That is, the question would be whether the conduct of the lender was unfair in its dealing with the borrower so as to make the contract unjust. An affirmative finding of an unjust contract in those circumstances would seem to imply that the lender owed a duty to the borrower to ensure that she used the borrowed money wisely or, at all events was able to repay the instalments.[647]
485 In the present case, Mr Stephens, in pleading the circumstances that he contends rendered the loan 'unjust', does not refer to or identify any particular term(s) of the loan documentation imposed by the Bank which of itself (or in combination) is said to be harsh, oppressive or unconscionable and would render the respective contracts 'unjust'. Nor does he plead that the contract was unjust because, for example, this was a case where it is alleged the Bank has effectively engaged in a form of asset-based lending,[648] although his counsel sought to pursue an argument along these lines for the first time during closing oral submissions. Rather, in his pleading, Mr Stephens relies primarily upon the Bank's failure to advance to him the whole of the amount that he says Ms MLM had earlier communicated to Ms Henderson would be provided.[649] Mr Stephens also relies on the 'hurried means' which the Bank employed to have him execute the loan contracts and mortgage in order to be ready to settle on the purchase of the Marie Court property, the Bank's failure to provide him with copies of the relevant loan and mortgage documentation in advance of or at the time of execution, and its effective discouragement of him seeking legal advice prior to executing those documents as rendering each of the loan contracts and mortgage unjust.
486 In closing oral submissions, counsel for the defendant changed tack and pointed to the total amount of the loans, and the obligation to repay monthly instalments of interest and capital on an ongoing basis, as terms or conditions of the loans that would render them 'unjust' in the circumstances:
The terms are that, first, there's to be a loan effectively between the two of $2.1 million with interest which is payable on an ongoing basis, periodically, so that's the term, in circumstances where the bank knows that that can't be serviced by Mr Stephens, in circumstances where the bank, on the defendant's version, knows that there isn't going to be a sale to satisfy the large, as it's termed, bridging component and in circumstances where none of the terms have been the subject of a proper consideration or an opportunity for consideration by Mr Stephens or legal consultation in relation to their effect, both in their operation and the consequences of non-compliance by the defendant, and in circumstances where, as I've said, the bank well knows or ought to well know that those terms don't accord with what Mr Stephens on 16 December 2008 believes the actual terms of the arrangement to be.[650]
487 The Bank submitted that Mr Stephens was not an ingénue when it came to financial dealings, he having bought and sold properties on several occasions over a long period of time and to do so had borrowed money from various financial institutions which was secured by way of mortgage. Further, the Bank relied on the fact that he was an engineer by profession, and was not suffering from any disability, or 'special disadvantage', that might have affected his ability to understand the transaction. The Bank also noted that his domestic partner, Ms Henderson, who acted as his agent throughout, had worked in the finance broking industry for several years and was experienced in lending transactions generally. In the circumstances, the Bank submitted that it was not under any kind of duty to ensure that Mr Stephens obtained independent legal advice before signing the relevant documentation, nor did Mr Stephens require any independent legal advice. In this regard, the Bank observed that in September 2008, when Mr Stephens maintains he signed documents concerning the $300,000 funding sought for the purchase of the Marie Court property, he did not require any independent legal advice before signing.
488 Notwithstanding the relatively narrow pleading of Mr Stephens' case, it is clear that in determining whether a term of a particular credit contract or mortgage is 'unjust', the Court is required 'to have regard to the public interest and to all the circumstances of the case', in addition to any of the specific matters listed in section 76(2) of the new Code that are relied upon. Although these matters have been canvassed in the detailed chronology above, it is convenient to provide a short summary of the relevant circumstances below.
489 At the time Mr Stephens entered into the two loan agreements and the accompanying mortgage with the Bank, the parties had already had extensive dealings with one another, first through Ms MLM and then through Mr Ringeri, that provided context for the transaction and documents that were entered into on 16 December 2008. By the time Mr Ringeri became involved in the loan on or around 8 December 2008, the Bank was aware that Ms MLM had asked Mr Stephens to provide it with altered documentation, ostensibly to support Mr Stephens' application for a loan of $2,250,000 (plus the $300,000 for which he had already signed). The Bank's internal records of this loan further confirmed that Mr Stephens' total aggregate debt to the Bank would be $2,550,000 if the loan went ahead.[651] The Bank was also aware that, due in large part to delays caused by the Bank itself, Mr Stephens was obliged to settle on the purchase of 2 Marie Court by 11 December 2008, but, following the discovery of Ms MLM's request for altered documents, it became clear that he did not have any finalised agreement with the Bank to finance the purchase.
490 In circumstances where there is evidence of a Bank officer having requested that a customer provide false or altered documentation to the Bank in order to provide support for a loan, the seriousness of the situation would likely require the Bank, first, to reassure the customer that it does not countenance conduct of that kind, and then take particular care in handling the loan arrangements with the customer from that point forward - for example, taking steps to re-establish or ensure the integrity of the executory loan arrangements, and ensuring that the Bank does all it can to assist the customer to meet his or her obligations by way of settlement of the property. Mr Ringeri endeavoured to do all that. Nevertheless, there are several aspects of the Bank's conduct leading up to the execution of the loan documentation that do warrant some comment.
491 First, there is a marked lack of contact with the customer directly. As noted earlier, the Bank dealt throughout with Ms Henderson, rather than with Mr Stephens. On the evidence before the Court it is unclear whether a telephone call took place between Mr Ringeri and Mr Stephens prior to 16 December 2008 (Mr Stephens disputes that there was a phone call)[652] but even if one did take place, Mr Ringeri was unable to recall the details of what was discussed during that conversation. Otherwise, there was no evidence of any direct communication between the Bank and Mr Stephens prior to the signing of the documents, save for the brief discussion with Mr Radich, the branch manager at Mt Eliza, when Mr Stephens collected the deposit moneys for 2 Marie Court.
492 Secondly, the status of the $300,000 loan that Ms MLM had earlier arranged for Mr Stephens, ostensibly to facilitate the payment of the deposit for 2 Marie Court, was possibly left unclear. It will be recalled that the correspondence that was sent by Ms MLM in respect of that loan stated that the $300,000 was payable at settlement. Seemingly the Bank took no particular steps to clarify with the customer that the loan of $300,000 arranged by Ms MLM was no longer available, but it is clear that Mr Ringeri started afresh with Mr Stephens' application and he told Ms Henderson he was doing so. As the settlement of 2 Marie Court did proceed on 19 December, it is clear that the Bank did make available at the settlement the funds required for Mr Stephens' purchase of 2 Marie Court, but they were provided as part of the total advance of $2,100,300, and pursuant to the loan documentation signed on 16 December 2008, rather than pursuant to any documentation submitted to Ms MLM.
493 Thirdly, it is unclear whether Mr Stephens ever received copies of the loan agreements and mortgage in advance of the meeting on 16 December 2008. Mr Ringeri was operating on the basis that a copy of those documents would have been posted to Mr Stephens in the ordinary course. But Mr Stephens gave evidence that he had not received a copy of the documents prior to the meeting with Mr Ringeri, and said he did not receive a copy of the documents following the meeting. In circumstances where the loan funds to be provided at settlement were limited to $2,100,300, and the $300,000 approved by Ms MLM was no longer separately available, the provision of copies of the loan documents in advance of signing would have made doubly clear the total amount of the loans and the terms and conditions on which the funds were to be provided, including that a component was to be provided by way of bridging finance that was repayable following the settlement of the sale of 96 Wooralla Drive on 14 January 2009.
494 On the other side of the transaction, there are also some aspects of Mr Stephens' conduct that warrant comment. It is clear that Mr Stephens was, at least by 16 December 2008, aware that the Bank would only be advancing $2,100,300 at settlement to fund the purchase of the Marie Court property and re-finance the borrowing the subject of the Perpetual mortgage. He had seen the email Mr Ringeri sent to Ms Henderson on 9 December 2008, confirming that the Bank would provide a total amount of $2,100,300 to Mr Stephens by way of loan.[653] And Mr Stephens gave evidence that at the meeting on 16 December 2008, he 'noted' the amounts recorded on the loan documentation, and did not query them.[654] He also knew that Ms MLM had called a few days prior to the original settlement date (11 December 2008) to say that the loan she was arranging 'had NOT been approved'.[655] In those circumstances it is difficult to accept that, from that point forward, Mr Stephens could have believed that there was any realistic prospect that the Bank would advance him the full amount of $2,550,000.
495 Further, on the evidence before the Court, it is difficult to understand how the loan transaction could be structured with interest 'capitalised' in such a manner that Mr Stephens would not be required to make any repayments to the Bank until the subdivision and sale of each of the lots at 96 Wooralla Drive had been completed. First, there is virtually no evidence of either Ms MLM or Mr Radich making any representation as to the capitalisation of interest on the loan. Nor did Mr Stephens or Ms Henderson give any coherent or consistent evidence about how or in what manner the interest accruing on the loan was to be 'capitalised', or indeed how or in what manner repayment of the principal sum was to take place under those arrangements. Ms Henderson gave evidence that a component of the $2,550,000 (in the order of $170,000 being $120,000 plus a $50,000 'buffer') was to be included in the sum advanced for the purpose of paying interest accruing on the loan over the period of 12-18 months when 96 Wooralla Drive was being developed and subdivided.[656] To the extent that the parties intended that the interest payable on the loan would be 'capitalised' in this way, such an arrangement clearly contemplates that monthly repayments of interest would be made out of this portion of the loan.
496 Turning then to the issue of bridging finance, Mr Ringeri said that from the outset of his involvement in the matter, the Bank was helping Mr Stephens because he had purchased 2 Marie Court, which was unconditional, and they 'were going to give him bridging finance until he sold that property, Wooralla, and then reduce his debt' and he 'had to do what I had to do to get this loan through for him.'[657] The contract of sale that Ms Henderson provided to Mr Ringeri in December 2008, which was accompanied by a note stating that the property had been 'sold as is with a permit to subdivide', appeared to confirm that Mr Stephens' required bridging finance rather than development finance (although it is unclear whether the version of the contract Ms Henderson provided to the Bank was signed by both parties).[658] Similarly, in response to Mr Ringeri's email confirming that the Bank had approved loans to Mr Stephens totalling $2,100,300 but 'subject to ... [a] valuation confirming sale price of $2,700,000 at 96 Wooralla Drive', Ms Henderson responded that 'spray st and wooralla (challenger and capital first) are ready to book settlement', further conveying the impression that the sale of 96 Wooralla Drive property was on foot.[659] In re-examination, Ms Henderson explained that what she meant was that Mr Stephens' Spray St property was being sold and Capital First (i.e., Perpetual) was being paid out at settlement.[660] Nevertheless, it is easy to see how the reader might have construed her response differently.
497 Ms Henderson disputed that she had knowledge of any bridging finance, and under cross-examination she maintained that she was not aware, until between January and April 2009, that the loan contracts that Mr Stephens had signed made reference to bridging finance.[661] She said that at the time of signing, she did not see the page of the loan document that mentioned bridging finance, and 'Joe referred to both documents as being identical and written under the Consumer Credit Code Act.'[662] Ms Henderson did not recall when it was that she queried the bridging loan information with Mr Ringeri but said that he told her 'that Mr Stephens did not qualify for bridging finance at or based on peak servicing debt of greater than 65 per cent of his declared income.'[663] Ms Henderson's statutory declaration made on 8 October 2012 recorded a different version of events:
Joe Ringeri asked for a copy of the Contract of sale on 96 Wooralla Drive. He was aware that this was unlikely to proceed as Mr Stephens had been advised he had the full funds for the subdivision and he had begun the subdivision and renovation process. The contract of sale was to be supplied simply to expedite the valuation process for Wooralla Drive to allow Marie Court to settle as soon as possible.
I did query the bridging loan information and was assured this was a short term measure to ensure the settlement of Marie Court. Joe Ringeri ordered a commercial valuation so I had no reason to doubt that the development finance was being arranged and merely thought this was the CBA's process for getting them over the initial hurdle of the Marie Court settlement.[664]
498 Ms Graham, who gave evidence on behalf of Mr Stephens, also suggested that Ms Henderson was aware that there was a bridging finance component to Mr Stephens' loan.[665] In examination in chief, she was asked about 'the loan' that she understood had been approved by Ms MLM and whether she knew what any of the terms of that loan were. Ms Graham responded:
---All I know - and I don't know amounts or anything - was that it was some kind of bridging finance and it was for over $2 million, that's all I remember, and that it had been approved and waiting for documents.
[MR MATTERS:] So when you say 'bridging finance' you had spoken first about there to be a development. Are you able to explain what the bridging finance was about?---I'm not exactly 100 per cent sure, and I don't remember the entire transaction, but I do remember that as part of the development finance there was meant to be a bridging component, and that it was all to fall into place at the end.[666]
499 I conclude that when Ms Henderson was giving her oral evidence about the bridging finance, she was mistaken, and that she must have been aware that the loan included a bridging finance component at or about the time the documents were signed on 16 December 2008.
500 When the entirety of the evidence adduced before the Court is examined, it is clear that there are aspects of the loan transaction that were not handled as well as they might have been by both the Bank and Mr Stephens. But as McHugh JA observed in West, it is the contract or its provisions which must be unjust, and 'a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or in the means he has employed to make the contract.' I am satisfied that there was no conduct on the part of the Bank in the present case that could be described as 'sharp practice', nor was there any conduct that was unconscionable, harsh or unjust. Further, in my opinion, neither of the loan agreements nor the mortgage contain provisions that would render them unjust within the meaning of section 76 of the new Code.
501 The evidence adduced at trial demonstrates that Mr Stephens was aware of the amount that the Bank was providing pursuant to the signed agreements, that under those loans he would be required to pay interest on a monthly basis and that a component of the loan was provided by way of 'bridging finance'. Further, notwithstanding that he had signed the loan documentation for the $2,100,300 on 16 December 2008, he continued to adhere to the view that he was under a contractual obligation to the Bank to develop the 96 Wooralla Drive property. Indeed, even after he had sold 2 Marie Court and moved back into Wooralla Drive, he continued to adhere to the mistaken view that he 'had commitments to do the development [of 96 Wooralla Drive] with regard to the original application to the bank.'[667]
502 To the extent that Mr Stephens was under a mistaken impression as to the effect of the loan documentation that he was signing, it could not be said that that was due to the conduct of the Bank alone. Much of what he knew of the loan arrangements was informed by Ms Henderson who was the interface between him and the Bank throughout. Ms Henderson communicated to Mr Ringeri that she had 'no prob[lem]s' with the loans Mr Ringeri confirmed were available. Further, I am not satisfied that Mr Stephens, who possessed some experience of buying and selling residential properties and financing those sales by way of mortgage, took the steps that a reasonable borrower would take when entering into a transaction of this magnitude. As noted earlier, Mr Stephens exhibited little or no interest in the loan transactions in question and was content to defer responsibility to Ms Henderson and let her deal with the Bank on his behalf.
503 Accordingly, Mr Stephens' claim for relief under section 76 of the new Code must fail.
Alternative claims for Restitution and Subrogation
504 If, contrary to the view I have reached, the defendant were to succeed in obtaining orders which would avoid the operation of the agreements, such that the banker and customer relationship is no longer one that is regulated by those agreements and enforced according to their terms, then the Bank seeks either restitution of the (net) sum of $1,426,950.61 or subrogation to the rights of Perpetual pursuant to the Perpetual mortgage on the basis that the Bank paid the sum of $1,365,622.44 to Perpetual at Mr Stephens' request to discharge the mortgage.
505 Under the Bank's alternative claim based on principles of restitution, it contends that the (net) sum of $1,426,950.61, plus interest, is recoverable from Mr Stephens as moneys had and received to his use, the Bank having advanced the amount of $2,100,830 to him and after him making repayments to the Bank of amounts of $102,992.21 and $570,887.18. A calculation as to interest was tendered by the Bank.[668]
506 Mr Stephens admits that the relevant payments were made by the Bank to him or to third parties on his behalf, but denies that he is liable to pay back the money because it would be unjust in the circumstances to require him to do so and he has changed his position in expectation of receiving the full $2,550,000 that he was informed the Bank had fully and unconditionally approved.
507 As the Bank's claim in restitution is made in the alternative to its contractual claim, it is not strictly necessary to deal with it. But lest the matter go further, it is convenient to summarise the arguments that were advanced, and the views I would have reached were it necessary for it to be determined.
508 The Bank contends that Mr Stephens' admissions regarding the receipt of payments establish the fundamental facts necessary for a cause of action in restitution.[669] But Mr Stephens submits that a failure to make restitution of the sum claimed would not be unjust in circumstances where he acted under a mistake in entering into the First and Second Agreements, and where the Bank has breached the ASIC Act (misleading and deceptive conduct and unconscionable conduct) and the Consumer Credit Code (unjust transactions). Further or in the alternative, Mr Stephens pleads that he is not liable to make restitution of the sum claimed because he changed his position in reliance upon representations made by the Bank.
509 Generally speaking, a change of position defence is available where a defendant can establish that he acted in good faith and changed his position in reliance upon or on the faith of the receipt of the money. In David Securities Pty Ltd v Commonwealth Bank of Australia,[670] the High Court articulated the basis for the change of position defence in the following terms:
[T]he defence of change of position is relevant to the enrichment of the defendant precisely because its central element is that the defendant has acted to his or her detriment on the faith of the receipt.[671] (emphasis original)
510 As 'receipt' of the promised moneys is a 'central element' of the defence, the general position is that the defence is only available where the moneys have been received. But in Dextra Bank & Trust Co Ltd v Bank of Jamaica,[672] the Privy Council held that the defence of change of position could be maintained based on anticipatory reliance of receipt.
511 Counsel for Mr Stephens noted that in the recent case of Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd,[673] whilst the High Court was not called upon to decide this precise question, Dextra was cited with apparent approval by all members of the Court.[674] He then sought to apply the Dextra approach to the present case, on the basis that Mr Stephens 'never received the promised balance of the $2.55 million after receiving the initial $2,100,300.00 from the [Bank].'[675] Counsel for the defendant conceded that Mr Stephens' case did not exhibit the features of a traditional change of position in two ways. First, because Mr Stephens had changed his position in reliance upon receiving a particular sum - the promised $2.55 million[676] - but he actually received only the sum of $2,100,300.00 from the Bank. Secondly, he observed that this case differs from the Dextra scenario because in Dextra, the respondent party (the Bank of Jamaica) had changed its position based on an expectation of receiving $US2,999,000 and that amount was in fact ultimately received. In Mr Stephens' case, however, the amount he expected to receive - the full $2.55 million - never materialised. Nevertheless, counsel submitted that Dextra and the High Court decision of AFSL v Hills Industries Ltd[677] provide a sufficient basis for this Court to uphold Mr Stephens' defence.
512 In oral closing submissions, counsel for Mr Stephens sought to explain the change of position defence as a 'species of answering why it wouldn't be unjust' for him to avoid the restitution claim, stating that:
. . . this change of position [defence] is really a species of answering why it wouldn't be unjust [for Mr Stephens not to make restitution]. It's put as a defence and the onus is on the defendant to make it out, but it is another way of saying that it would be inequitable to require the defendant to make restitution by virtue of this defence.[678]
513 The Bank contended that Mr Stephens' attempt to defend its restitution claim represents an 'untenable position' that is not supported by the authorities. In the event that the Bank's contractual claims failed and the First and Second Agreements were set aside, counsel for the Bank submitted that '[i]t can't be that the defendant retains the property and doesn't have to compensate the bank for the moneys advanced. That would be an unjust enrichment'.[679] Further, he submitted that even if Mr Stephens were to make out his allegations on the counterclaim regarding the Bank's conduct, he is still not entitled in equity to retain a windfall.
514 In response to Mr Stephens' change of position defence, counsel for the Bank referred to the decision of David Securities[680] in support of the Bank's argument that 'there is no relevant change of position that assists here'[681] and 'no relevant detriment'.[682] Counsel contrasted Mr Stephens' case with what he described as the 'archetypal' change of position scenario where a person comes into a large sum of money and:
You go down to Crown Casino and you throw a fantastic party... spend $2 million and it's gone, and you don't have the money to repay when the claim is made. This is the opposite of that. The money goes into an asset and the asset remains there, so there is no change of position.[683]
Observations and conclusions on the claim in restitution
515 Although Mr Stephens pleads that the Bank's restitution claim should not succeed on the basis that it would be 'unjust' in the circumstances, this concept was not pressed specifically at trial. Rather, the real focus of his closing submissions was on the second of the pleaded defences, namely that Mr Stephens had changed his position on the faith of an anticipated payment and so should not be held liable. In effect, counsel conflated the two limbs and sought to characterise his change of position defence as a reason why it would not be unjust for him to avoid the restitution claim.
516 The change of position defence put forward by Mr Stephens is one based 'on the faith of' the receipt of the sum of $2.55 million from the Bank, of which only $2,100,300 was actually received. In effect, Mr Stephens contends that on or about 25 September 2008, when he attended at the Mt Eliza branch of the Bank, and was informed that the sum of $2.55 million was fully and unconditionally approved and given an instalment of $30,000 with which to pay (amongst other things) the deposit on 2 Marie Court, he 'changed his position'. That is, he committed himself to proceeding with the purchase of 2 Marie Court and allowed Ms Henderson to start arranging the development works at 96 Wooralla Drive (by ripping up the driveway and the tennis court lighting etc) and incurring the costs and expense of the development, on the faith of his understanding that the Bank having given approval, the balance of the funds so approved would be forthcoming. In so doing, he anticipated the receipt of the sum of $2.55 million, and changed his position on the faith of its receipt, notwithstanding that the Bank ultimately advanced only the sum of $2,100,300. In the circumstances, he submits that notwithstanding that the balance of the funds was not forthcoming, it would not be unjust in all the circumstances for him to be permitted to retain the sum of $2,100,300 that was advanced.
517 Mr Stephens' change of position defence faces a number of difficulties. An important feature of the authorities relied on by the parties is that the recipient in each case reasonably expected to retain the funds that it received (albeit that their expectations were the product of third party deceit). In contrast, in the present case, it cannot be said that Mr Stephens ever expected to retain any funds advanced by the Bank by way of loan without being under an obligation ultimately to re-pay them, with interest. He could not reasonably have expected that he would be able to keep the money for himself. This militates against any argument that it would be 'inequitable' in all the circumstances to require Mr Stephens to make restitution.
518 Secondly, and as acknowledged by counsel for the defendant, Mr Stephens never received the full amount which he says motivated the relevant change of position. In Dextra, the Privy Council upheld the change of position defence in circumstances where the Bank of Jamaica had changed its position in reliance on receiving $US2,990,000 before that sum was actually received. In dealing with the question of change of position, their Lordships observed that the 'complicating feature is one of timing', in that the 'acts of change of position on which the [Bank of Jamaica] would seek to rely as providing a defence to the claim of Dextra occurred earlier in time than the [Bank of Jamaica's] receipt of the Dextra cheque or its proceeds and in anticipation of such receipt.'[684] Dextra contended that in order for the act of the defendant to amount to a change of position, it must have been performed by the defendant in reliance on the plaintiff's payment, which cannot be the case if it was performed by him in advance of receipt of the relevant benefit. But in Dextra, in contradistinction to the present case, the Bank of Jamaica did receive ultimately the full amount. In upholding the defence, their Lordships stated:
Here what is in issue is the justice or injustice of enforcing a restitutionary claim in respect of a benefit conferred. In that context, it is difficult to see what relevant distinction can be drawn between (1) a case in which the defendant expends on some extraordinary expenditure all or part of a sum of money which he has received from the plaintiff, and (2) one in which the defendant incurs such expenditure in the expectation that he will receive the sum of money from the plaintiff, which he does in fact receive. Since ex hypothesi the defendant will in fact have received the expected payment, there is no question of the defendant using the defence of change of position to enforce, directly or indirectly, a claim to that money.[685]
519 In Dextra the Privy Council adverted to the issue of whether, if anticipatory reliance were to be permitted in circumstances where the payment did not eventuate, this might undermine the concept of security of receipts. Their Lordships noted the hypothetical argument that:
...whereas change of position on the faith of an actual receipt should be protected because of the importance of upholding the security of receipts, the same is not true of a change of position in reliance on an expected payment, which does not merit protection beyond that conferred by the law of contract (including promissory estoppel).[686]
520 However, they continued to reject it as 'unconvincing', stating:
...it does not, in their Lordships' opinion, assist to rationalise the defence of change of position as concerned to protect security of receipts and then to derive from that a limitation on the defence... In any event, since (as previously stated) the context of a restitutionary action requires that the expected payment has in any event been received by the defendant, giving effect to 'anticipatory reliance' in that context will indeed operate to protect the security of an actual receipt.[687]
521 While Dextra was cited with apparent approval by members of the High Court in AFSL v Hills Industries Ltd,[688] this was in the context of their Honours explaining the change of position defence in general terms, and not in the context of the Court considering a defence of 'anticipatory reliance', no occasion for the Court to do so having arisen. However, Gageler J did go so far as to observe that:
The Privy Council [in Dextra] emphasised that the defence looks to practicalities not technicalities, is not concerned solely with the security of the receipt of payments, and looks to the position of the defendant not to the relative fault of the parties.[689]
522 Given the views I have reached above, concerning the alleged misleading and deceptive conduct, and Mr Stephens' failure to make good the alleged representations, were it necessary for me to decide this aspect, Mr Stephens' change of position defence would fail at the first hurdle. Further, given that the moneys the Bank seeks to recover by way of restitution were moneys advanced to him by way of loan, I am not satisfied that it would be 'unjust' or 'inequitable' in the circumstances to require Mr Stephens to make restitution to the Bank of the net amount of $1,426,950.61, plus interest.[690]
523 If, contrary to the view I have reached, the Bank were not successful in enforcing the agreements it made with Mr Stephens according to their terms, then the Bank seeks to be subrogated to the rights of Perpetual under the Perpetual mortgage. As with the claim in restitution, the Bank's subrogation claim is made in the alternative to its contractual claim, and given the findings I have made, it is not strictly necessary to deal with it. But lest the matter go further, it is convenient to summarise the arguments that were advanced, and to indicate the views I would have reached were it necessary for me to do so.
524 It is not in dispute that of the total sum of $2,100,300 advanced by the Bank to Mr Stephens pursuant to the agreements entered into on 16 December 2008, the total sum of $1,365,662.44 was paid to Perpetual at settlement on 19 December 2008,[691] for the discharge of Perpetual's mortgage.
(a) The defendant mortgages to Perpetual his rights and interests, present and future, in or relating to the Property as security for him performing his obligations under any secured agreement (clause 1, Perpetual MCP);
(b) The expression 'money owing' means all money which, at any time and for any reason, you [relevantly, the defendant] owe us, or will or may owe us, in the future, whether or not all of you owe the money or the amount owing is not able to be calculated at any point in time without set off, counterclaim or reduction (clause 37.1, Perpetual MCP);
(c) The expression 'secured agreements' means all loan, guarantee or other agreements which you, either alone or with other person, undertake obligations to us [relevantly, Perpetual] (clause 37.1, Perpetual MCP);
(d) The defendant must comply with his obligations under this mortgage and under the secured agreements (clause 3.1, Perpetual MCP);
(e) You will be in default under this mortgage if: (a) you do not pay any money owing on time or in the way you have agreed to pay it; (c) you are in default under any secured agreement [...]; (clause 13.1, Perpetual MCP);
(f) Where you are in default and you do not fix the default as required by a notice or the default cannot be fixed, we may: (a) recover from you all of the money owing; (b) enter and take possession of the property [...]; (d) sell or lease the property or any part of it [...] (clause 15, Perpetual MCP);
(g) The defendant must pay, or if we have paid them, pay us for all charges and expenses (including legal costs) reasonably incurred by us, any attorney appointed under this mortgage and any receiver in relation to: (i) entering into this Mortgage; (ii) anything done in connection with this mortgage or the money owing, including any variation or administration of it; (iii) exercising our rights under clause 15 or attempting to exercise them (clause 16.1, Perpetual MCP);
526 The 'secured agreement' within the meaning of clause 37.1 of the Perpetual MCP was a loan agreement made on 7 February 2007 between Perpetual and Mr Stephens, by which Perpetual advanced the sum of $1,274,000 to him (the 'Perpetual loan agreement').[694] The terms of the Perpetual loan agreement include a term requiring that Mr Stephens shall repay the loan over 361 months and shall for the first 60 months pay interest only at a rate of 9.75 per cent (Loan Schedule, clause 8.1 of the Terms and Conditions).[695]
527 In the event that the Bank is unable to enforce its agreements with Mr Stephens according to their terms, the Bank seeks to be subrogated to the rights of Perpetual under the Perpetual Mortgage. In essence, in reliance upon the subrogation principle articulated in Butler v Rice,[696] the Bank contends that by reason of the Bank paying to Perpetual the sum of $1,365,662.44 in order to discharge the Perpetual mortgage, the Bank was presumed, by operation of law, to intend that the Perpetual mortgage would be kept alive for its benefit to secure the payment it made to Perpetual, together with interest and costs.[697]
528 In Bofinger v Kingsway Group Ltd,[698] the High Court confirmed, for the purposes of Australian law, that the doctrinal basis of equitable subrogation lies in equity. Their Honours observed that the resolution of issues as to subrogation will enliven the 'application of "the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts."'[699] Importantly, 'the relevant principles of equity do not operate at large and in an idiosyncratic fashion' but rather, their Honours said, adopting a passage from the judgment of Millett LJ in Boscawen v Bajwa:[700]
The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff.[701]
529 More recently, the relevant legal principles governing the equitable doctrine of subrogation were considered by the Court of Appeal of New South Wales in Aged Care Services Pty Ltd v Kanning Services Pty Ltd.[702] There, Gleeson JA, with whom Meagher and Leeming JJA agreed, described subrogation in a general sense, as being the 'process by which one party is substituted for another so that he may enforce that other's rights against a third party for his own benefit.'[703] His Honour cited with approval the observation of Kearney J in Cochrane v Cochrane[704] that the principle is 'based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable.' His Honour noted that one well recognised area of subrogation is where a third party has made payment out of a prior security, and said:
[52] Thus, where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that 'the mortgage shall be kept alive for his own benefit': see Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; see also Filby v Mortgage Express (No 2) [2004] EWCA Civ 759 at [53]; Butler v Rice [1910] 2 Ch 277; Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 202 per Windeyer J, who dissented on the facts.
[53] Fourthly, the expression 'kept alive' means in this context, that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party: Banque Financiere de la Cite v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221 at 236F per Lord Hoffmann.[705]
530 His Honour went on to point out that 'there is no occasion to order subrogation where there is available to a third party a remedy at law or in equity sufficient to avoid the unconscionable result.'[706] Further, he also agreed with the proposition advanced by Lord Neuberger in Cheltenham & Gloucester plc v Appleyard,[707] (and cited with approval by Santow JA[708] in Highland v Exception Holdings Pty Ltd (in liq)[709]) that:
[41] . . . subrogation cannot be invoked so as to put the lender in a better position than that in which would have been if he had obtained all the rights for which he bargained: see Banque Financiere at 235D and 236G-273B per Lord Hoffmann. This point was also made by Lindley MR in Wrexham at 447.[710]
531 Against that background, the Bank submits that it caused the discharge of the Perpetual mortgage and on the instructions of the defendant (and congruent with what Mr Stephens referred to as his 'original concept'). In these circumstances, equity would presume that the Perpetual mortgage is 'kept alive' for the benefit of the third party payer,[711] to regulate the relations between the Bank and Mr Stephens as if the benefit of the Perpetual mortgage had been assigned.[712] If it had been assigned, then the Bank submits that the terms of the Perpetual mortgage would lie in favour of the Bank and enable the Bank to enforce the amount of money that it paid over to Perpetual at the direction or request of Mr Stephens in order to effect the discharge.[713]
532 By way of relief, the Bank sought orders as follows:
533 By the time of closing submissions, however, counsel for the Bank acknowledged that relief of the kind set out in the orders in paragraphs I and K of its prayer for relief are 'perhaps more conventional' than that set out in paragraph J, having regard to the orders made by Hansen J in Australia and New Zealand Banking Group Ltd v Costikidis.[715] Accordingly, in the event that the Bank were successful, counsel envisaged that the Court, following the conventional course, would require the Bank to prepare a form of mortgage for Mr Stephens and the Court to consider and, subject to argument, obtain an order for its execution. That form of mortgage would secure the sum of $1,365,662.44 and such interest as the Court orders to be paid in respect of the subrogation claim, and would refer to those moneys as being immediately due and payable. Thereafter, upon demand being made in the terms of the mortgage, the Bank would then proceed to enforce the mortgage.
534 In response to the Bank's claim for relief by way of subrogation, Mr Stephens submitted that if the Bank's relevant agreements and mortgage are set aside by the Court as a result of exploitation of unilateral mistake, misleading or deceptive conduct, unconscionable conduct or on the basis of an unjust transaction, then the principle of subrogation cannot avail the Bank. In essence, counsel for the defendant contended that following the decision of the High Court in Bofinger[716] it is now clear that, in Australia, subrogation is to be viewed as 'a separate equitable principle' and not, as the English authorities suggest, one that rests in principles of unjust enrichment. Accordingly, he submitted that 'it is counter-intuitive and offensive to the principles of equity that the [Bank] would be able to invoke equitable principles to recover moneys in circumstances where the [Bank's] Agreements and Mortgages have been set aside' on the grounds alleged by Mr Stephens.[717]
Observations and conclusions on the claim in subrogation
535 In my view, essentially for the reasons submitted by the Bank, were it necessary for the Court to determine this issue, the Bank would be entitled to be subrogated to the rights of Perpetual under the Perpetual mortgage. In that event, orders in the 'perhaps more conventional' form would be made along the lines set out in paragraphs I and K of the Bank's prayer for relief, requiring the Bank to prepare a form of mortgage to secure the sum of $1,365,662.44, together with such interest as the Court orders be paid in respect of the subrogation claim.
536 As to interest, the Bank submitted it is appropriate that interest be paid on its rate (which is lower than Perpetual's rate), compounding as the terms of the Perpetual loan and mortgage allowed, and a calculation in that respect was tendered.[718] During closing submissions, however, counsel for the Bank raised with the Court the question of whether interest referable to the pre-judgment period should be calculated by reference to the commercial rates applicable under the mortgage or the penalty interest rates available under section 58 of the Supreme Court Act 1958 (Vic). He drew to the Court's attention the recent decision of Daly AsJ in Titles Strata Management Pty Ltd v Nirta.[719] In that case, the facility in question to which the financier wished to subrogate provided that interest was payable at the rate of 72 per cent per annum. In considering the question of the amount of the debt owing, her Honour observed that:
[110] There is no clear guidance from the authorities as to whether a third party payer of an extinguished debt is entitled to the benefit of all of the contractual rights of the original lender. However, while there is some dispute between the English and Australian courts regarding the doctrinal foundation for the principle of subrogation, there is no doubt that it is at heart an equitable remedy, founded upon considerations of conscience. Titles Strata did not refer me to any authorities in support of its contention that by reason of the principle of subrogation it was entitled to assume not only the proprietary rights of STSL, but also the contractual rights of STSL, including its rights to charge an unusually high rate of interest. Understandably, Mrs Nirta made no submissions on the point, save to say that while she acknowledged that it was fair that Titles Strata be repaid its money, it was not fair that she be liable for all of the interest and other costs claimed by Titles Strata. The Registrar was naturally not concerned with this issue, and made no submissions on the point.
[111] Accordingly, I conducted my own research into the matter . . .
[112] Essentially, the courts have adopted two different approaches: the first, more common in English cases, being to award prejudgment interest based upon the interest charged in accordance with the loan agreement giving rise to the discharged principal debt, and the second, more common in Australian cases, but also not unusual in England, where the Court has exercised its own power under the relevant legislation to award prejudgment interest upon the subrogated amount, sometimes at the statutory maximum, or some other rate, selected at the Court's discretion, and usually by no reference to the basis upon which that award was made.[720]
537 After reviewing the relevant authorities, none of which were binding, and in the absence of any evidence from Titles Strata regarding what would be an appropriate amount of interest it ought to receive on compensatory grounds, Daly AsJ determined to exercise the powers under section 58 and award interest at the statutory rate from the date that Titles Strata made a demand for payment.[721]
538 Counsel for the Bank noted that in the present case, while a claim for penalty interest had been pleaded in the alternative, the Court might nevertheless take the view that it is not appropriate to award penalty interest on a subrogation claim and instead proceed to award interest on the basis of the (lower) commercial rates. Counsel then referred to the decision of the New South Wales Court of Appeal in Heydon v NRMA Ltd and Ors (No 2),[722] where Mason P, with whom Beazley JA and Ipp AJA agreed, adverted to the difference in approach between the award of pre-judgment interest in New South Wales and in Victoria. His Honour said that in New South Wales, 'the practice is to award restitutionary interest at the rates payable on judgments unless special circumstances exist'[723] whereas in Victoria the 'situation is quite different' in that 'pre-judgment interest rates are set pursuant to the aptly named Penalty Interest Rates Act 1983 (Vic)'.[724]
539 Against that background, the Bank's claim for interest at the penalty rates was not pressed, and counsel observed that 'it seems the more just result,' is 'the commercial rates we have handed up.'[725]
540 For the reasons set out above, I am satisfied that the Bank has proven the essential elements of its primary case in contract against Mr Stephens. As I have rejected each of the defences Mr Stephens has raised, it follows that the Bank is entitled to judgment in its favour.
541 The Dobbs Certificate that was tendered by the Bank through Mr Deligiorgakis certified the amount of moneys secured by the Bank's mortgage in relation to first loan agreement and the second loan agreement as at 18 April 2016 as being $1,605,723.30 and $889,840.04 respectively, and in total $2,495,563.34.[726]
542 As the Bank has succeeded on its primary claim, it will be necessary for an updated certificate of debt to be provided in advance of any final orders being made.
543 Similarly, for the reasons set out above, I am not satisfied that Mr Stephens has made out any of the causes of action pleaded against the Bank. In those circumstances his counterclaim will be dismissed.
544 I will hear from the parties as to the form of the Court's judgment.
[2] Pleaded in paragraphs 20 and 21 of the Second Further Amended Statement of Claim dated 19 April 2016 (the 'Statement of Claim').
[3] The new Code appears as Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth).
[4] Mr Ringeri said that the home loans she referred to him were 'a mixture of owner-occupied and investments': Transcript 20/04/16, Ringeri RE-XN, at 359.
[5] The reason for not identifying the Bank officer by name is explained further below.
[6] Transcript 27/04/16, Henderson XIC, at 951.
[7] Transcript 20/04/16, Radich XIC, at 369.
[8] Transcript 20/04/16, Radich XIC, at 369.
[9] Loan agreements often contain a clause that is referred to as a 'Dobbs' clause', where the parties agree that the amount of their liability or indebtedness might be fixed by a certificate by one of them, and in some cases not to be able to be challenged: Dobbs v National Bank of Australia Ltd [1935] HCA 49; (1953) 53 CLR 643.
[11] Exhibits JT37 and JT38 (joint tender).
[12] Transcript 20/04/16, Deligiorgakis XIC, at 377.
[13] Transcript 20/04/16, Deligiorgakis XIC, at 378.
[14] Transcript 20/04/16, Deligiorgakis XIC, at 378.
[15] Transcript 20/04/16, Deligiorgakis XIC, at 380-381.
[16] Transcript 20/04/16, Deligiorgakis XIC, at 386.
[17] Transcript 22/04/16, Stephens XXN, at 576-577.
[18] Transcript 22/04/16, Stephens XXN, at 599.
[19] Transcript 27/04/16, Henderson XIC, at 856.
[20] Transcript 27/04/16, Henderson XIC, at 856-7.
[21] Transcript 27/04/16, Henderson XXN, at 958-959.
[22] Transcript 27/04/16, Henderson XXN, at 970.
[23] Transcript 21/04/16, Graham XXN, at 433.
[24] Transcript 21/04/16, Graham XXN, at 442.
[25] Transcript 21/04/16, Graham XXN, at 443.
[26] Transcript 21/04/16, Graham XXN, at 432.
[27] Transcript 21/04/16, Graham XIC, at 404.
[28] Transcript 21/04/16, Graham XIC at 404.
[29] Transcript 21/04/16, Graham XIC, at 404.
[30] However, he was not present in Court during the cross-examination of Ms Graham, who gave her evidence immediately before he was called.
[32] Transcript 27/04/16, Henderson XIC, at 905.
[33] Transcript 19/04/16, Ringeri XXN, at 252.
[34] Defendant's closing written submissions, at [81], citing Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184; (2011) 34 VR 445, at 499-500 [125]-[129].
[35] Exhibit P9: Letter from Wisewould Mahony Lawyers to Gadens Lawyers dated 26 May 2014.
[36] Exhibit P10: Letter from Gadens Lawyers to Wisewould Mahony Lawyers dated 18 June 2014.
[39] Transcript 21/04/16, at 418 (Mr Matters).
[40] Transcript 21/04/16, at 422-423 (Revised ruling).
[41] Transcript 21/04/16, Graham XIC, at 426.
[42] Transcript 21/04/16, Graham XIC, at 426-427.
[43] Transcript 21/04/16, Graham XXN, at 431.
[44] Transcript 21/04/16, Graham XIC, at 426.
[45] Transcript 21/04/16, Graham XXN, at 441.
[46] Transcript 21/04/16, Graham XIC, at 428.
[47] Transcript 21/04/16, Graham XIC, at 425.
[48] Mr Stephens said he believes that when he purchased the property he took out the loan with Perpetual, and the planning permit for the subdivision into 5 lots was in place at that time.
[49] Being the whole of the land described in Certificate of Title Volume 09186 Folio 149.
[51] Transcript 21/04/16, Stephens XIC, at 452.
[52] Transcript 21/04/16, Stephens XIC, at 453.
[53] Transcript 27/04/16, Henderson XIC, at 857.
[55] Transcript 27/04/16, Henderson XIC, at 861.
[56] It appears that by this she meant that repayment of the loan is deferred until the sale of the two divided lots.
[57] Transcript 27/04/16, Henderson XIC, at 859.
[58] Transcript 27/04/16, Henderson XIC, at 862.
[59] Transcript 27/04/16, Henderson XIC, at 862.
[60] Transcript 27/04/16, Henderson XIC, at 863.
[61] Transcript 27/04/16, Henderson XIC, at 862.
[62] CB 1:339-340. The Contract Note, which was accepted by the vendors on 31 August 2008, provided that the offer was subject to the purchaser obtaining finance from 'any major financial institution' for an amount of not less than $200,000 by 22 September 2008.
[63] Transcript 21/04/16, Stephens XIC, at 455.
[65] Transcript 27/04/16, Henderson XIC, at 866, 867; CB 3:304, 307, 308-321.
[67] Transcript 21/04/16, Stephens XIC, at 457-458.
[68] Neither the handwritten covering note nor the loan application has been located - Mr Stephens does not have a copy of it and the Bank's discovery did not locate it.
[69] Transcript 27/04/16, Henderson XIC, at 869.
[70] Transcript 27/04/16, Henderson XIC, at 869-870.
[71] Transcript 27/04/16, Henderson XIC, at 870.
[72] Transcript 27/04/16, Henderson XIC, at 870.
[73] Transcript 26/04/16, Henderson XIC, at 871.
[74] Transcript 26/04/16, Henderson XIC, at 871.
[75] Transcript 21/04/16, Graham XIC, at 407.
[76] Transcript 21/04/16, Graham XIC, at 405.
[77] Transcript 21/04/16, Graham XIC, at 406.
[78] Transcript 19/04/16, Ringeri XXN, at 247.
[81] Transcript 21/04/16, Stephens XIC, at 462.
[82] Transcript 22/04/16, Stephens XXN, at 622.
[83] See the Bank's closing written submissions, at [7].
[84] Transcript 21/04/16, Stephens XIC, at 463.
[85] Transcript 21/04/16, Stephens XIC, at 463-464.
[86] Transcript 21/04/16, Stephens XIC, at 464.
[87] Transcript 22/04/16, Stephens XXN, at 635.
[88] Transcript 22/04/16, Stephens XXN, at 635-636.
[89] Transcript 21/04/16, Stephens XIC, at 465.
[90] Transcript 21/04/16, Stephens XIC, at 465.
[91] Transcript 27/04/16, Henderson XIC, at 883.
[92] Transcript 20/04/16, Radich XXN, at 373.
[94] Transcript 20/04/16, Radich XXN, at 375-376.
[95] The Streamline account has a 'BSB' that is referable to the Lilydale branch of the Bank, which is where Ms MLM operated from.
[96] The Streamline account was regularised to a zero balance when a portion of the funds advanced by the Bank on 19 December 2008 were repatriated to this account.
[97] Transcript 21/04/16, Stephens XIC, at 467-468.
[98] Transcript 21/04/16, Stephens XIC, at 468.
[99] Transcript 27/04/16, Henderson XIC, at 885.
[100] Transcript 27/04/16, Henderson XIC, at 887.
[102] Transcript 21/04/16, Stephen XIC, at 470.
[103] Transcript 27/04/16, Henderson XIC, at 889.
[104] Transcript 27/04/16, Henderson XIC, at 892-893 (emphasis added).
[105] Transcript 21/04/16, Stephens XIC, at 468.
[106] Transcript 21/04/16, Stephens XIC, at 488.
[107] Transcript 27/04/16, Henderson XIC, at 894.
[108] Transcript 27/04/16, Henderson XIC, at 895.
[109] Transcript 19/04/16, Ringeri XXN, at 250.
[110] Transcript 19/04/16, Ringeri XXN, at 250.
[111] Transcript 19/04/16, Ringeri XXN, at 252.
[113] Transcript 19/04/16, Ringeri XXN, at 256-257.
[114] Transcript 19/04/16, Ringeri XXN, at 259-260.
[115] Transcript 19/04/16, Ringeri XXN, at 250.
[116] Transcript 19/04/16, Ringeri XXN, at 250.
[117] Transcript 19/04/16, Ringeri XXN, at 251.
[120] Transcript 19/04/16, Ringeri XIC, at 180.
[121] Transcript 19/04/16, Ringeri XXN, at 261.
[122] Transcript 19/04/16, Ringeri XXN, at 255.
[123] Transcript 20/04/16, Ringeri XXN, at 282 (emphasis added).
[124] Transcript 20/04/16, Ringeri XXN, at 268.
[125] Transcript 19/04/16, Ringeri XIC, at 182.
[126] Transcript 20/04/16, Ringeri XXN, at 267.
[127] Transcript 20/04/16, Ringeri XXN, at 269.
[128] Transcript 20/04/16, Ringeri XXN, at 268.
[129] Transcript 20/04/16, Ringeri XXN, at 269; CB 1:430.
[131] Transcript 20/04/16, Ringeri RE-XN, at 357.
[132] Mr Ringeri said that Mr Coulton gave him this loan application number: Transcript 20/04/16, Ringeri XXN, at 330. The number is a reference to Exhibit D4 (CB 3: 1012-1018) being a 'Home Loan/Investment Home Loan Application' in Mr Stephens' name for a loan of $2,250,300, showing total Commonwealth Bank Group credit facilities of $2,550,300.00, and unsigned but with an Approving officer date of 5 December 2008.
[134] Transcript 20/04/16, Ringeri XXN, at 284.
[135] Transcript 20/04/16, Ringeri XXN, at 284-285.
[137] Transcript 20/04/16, Ringeri XXN, at 270; CB 1:430.
[138] Transcript 20/04/16, Ringeri XXN, at 270.
[139] Transcript 20/04/16, Ringeri XXN, at 272.
[140] Transcript 20/04/16, Ringeri XXN, at 274.
[141] Transcript 20/04/16, Ringeri XXN, at 286.
[142] Transcript 20/04/16, Ringeri XXN, at 287-288.
[143] Transcript 20/04/16, Ringeri XXN, at 288.
[144] Transcript 20/04/16, Ringeri XXN, at 301-302.
[147] Transcript 20/04/16, Ringeri XXN, at 280.
[148] CB 1:451. As will be noted, in her response Ms Henderson raised no issue as to the amount approved, nor did she refer to any phone call she made to Mr Ringeri earlier that day.
[150] Transcript 27/04/16, Henderson XIC, at 914-915.
[152] Transcript 19/04/16, Ringeri XIC, at 223; CB 1:422.03.
[153] Transcript 19/04/16, Ringeri XIC, at 237.
[154] CB 2:466. The statement (which does not bear a 'Capital First' or 'Perpetual' header) pertains to 'Account Number 200042' and is dated 9 December 2008. It records a Closing Balance of $1,395,581.90 and shows Arrears of '$0.00'. The statement also records the payment of amounts of $12,342.28 in each month between July 2008 and November 2008.
[155] CB 2:706.01-706.02. The statement pertains to 'Account Number 200042' and is dated 8 July 2009. It records a Closing Balance of '$0.00' and shows Arrears of '$0.00'. The statement purports to show that no payments were made on the account between September 2008 and December 2008, save for a dishonoured payment made by direct debit on 9 December 2008, until the loan was discharged on 19 December 2008. This statement also shows the loan as having been 'discharged on 19 December 2008 upon payment of the sum of $1,361,415.86.
[156] Transcript 19/04/16, Ringeri XIC, at 237.
[157] Transcript 19/04/16, Ringeri XIC, at 238.
[158] Transcript 19/04/16, Ringeri XIC, at 238.
[162] Transcript 03/05/16, Henderson XXN, at 995-996. Mr Stephens stated that the original contract was 'unsigned' and that parts of the contract that was tendered as Exhibit P2 have been altered: Transcript 22/04/16, Stephens XXN, at 676-677.
[163] Transcript 20/04/16, Ringeri XXN, at 304.
[164] Transcript 19/04/16, Ringeri XIC, at 186.
[165] Transcript 20/04/16, Ringeri XXN, at 306.
[166] Transcript 20/04/16, Ringeri XXN, at 304.
[168] Transcript 26/04/16, Stephens XXN, at 752.
[170] Transcript 27/04/16, Henderson XIC, at 912-13.
[171] Transcript 27/04/16, Henderson XIC, at 913.
[172] Transcript 27/04/16, Henderson XIC, at 913.
[173] Transcript 27/04/16, Henderson XIC, at 913-14.
[174] Transcript 20/04/16, Ringeri XXN, at 318.
[175] Transcript 19/04/16, Ringeri XIC, at 218.
[176] Transcript 20/04/16, Ringeri XXN, at 316-317, 318.
[177] Transcript 21/04/16, Stephens XIC, at 454.
[178] Transcript 03/05/16, Henderson XXN, at 1037.
[179] Transcript 21/04/16, Stephens XIC, at 502.
[180] Transcript 21/04/16, Stephens XIC, at 489.
[181] Transcript 21/04/16, Stephens XIC, at 490.
[182] Transcript 21/04/16, Stephens XIC, at 491.
[183] Transcript 20/04/16, Ringeri XXN, at 313-314.
[184] Transcript 19/04/16, Ringeri XIC, at 219.
[185] Transcript 19/04/16, Ringeri XIC, at 206.
[186] Transcript 19/04/16, Ringeri XIC, at 207.
[187] Transcript 19/04/16, Ringeri XIC, at 220.
[188] Transcript 19/04/16, Ringeri XIC, at 217.
[189] Transcript 19/04/16, Ringeri XIC, at 217.
[190] Transcript 19/04/16, Ringeri XIC, at 201; CB 2:501-506, 507-512.
[191] Transcript 19/04/16, Ringeri XIC, at 197.
[192] Transcript 20/04/16, Ringeri XXN, at 308-309.
[193] Transcript 20/04/16, Ringeri XXN, at 307-308.
[194] Transcript 19/04/16, Ringeri XIC, at 218.
[195] Transcript 19/04/16, Ringeri XIC, at 218-219.
[196] Transcript 19/04/16, Ringeri XIC, at 240v241; CB 3:1082.
[197] Transcript 19/04/16, Ringeri XIC, at 242.
[198] Transcript 19/04/16, Ringeri XIC, at 194; CB 2:595-596.
[199] Transcript 19/04/16, Ringeri XIC, at 200.
[200] Transcript 19/04/16, Ringeri XIC, at 201; CB 2:601-604, 605-608.
[201] Transcript 19/04/16, Ringeri XIC, at 201; CB 2:609.
[202] Transcript 20/04/16, Ringeri XXN, at 314.
[203] Transcript 20/04/16, Ringeri XXN, at 314-15.
[204] Transcript 20/04/16, Ringeri XXN, at 315.
[205] CB 1:325-330. This copy was apparently provided by Ms Janine Cocard, the conveyancer acting for Mr Stephens on the purchase of the Marie Court property: see Transcript 21/04/16, Stephens XIC, at 461.
[207] Transcript 19/04/16, Ringeri XIC, at 222.
[209] Transcript 20/04/16, Ringeri XXN, at 350.
[212] Mr Ringeri was not shown the Home Loan Application No. 389908091827877 (print date 22/10/2012) that apparently related to the Consumer Credit Loan Contract Schedule for the $300,000: Exhibit D6, CB 3:1019-1025, tendered via Mr Stephens. Mr Stephens obtained this copy of the application from the Mt Eliza branch in late October 2012. It relates to a '3 Year Special Economiser Loan' in the name of Mr Stephens but does not identify the address of the property being purchased and is not signed by him. The 'General comments and recommendations' section at the end (Exhibit D6, CB 3:1024) records the 'Decision' as 'Conditionally Eligible' and identifies the 'Recommending Officer' as Ms MLM, but the box for the 'Approving officer' remains blank.
[213] Transcript 21/04/16, Stephens XIC, at 492.
[214] Transcript 21/04/16, Stephens XIC, at 504.
[215] Transcript 21/04/16, Stephens XIC, at 505.
[216] Transcript 22/04/16, Stephens XXN, at 616.
[217] Transcript 03/05/16, Henderson XXN, at 1052 (emphasis added).
[218] Exhibit D4, CB 3:1012-1018, tendered via Mr Stephens.
[220] It relates to a '3 Year Special Economiser Loan' in the name of Mr Stephens but does not identify the address of the property being purchased and is not signed by him. The loan term is stated as being '30 years' with interest only payments to be made over 2 years. The document records Mr Stephens' 'Total gross monthly income' as '$40,000.00'. The 'General comments and recommendations' section at the end (Exhibit D4, CB 3:1017) records the 'Decision' as 'Conditionally Eligible' but both the box for the 'Recommending Officer' and the box for the 'Approving officer' remains blank. There are also two notations: '05-Dec-08 15:41 Auto Sent to LPC VIC' and '09-Dec-08 10:52 Removed from Print Queue, due to NPW/Decline'.
[221] Transcript 20/04/16, Ringeri XXN, at 340.
[223] Transcript 20/04/16, Ringeri XXN, at 339-340.
[225] Exhibit D1, at CB 3:1008 (emphasis added).
[230] Mr Ringeri was taken to the home loan application No 90000033722 (Exhibit D4, CB 3:1012-1018) which relates to this matter detail report, but he said that he had not seen it before: see Transcript 20/04/16, Ringeri XXN, at 339-340.
[231] Transcript 20/04/16, Ringeri XXN, at 339.
[232] Transcript 21/04/16, Stephens XIC, at 489.
[233] Transcript 21/04/16, Stephens XIC, at 490.
[234] Transcript 22/04/16, Stephens XXN, at 617, 619.
[235] Transcript 22/04/16, Stephens XXN, at 618.
[237] Transcript 21/04/16, Stephens XIC, at 493.
[238] Transcript 21/04/16, Stephens XIC, at 493.
[239] Transcript 21/04/16, Stephens XIC, at 495.
[240] Transcript 22/04/16, Stephens XXN, at 592.
[241] Transcript 22/04/16, Stephens XXN, at 597-598.
[242] Transcript 22/04/16, Stephens XXN, at 598.
[243] Transcript 21/04/16, Stephens XIC, at 500.
[244] Transcript 21/04/16, Stephens XIC, at 501.
[245] Transcript 26/04/16, Stephens RE-XN, at 802. As noted earlier, the covering note was not available.
[246] Transcript 20/04/16, Ringeri XXN, at 314.
[247] Transcript 22/04/16, Stephens XXN, at 619.
[249] Transcript 21/04/16, Stephens XIC, at 506.
[250] Transcript 21/04/16, Stephens XIC, at 514.
[251] Transcript 21/04/16, Stephens XIC, at 515.
[252] Transcript 22/04/16, Stephens XXN, at 617, 619.
[253] Transcript 27/04/16, Henderson XIC, at 942.
[255] Transcript 27/04/16, Henderson XIC, at 946.
[256] Transcript 27/04/16, Henderson XIC, at 947.
[257] Transcript 27/04/16, Henderson XIC, at 947-948.
[258] Transcript 27/04/16, Henderson XIC, at 949.
[259] Transcript 27/04/16, Henderson XIC, at 950.
[260] Transcript 03/05/16, Henderson XXN, at 1053.
[261] Transcript 20/04/16, Ringeri XXN, at 349.
[262] Transcript 20/04/16, Ringeri XXN, at 349.
[263] Transcript 20/04/16, Ringeri XXN, at 320.
[264] Transcript 20/04/16, Ringeri XXN, at 320.
[265] Transcript 19/04/16, Ringeri XXN, at 246.
[266] Transcript 20/04/16, Ringeri XXN, at 321.
[267] Transcript 20/04/16, Ringeri XXN, at 330-331.
[268] Transcript 20/04/16, Ringeri XXN, at 332.
[269] Transcript 20/04/16, Ringeri XXN, at 332.
[270] Transcript 20/04/16, Ringeri XXN, at 333.
[271] Transcript 20/04/16, Ringeri XXN, at 333.
[272] Transcript 26/04/16, Stephens XXN, at 722.
[273] Transcript 21/04/16, Stephens XIC, at 516.
[274] Transcript 21/04/16, Stephens XIC, at 516.
[275] CB 1:198.01. Another caveat of even date is also registered by 'Michael and Sandra Pty Ltd'.
[276] Transcript 27/04/16, Henderson XIC, at 951.
[277] Each of the Home Loan accounts has a 'BSB' that designates a branch in George Street, Parramatta, New South Wales.
[278] CB 3:827 and 829 (re first loan agreement).
[279] CB 3:914, 915 and 917 (re second loan agreement).
[280] Transcript 27/04/16, Henderson XIC, at 951. The Bank's first formal notice of default was served by its solicitors in June 2010 (see below), but the matter detail reports show that some earlier recovery action was initiated by the Bank directly. See CB 2:528-539 and 540-549.
[281] Transcript 27/04/16, Henderson XIC, at 957. The Court was referred to an email from Ms Henderson, dated 23 June 2009 (CB 2:672) 'Re Wooralla Mtg', that was sent to Ms Cocard at Southern Peninsula Conveyancing by 'Sandra Mahony & Trish Henderson', that appeared to relate to a second mortgage.
[282] Transcript 27/04/16, Henderson XIC, at 957. Ms Henderson said that she was involved in the introduction to the Mahonys: Transcript 27/04/16, Henderson XIC, at 957.
[283] Transcript 03/05/16, Henderson XXN, at 1016.
[284] Transcript 03/05/16, Henderson XXN, at 1016.
[285] Transcript 03/05/16, Henderson XXN, at 1017.
[286] Transcript 03/05/16, Henderson XXN, at 1017.
[287] Transcript 03/05/16, Henderson XXN, at 1018.
[289] Transcript 03/05/16, Henderson XXN, at 1040.
[291] Transcript 03/05/16, Henderson XXN, at 1040.
[292] Transcript 03/05/16, Henderson XXN, at 1040.
[293] Transcript 03/05/16, Henderson XXN, at 1041.
[294] Transcript 03/05/16, Henderson XXN, at 1041.
[295] Transcript 03/05/16, Henderson XXN, at 1042.
[296] Transcript 03/05/16, Henderson XXN, at 1065-1066.
[297] Transcript 03/05/16, Henderson XXN, at 1066-1067.
[298] Transcript 03/05/16, Henderson RE-XN, at 1104-1106.
[299] Transcript 03/05/16, Henderson RE-XN, at 1107.
[300] Exhibit D3, CB 3:712-713. As his original purchase price was $605,000, he sold the 2 Marie Court property for more than he paid.
[301] Transcript 21/04/16, Stephens XIC, at 523.
[302] Transcript 21/04/16, Stephens XIC, at 522.
[303] Transcript 26/04/16, Stephens XXN, at 736.
[304] Transcript 27/04/16, Stephens RE-XN, at 837. Ms Henderson gave evidence to similar effect: 'We tried on many occasions to communicate with the bank and they simply stonewalled us' (Transcript 03/05/16, Henderson XXN, at 1015).
[306] Transcript 27/04/16, Stephens RE-XN, at 838.
[307] Transcript 27/04/16, Stephens RE-XN, at 839. See also Exhibit D17, CB 3:711.
[308] Transcript 27/04/16, Stephens RE-XN, at 842.
[309] Transcript 21/04/16, Stephens XIC, at 524.
[311] Consumer Credit Code (Victoria).
[312] CB 3:734.01-734.03. See CB 3:734.17, CB 3:710-711 (Exhibit D 16).
[313] CB 3:734.04-734.10. See also CB 2:707. The Financial Ombudsman Service was established to provide accessible, fair and independent dispute resolution for consumers and financial services providers.
[315] Transcript 21/04/16, Stephens XIC, at 526.
[316] Transcript 21/04/16, Stephens XIC, at 526-527.
[317] CB 3:738-9 (lot 4) and 1087-1088 (lot 5).
[318] Transcript 21/04/16, Stephens XIC, at 530.
[319] Transcript 21/04/16, Stephens XIC, at 531-532.
[322] Transcript 22/04/16, Stephens XXN, at 679-680.
[327] The statutory declaration made by Ms Graham was referred to but not tendered.
[328] Transcript 03/05/16, Henderson XXN, at 1067.
[331] Exhibit P6, CB 3:814-815 (emphasis in original).
[332] Transcript 03/05/16, Henderson XXN, at 1073.
[333] Transcript 03/05/16, Henderson XXN, at 1074.
[334] CB 3:814 (emphasis in original).
[336] Transcript 27/04/16, Henderson XIC, at 915.
[338] Transcript 27/04/16, Henderson XIC, at 931.
[339] Transcript 27/04/16, Henderson XIC, at 930-931.
[340] Transcript 22/04/16, Stephens XXN, at 619-21.
[341] Transcript 27/04/16, Henderson XIC, at 931.
[342] Transcript 21/04/16, Stephens XIC, at 504.
[347] Transcript 03/05/16, Henderson XXN, at 1061-1062.
[349] Transcript 03/05/16, Henderson XXN, at 1061.
[350] Transcript 03/05/16, Henderson XXN, at 1061.
[351] Transcript 03/05/16, Henderson XXN, at 1074.
[352] The claim in contract is set out at paragraphs 1-19 of the Statement of Claim'. The Dobbs Certificate (Exhibit P3) certifies that as at 18 April 2016, the amount referable to Account No 827 501 903 (the first loan agreement) is $1,605,723.30 and the amount referable to Account No 827 502 009 (the second loan agreement) is $889,840.04.
[353] The claim in restitution is set out at paragraphs 20-22 of the Statement of Claim.
[354] The subrogation claim is set out at paragraphs 23-27 of the Statement of Claim.
[355] Further Amended Defence to the Second Further Amended Statement of Claim and Second Further Amended Counterclaim dated 21 April 2016 (the 'Defence and Counterclaim').
[356] The parties agree that the relevant version of the ASIC Act for this proceeding is the compilation prepared on 25 November 2008 taking into account amendments up to Act No. 116 of 2008.
[358] It is unclear which account this is. (I note that at CB 1: 357-358 there is a statement for an 'Economiser Home Loan' Account No. 520356801, in Mr Stephen's name with an address of 2 Marie Court, that was opened on or about 13 October 2008 with an opening balance of 'Nil'. The 'Required Repayments' are shown as being '$2,340.00 per month', which matches the amount of the monthly payments required to be made under the Consumer Credit Contract Schedule dated 19 September 2008 for the amount of $300,000: see CB 1:325. Mr Ringeri said that he 'kn[e]w nothing of this loan': Transcript 19/04/16, Ringeri XIC, at 222.)
[359] Defence and Counterclaim, at [26].
[361] See particulars subjoined to paragraphs 3A(b) and 31(b) of the Defence and Counterclaim. See also Transcript 16/05/16 at 1573 (lines 4-14) (Mr Carew).
[366] Being not only the land described in Certificates of Title Volume 9186 Folio 149 (96 Wooralla Drive) and Volume 9267 Folio 377 (2 Marie Court) but all of 'The Property' as defined in the Bank's Memorandum of Common Provisions (as referred to in the mortgage and retained by the Registrar of Titles) which expressly form part of the mortgage: CB 3: 1081. A copy of the Bank's Memorandum of Common Provisions was provided to the Court by Counsel for the Bank, without objection, during the opening on 18 April 2016 (see Transcript 18/04/16, at 32-33).
[367] The 'Amount Owing' is effectively defined as meaning all money which Mr Stephens owes, or will or may owe the Bank in the future under the First Agreement, the Second Agreement and the Bank's mortgage, or any of them.
[368] Memorandum of Common Provisions, at A4.1.
[376] Being the sum of $213,330.00 outstanding pursuant to the first loan and $99,100.00 pursuant to the second loan, in default of the loan agreements and the Bank's mortgage: CB 3:806-811.
[378] Being the sum of $1,287,030.56 outstanding pursuant to the first loan and $594,885.02 pursuant to the second loan, in default of the loan agreements and the Bank's mortgage: CB 3:806-811.
[380] Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422.
[385] Ibid, at 433-433 (emphasis added).
[389] The particulars given of the alleged loss identify the loss of profit that would have been derived if the development at 96 Wooralla Drive had proceeded, the costs associated with the forced sale of 2 Marie Court, costs associated with the expiration of the planning permit, alternatively costs incurred in the renovation of the house on lot 4, and a loss of $1,000,000, being the difference between the valuation of the Property [96 Wooralla Drive] (obtained by the [Bank] on or about 1 September 2008) of $2,700,000.00 and the current value of the Property of approximately $1,700,000.00.
[390] The parties agree that the relevant version of the ASIC Act for this proceeding is the compilation prepared on 25 November 2008 taking into account amendments up to Act No. 116 of 2008.
[391] Section 51AF of the TPA provides that Part V of that Act does not apply to the supply of 'financial services', which expression has the same meaning as it does in Division 2 of Part 2 of the ASIC Act. The meaning of 'financial service' is elaborated upon in section 12BAB of the ASIC Act and would include loan agreements. The effect of sections 12BAA and 12BAB is that a person provides a 'financial service' if they are dealing in a 'financial product'. By reason of section 12BAA(7)(k) of the ASIC Act a 'credit facility' (within the meaning of the regulations) is a financial product for the purposes of Division 2: Unconscionable conduct and consumer protection in relation to financial services), such that each of the loans in the present case was relevantly a credit facility within the meaning of regulation 2B(1)(a) of the Australian Securities and Investment Commission Regulations 2001 (Cth) (the 'ASIC regulations').
[392] [2004] HCA 60; (2004) 218 CLR 592 ('Butcher').
[393] Butcher [2004] HCA 60; (2004) 218 CLR 592 at 625 [109]. Those comments were cited in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at 341-342 [102], per Gummow, Hayne, Heydon and Kiefel JJ.
[394] [2004] HCA 60; (2004) 218 CLR 592 at 625-626 [111]-[112].
[395] Watson v Foxman (1995) 49 NSWLR 315 at 318-319.
[397] Ibid, at 651-652 [39] per French CJ, Crennan, Bell and Keane JJ.
[398] Wardley Australia v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525.
[399] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, at 121-122 [33], 128 [57] (per Gaudron, Gummow and Hayne JJ).
[400] Grainger v Williams [2009] WASCA 60, at [26].
[401] Transcript 21/04/16, Stephens XIC, at 453.
[402] Transcript 21/04/16, Stephens XIC, at 454.
[403] For e.g., at the outset of his examination in chief, when asked 'What is your occupation?' Mr Stephens replied:
I'm really an engineer. I work in the world of computing and networks and things like that. So definitely not in finance, I have to admit.
[404] Counsel for the Bank submitted that this was a term he repeatedly employed as if his lack of understanding of technical matters somehow explained conduct that was inconsistent with his case: see the Bank's closing submissions, at [6].
[405] Transcript 21/04/16, Stephens XIC, at 454.
[406] For e.g., under cross-examination, Mr Stephens said that even though they were forced to move back into Wooralla Drive after the sale of 2 Marie Court they had not given up on the development:
... We had a contract. I had an application for a loan. I had commitments to do the development with regard to the original application to the bank. I wasn't going to break my commitment to do it. If I had stopped doing the loan I would have been in breach of contract.
[407] Home Loan Application No. 389908091827877 (print date 22/10/2012) that apparently related to the Consumer Credit Loan Contract Schedule for the $300,000: Exhibit D6, CB 3:1019-1025, tendered via Mr Stephens.
[408] Home Loan Application No. 90000033722 (print date 22/10/2012) for the sum of $2,250,300: Exhibit D4, CB 3:1012-1018, tendered via Mr Stephens.
[409] Mr Stephens said he obtained copies of these loan application documents from the Mt Eliza branch of the Bank in late October 2012.
[410] Defence and Counterclaim, at [3D].
[411] See the particulars subjoined to Defence and Counterclaim, at [3D].
3D(a) the [Bank] had unconditionally approved a loan to [Mr Stephens] pursuant to which the [Bank] would provide financial accommodation in the total sum of $2,550,000.00;
3D(b) the interest for the loan would be capitalised so as to allow [Mr Stephens] to subdivide the [96 Wooralla Drive property].
[413] Particulars subjoined to Defence and Counterclaim, at [3D].
[415] Transcript 26/04/16, Henderson XIC, at 871.
[416] Transcript 26/04/16, Henderson XIC, at 871.
[417] Transcript 26/04/16, Henderson XIC, at 872.
[418] Transcript 26/04/16, Henderson XIC, at 872.
[419] Transcript 19/04/16, Ringeri XXN, at 247.
[420] Transcript 21/04/16, Graham XXN, at 442.
[421] Transcript 21/04/16, Graham XIC, at 406.
[422] Transcript 21/04/16, Graham XIC, at 405.
[423] Transcript 21/04/16, Graham XIC, at 406.
[424] It is unclear whether this is the same phone call that Ms Henderson said she received at the coffee shop or a different one (see Transcript 26/04/16, Henderson XIC, at 873), but in recounting the earlier call, Ms Henderson did not mention that Ms MLM said anything to the effect that documents would be coming.
[425] The evidence was that Pepper managed the Perpetual loan.
[426] Transcript 27/04/16, Henderson XIC, at 878.
[427] Transcript 27/04/16, Henderson XIC, at 879.
[428] Transcript 27/04/16, Henderson XIC, at 878-879.
[429] Exhibit P6, CB 3:812-815 at 813 (emphasis added).
[430] Transcript 03/05/16, Henderson XXN, at 1018.
[431] Transcript 03/05/16, Henderson XXN, at 1024.
[432] Transcript 03/05/16, Henderson XXN, at 1029-1030.
[433] Transcript 03/05/16, Henderson XXN, at 1030.
[434] Transcript 26/04/16, Stephens XXN, at 709.
[435] Ms Henderson gave evidence that she did not inform Mr Stephens about Ms MLM's request (which was made on 5 December) until after her meeting with Mr Ringeri on Monday 8 December. At that point, the settlement on 2 Marie Court was imminent, being scheduled for 11 December 2008.
[437] See the Bank's closing submissions at fn 42.
[438] Transcript 19/04/16, Ringeri XXN, at 251.
[441] Transcript 26/04/16, Stephens XXN, at 750.
[442] Transcript 26/04/16, Stephens XXN, at 750.
[443] Transcript 03/05/16, Henderson XXN, at 1061.
[444] Transcript 03/05/16, Henderson XXN, at 1061.
[445] Under cross-examination, Mr Stephens said that '[t]he specific number 300,000 was the only number referenced' at the meeting: see Transcript 22/04/16, at 616. Later he sought to resile from that position, saying that the figure of $140,000 'may have been mentioned by Trish and Joe. It wasn't mentioned by me': see Transcript 22/04/16, Stephens XXN, at 729.
[446] Transcript 03/05/16, Henderson XXN, at 1061-1062.
[447] Transcript 19/04/16, Ringeri XIC, at 218.
[448] Transcript 21/04/16, Stephens XIC, at 504.
[449] Transcript 22/04/16, Stephens XXN, at 615-616.
[450] Transcript 22/04/16, Stephens XXN, at 617-619.
[451] Transcript 21/04/16, Stephens XIC, at 504.
[452] Transcript 03/05/16, Henderson XXN, at 1038.
[453] Transcript 20/04/16, Ringeri XXN, at 310.
[455] CB 3:708; Transcript 26/04/16, Stephens XXN, at 743.8-12.
[456] Matter detail report, CB 2:529; Transcript 26/04/16, Stephens XXN, at 743.30-744.13. Mr Stephens tried to say that his call to the Bank had to be taken 'with a grain of salt' but the payment of the arrears of $41,720 followed immediately.
[457] Loan account statements CB 2:530 and CB 3:829.
[458] CB 2:528-539 (report re first loan) and CB 2: 540-549 (report re second loan).
[459] Reliance upon section 12BB is pleaded in paragraph 3H of his Defence and Counterclaim.
[460] The text of the section is taken from the compilation that was prepared on 25 November 2008, taking into account amendments up to Act No. 116 of 2008.
[461] Section 12BA(1) provides that 'misleading' has the meaning given by section 12BB.
[462] Defendant's closing written submissions, at [20].
[463] In her statutory declaration Ms Henderson repeatedly states that $2.65 million was approved: see Exhibit P6, CB 3:812-815.
[464] In her statutory declaration Ms Henderson states that she did 'query the bridging loan information and was assured this was a short term measure to ensure the settlement of Marie Court': see Exhibit P6, at CB 3:815.
[465] See Exhibit P6, at CB 3:814; and Transcript 03/05/16, Henderson XXN, at 1061.
[466] Gould v Vaggelas (1985) 157 CLR 215; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494.
[467] Mr McLean is an experienced valuer and conducts a valuation business named Hugh McLean Valuers Pty Ltd from premises located in Mt Eliza. (See Exhibit D19 CB 1:131-178.)
[468] Mr Sutherland is a director of Sutherland Farrelly Pty Ltd, Licensed Estate Agents and Certified Practising Valuers of Melbourne. He has gained expertise during his career in the marketing and valuation of a wide range of property types spanning a career of over 25 years. (See Exhibit P7 CB 1: 178.01-178.96.)
[469] Mr McLean described the relevant concept of 'market value' (at Exhibit D19, at CB1:139) as 'the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms' length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.' Mr Sutherland adopted the same concept in his report: Exhibit P7, at CB 1:178.04.
[475] In his report, Mr Sutherland says (Exhibit P7, at CB 1:178.15 [85]) that the payment of GST would be dependent upon the registration status of the Vendor.
[477] His actual value as calculated was $1,640,137.
[479] Exhibit P7, at CB1:178.08. When giving oral evidence, Mr Sutherland explained that the drainage point has been altered - the initial proposal was to go through an adjoining property at 81 Tower Road, which connects into an existing Council drainage point in Crossley Drive and is a gravity-fed service. But under the 2009 amended permit, it has been altered to a drainage point immediately to the south connecting into the property at 122 Wooralla Drive and requires some retention on site: Transcript 05/05/16, Conclave, Sutherland XIC, at 1151-1153.
[480] Exhibit P7: Expert report of Mr Grant Sutherland (CB 1:178.01-178.96); Exhibit D19: Expert report of Mr Hugh McLean (CB 1: 131-178), and Exhibit D20: Letter from Hugh McLean Valuers dated 20 April 2016, bearing the signatures of both Mr McLean and Mr Sutherland.
[482] Transcript 05/05/16, Conclave, McLean at 1125.
[483] Mr Sutherland was referring to the fact that some of the local properties Mr McLean looked at for the purpose of reaching a gross realisation estimate were battle-axe configurations. Mr Sutherland was of the opinion that conventional blocks are generally more desirable across the market than battle-axes, and so a discount was applicable to a battle-axe shaped allotment (i.e., a battle-axe configuration decreased the value of a property): see Transcript 05/05/16, Conclave, Sutherland XIC, at 1127-1128; Sutherland RE-XN, at 1138. Whereas Mr McLean was of the opinion that 'buyers prefer a battleaxe block, particularly down at Mount Eliza' and he said that having owned one, he knows that 'from the point of view of privacy and amenity for the children that it's preferable': see Transcript 05/05/16, Conclave, McLean, at 1128.
[484] Transcript 05/05/16, Conclave, Sutherland, at 1122.
[485] Transcript 05/05/16, Conclave, Sutherland, at 1129.
[486] Transcript 05/05/16, Conclave, McLean at 1129.
[488] Transcript 05/05/16, Conclave, at 1129-1131.
[489] The estimate appears as Attachment A to his report (which was tendered as Exhibit D21: Expert report of Stephen Craig dated 11 September 2015, CB 1:111-130).
[492] He later revised this sum to $50,000 during the conclave: see Transcript 05/05/16, Conclave, Craig at 1174.
[495] His expert report was tendered as Exhibit P8: Expert report of Darren Barker dated 4 April 2016, CB 1:178.97-178.105.
[504] Transcript 05/05/16, Conclave, Barker XIC, at 1157.
[505] Joint tender 88 (formerly 'MFI-7'). See also Transcript 05/05/16, Conclave, at 1166.
[506] Transcript 05/05/16, Conclave, Barker XIC, at 1182-1183.
[507] Transcript 05/05/16, Conclave, Barker XIC, at 1157.
[508] Transcript 05/05/16, Conclave, Barker XIC, at 1166.
[509] Transcript 05/05/16, Conclave, Craig, at 1171.
[510] Transcript 05/05/16, Conclave, Craig, at 1171-1174.
[511] Transcript 05/05/16, Conclave, Barker, at 1180.
[512] Transcript 05/05/16, Conclave, Craig, at 1180-1181.
[513] Transcript 05/05/16, Barker XXN, at 1185.
[514] Transcript 05/05/16, Barker XXN, at 1186.
[515] Transcript 05/05/16, Craig XXN, at 1189.
[516] Transcript 05/05/16, Conclave, Craig, at 1180.
[517] Transcript 05/05/16, at 1192-1193.
[518] During oral closing submissions, counsel for the defendant explained that as the present case is one that relates to a supply of 'financial services' to the defendant, section 12CB is 'the correct provision and the only provision that can operate': Transcript 12/05/16, at 1307. He added that section 12CA had been pleaded 'out of an abundance of caution': ibid. The parties agree that the relevant version of the ASIC Act for the purposes of this proceeding is the compilation prepared on 25 November 2008 taking into account amendments up to Act No. 116 of 2008.
[519] Thus, there is no requirement to prove 'special disadvantage'.
[520] See also subsections 12BAB(8)-(10).
[521] Cameron v Qantas Airways Ltd [1995] FCA 1304; (1995) 55 FCR 147 at 179.
[522] Qantas v Cameron [1996] FCA 1483; (1996) 66 FCR 246 at 262 per Davies J.
[527] ACCC v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 59 IPR 435, at [185]; ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324, at [113]; ACCC v Dukemaster Pty Ltd [2009] FCA 682, at [17]; ACCC v Seal-a-Fridge Pty Ltd [2010] FCA 525; (2010) 268 ALR 321, at [16].
[528] Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, at [293].
[529] Director of Consumer Affairs (Vic) v Scully [2013] VSCA 292.
[530] [2013] VSCA 56; (2013) 44 VR 202 ('Violet Home Loans'), at 219 [58].
[532] Note that in his closing written submissions, counsel for the defendant referred to subsections '12CC(a), (c), (d), (f), (i), (j) and (l)' but did so by reference to the current version of the ASIC Act rather than the version of the Act in force at the relevant time, which he acknowledged was the one to be used: see Transcript 12/05/16, at 1322-1323. The counterpart provisions of the ACIC Act as in force at the relevant time appear to be those set out in subsections 12CC(2)(a), (c), (d), (f), (i), (j) and (k).
[533] See Transcript 12/05/16, at 1307-1322.
[534] See Transcript 12/05/16, at 1308 (Mr Matters).
[535] See Transcript 12/05/16, at 1309 (Mr Matters).
[536] See Transcript 12/05/16, at 1309 (Mr Matters).
[537] See Transcript 12/05/16, at 1310 (Mr Matters).
[538] See Transcript 12/05/16, at 1310 (Mr Matters).
[539] See Transcript 12/05/16, at 1311 (Mr Matters).
[540] Transcript 12/05/16, at 1311-1312 (Mr Matters).
[541] Transcript 12/05/16, at 1315 (Mr Matters).
[542] Transcript 12/05/16, at 1315-1317 (Mr Matters).
[543] Plaintiff's closing written submissions, at [59].
[544] Transcript 20/04/16, Ringeri XXN, at 314.
[545] Director of Consumer Affairs (Vic) v Scully (No 3) [2012] VSC 444, at [31].
[547] [1983] HCA 14; (1983) 151 CLR 447 ('Amadio'). See ACCC v C G Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51 at 62-63 [5]-[8], 71-72 [40] and 74 [46].
[548] [1956] HCA 81; (1956) 99 CLR 362, 415. The summary of the relevant principles set out in the following paragraphs reflects what is set out in my reasons in Australian Super Developments Pty Ltd v Marriner [2014] VSC 464, at [402]-[407].
[550] Amadio [1983] HCA 14; (1983) 151 CLR 447, 462.
[555] [2013] HCA 25; (2013) 250 CLR 392 ('Kakavas').
[556] Kakavas [2013] HCA 25; (2013) 250 CLR 392 at 398 [5].
[557] The Full Court was comprised of French CJ, Hayne, Crennan, Kiefel, Gageler and Keane JJ.
[558] Kakavas [2013] HCA 25; (2013) 250 CLR 392 at 400 [14].
[559] Jenyns v Public Curator (Qld) [1953] HCA 2; (1953) 90 CLR 113 at 118-119.
[560] Kakavas [2013] HCA 25; (2013) 250 CLR 392 at 401 [18], citing Jenyns v Public Curator (Qld) [1953] HCA 2; (1953) 90 CLR 113, 118-119 and Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at 325 [23].
[561] Kakavas [2013] HCA 25; (2013) 250 CLR 392, 401 [19].
[564] Amadio [1983] HCA 14; (1983) 151 CLR 447 at 474.
[565] Kakavas [2013] HCA 25; (2013) 250 CLR 392 at 425 [118].
[567] Ibid, at 427 [124], citing Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 at 632.
[568] Kakavas [2013] HCA 25; (2013) 250 CLR 392 at 439 [161].
[570] Transcript 12/05/16, at 1321 (Mr Matters).
[571] Transcript 20/04/16, Ringeri XXN, at 314.
[572] [2013] HCA 25; (2013) 250 CLR 392 at 439-440 [161].
[573] See the Bank's closing submissions, at [60].
[575] [1997] HCA 23; (1997) 188 CLR 449 at 475 (per Brennan CJ, Gaudron, McHugh and Gummow JJ).
[576] The new Code appears as Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth).
[577] The Consumer Credit Code (Victoria).
[578] See the defendant's Further Amended Defence and Second Further Amended Counterclaim filed on 21 April 2016, at paragraphs 3M-3O and 43-45 respectively.
[579] Ibid, at paragraphs 3N and 44 respectively.
[580] See the particulars subjoined to paragraph 3N of the defendant's Further Amended Defence and Second Further Amended Counterclaim.
[581] Referred to in evidence as the 'Streamline account'.
[582] Section 18 of the old Code (Reprint No. 4, as in force between 29 June 2007 and 22 May 2009) provides:
(1) If a contract document is to be signed by the debtor and returned to the credit provider, the credit provider must give the debtor a copy to keep.
(2) A credit provider must, not later than 14 days after a credit contract is made, give a copy of the contract in the form in which it was made to the debtor.
(3) Subsection (2) does not apply if the credit provider has previously given the debtor a copy of the contract document to keep.
No counterpart provision of the new Code was referred to by the defendant.
[583] See paragraph 3A of the defendant's Further Amended Defence and Second Further Amended Counterclaim.
[584] See paragraph 44 of the defendant's Further Amended Defence and Second Further Amended Counterclaim, where the defendant refers to and repeats the particulars subjoined to paragraph 31 of his counterclaim.
[585] The documents are particularised as follows:
(a) Consumer Loan Authority (Borrowers) dated 19 September 2008 in respect of Loan number 520356801 authorising the plaintiff to pay Southern Peninsula Conveyancing in respect of the settlement for the purchase of the Mt Eliza Property [i.e., Marie Court].
(b) On 23 September 2008, a letter was sent by the plaintiff to the defendant enclosing his new Commonwealth Bank keycard.
(c) Economiser Home Loan Statement for account number 520356801 which was opened on or about 13 October 2008.
(d) Home Loan Application/Investment Loan Application No. 90000033722 (printed 22 October 2012 at 15.19) which discloses the amount of the loan in the sum of $2,250,300.00.
(e) Home Loan Application/Investment Loan Application No. 3899080918278877 (printed 22 October 2012 at 15.24) which discloses the amount of the loan in the sum of $300,00.00.
(f) Consumer Credit Schedule signed by Owen Eaton, on behalf of the [Bank], dated 19 September 2008.
(g) Two letters from the [Bank] to Southern Peninsula Conveyancing (one signed by [Ms MLM]) dated 19 September 2008.
[586] See paragraphs 5 and 20-22 of the Bank's Reply to the Further Amended Defence and Second Further Amended Counterclaim. The Bank initially pleaded that the relevant agreements were rescinded on 8 September 2012 (possibly also on 24 July 2010) by reason of a demand for payment and the failure on the part of Mr Stephens to meet same. It also contended that the claim pursuant to section 76(1) had to be made by 8 September 2014 and was not, and accordingly the remedy, and as appears the claim, is barred. During opening oral submissions, however, counsel for the Bank informed the Court that the Bank would not rely on any such limitation period to bar Mr Stephens' claim pursuant to section 76(1) of the new Code: see Transcript 18/04/16, at 72-73 (Mr Carew).
[587] Explanatory Memorandum to the National Consumer Credit Protection Bill 2009 (Cth), p 3.
[588] Section 4(1) of the Referral Act provides:
(1) the relevant version of the National Credit legislation is adopted within the meaning of section 51 (xxxvii) of the Constitution of the Commonwealth.
Section 3 of the Referral Act defines the 'relevant version of the National Credit legislation' to mean:
(a) the National Consumer Credit Protection Act 2009 of the Commonwealth as originally enacted, and as later amended by the National Consumer Credit Protection Amendment Act 2010 of the Commonwealth; and
(b) the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 of the Commonwealth.
[589] Section 76 of the new Code (Court may reopen unjust transactions) is the counterpart successor provision to section 70 of the old Code and section 77 of the new Code confers a power upon the Court (similar to that under section 71 of the old Code) to make orders on the reopening of transactions.
[590] Set out at paragraphs 454-459 below.
[591] See the Bank's closing written submissions, at [64].
[592] [2009] VCC 627. In that case, her Honour found that a declaration made by the borrower under section 11 meant that the credit was 'presumed conclusively' not to be provided wholly or predominantly for personal, domestic or household purposes, and thus unnecessary to consider the operation of section 6. But out of deference to counsels' submissions, she nevertheless went on to record her views. An application brought by the borrower for an extension of time to apply for leave to appeal and also for leave to appeal was refused by the Court of Appeal: see Phillips v Australian Finance and Leasing Ltd [2009] VSCA 256 (Dodds-Streeton JA and Byrne AJA).
[593] Mummery v IMMS Financial Services Ltd [2002] VCAT 383.
[594] Linkenholt Pty Ltd v Quirk [2000] VSC 166.
[595] [2009] VCC 627, at [50], [61].
[596] [2000] VSC 166 ('Linkenholt').
[597] See the Bank's closing written submissions, at paragraphs [65]-[66].
[598] [2011] VSC 611, at [38]-[47] ('Knowles').
[599] (1998) ASC 155-024; [1998] QDC 215 ('Rafiqi').
[602] Rafiqi (1998) ASC 155-024; [1998] QDC 215 ('Rafiqi'), at [148] (quoted in Knowles [2011] VSC 611, at [38]).
[604] It was common ground in Linkenholt that the credit was not provided for domestic or household purposes.
[606] [2003] NSWSC 815, at [27]-[28].
[613] Ibid, at 166 [31], 167 [37].
[615] See Re Kearney; Ex parte Jurlama [1984] HCA 14; (1984) 158 CLR 426; and see Peppecorn Nominees Pty Ltd v Loizou (1997) V ConvR 985-560 at 66, 734 (Smith J).
[616] [2011] VSC 611, at [47].
[617] Transcript 19/04/16, Ringeri XIC, at 205.
[620] Mr Ringeri said that Mr Coulton gave him this 'initial' loan application number. The number refers to Exhibit D4 (CB 3:1012-1018) being a 'Home Loan/Investment Home Loan Application' in Mr Stephens' name for a loan of $2,250,300, showing total Commonwealth Bank Group credit facilities of $2,550,300.00, and is unsigned but with an Approving officer date of 5 December 2008.
[624] See CB 1:432 and Transcript 19/04/16, Ringeri XXN, at 278.
[626] See CB 2:485-487, 501-506, 507-512.
[627] Therein the 'Consumer Credit Law' was defined in paragraph A1 to mean 'the law known as the Consumer Credit Code of the State or Territory in which The Property is located'.
[630] In closing submissions, Counsel for the Bank foreshadowed that an application may be made to withdraw this admission, but it was not proceeded with. (See Transcript 15/05/16 at 1513, 1536 (Mr Carew).)
[631] The counterpart provision of the old Code, section 70(4), defined 'unjust' in the same terms.
[632] Initially, 'unjust' was defined in section 76(8) of the new Code as 'includ[ing] unconscionable, harsh or oppressive' but it was repealed with effect from 1 March 2013, and the same definition was effectively moved to appear in section 204, with application to the whole of the new Code.
(1) In this Act, except in so far as the context or subject-matter otherwise indicates or requires:
unjust includes unconscionable, harsh or oppressive, and injustice shall be constructed in a corresponding manner.
[634] Section 50 deals with 'prohibited securities', which are not relevant for present purposes.
[635] I note that paragraph (n) is the only provision in this listing under the new Code that differs from those that were set out in section 70(2) of the old Code, and it is not relevant for present purposes. The concept or expression used in subsection 2(f) of 'a person who represented the debtor, mortgagor or guarantor' is framed in the same terms as applied under the old Code: see section 76(3).
[636] See Esanda Finance Corporation Ltd v Murphy (1989) ASC 55-703; BC8902397 at 24 (per Hunt J); C_ustom Credit Corporation Ltd v Lynch_ [1993] VicRp 86; [1993] 2 VR 469.
[637] Section 76(4) expressly prevents the Court having regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the credit contract or mortgage was entered into.
[638] See generally the commentary on section 76 set out in Beatty & Smith, Annotated National Credit Code (5th ed, 2014, Lexis Nexis), at 317-342.
[639] (1986) 5 NSWLR 610. See also Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256.
[640] (1986) 5 NSWLR 610, at 621.
[648] In Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41, (2005) 14 BPR 26, Basten JA explained what is meant by 'asset-based lending' in the context of a claim made under the Contracts Review Act 1980 (NSW) that such asset-based lending was unjust. His Honour stated (at [128]):
To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA.
[649] That is, the loan of (variously) $2.5/2.55/2.65 million referred to by Mr Stephens as opposed to the sum of $2,100,300 actually advanced.
[650] Transcript 12/5/2016, at 1335 (Mr Matters).
[652] Transcript 21/4/16, Stephens XIC at 454. Mr Stephens states that 'there may have been a telephone message somewhere along the line', but that he has never 'actually spoken to [Mr Ringeri] on the phone'.
[654] Transcript 21/4/16, Stephens XIC at 504.
[656] Transcript 3/5/16, Henderson XXN at 1065-1067.
[657] Transcript 19/4/16, Ringeri XXN at 250.
[660] Transcript 03/05/16, Henderson RE-XN, at 1098.
[661] This comment of itself suggests that Ms Henderson had perused a copy of the loan contracts at some point between January and April 2009, however, Mr Stephens maintained that he had not received them.
[662] Transcript 03/05/16, Henderson XXN at 1075.
[663] Transcript 03/05/16, Henderson XXN, at 1074.
[664] Exhibit P6, CB 3:815 (emphasis added).
[665] Transcript 21/4/16, Graham RE-XN at 443.
[666] Transcript 21/04/16, Graham XIC, at 404-405.
[667] Transcript 26/04/16, Stephens XXN, at 736.
[668] Exhibit P5.2: Simple Interest calculated pursuant to the [Bank's] Standard Variable Rate Home Loan/Investment Home Loan on the sum of $1,426,950.61 in respect of the claim for monies had and received.
[669] Plaintiff's closing written submissions, at [45].
[671] [1992] HCA 48; (1992) 175 CLR 353 at 385 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, cited in Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 560 at 578 [18] (per French CJ) and 597 [81] (per Hayne, Crennan, Kiefel, Bell and Keane JJ).
[672] [2001] UKPC 50; [2002] 1 All ER (Comm) 193 ('Dextra').
[673] [2014] HCA 14; (2014) 253 CLR 560 ('AFSL v Hills Industries Ltd').
[674] AFSL v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 560 at 580 [22], 594 fn 200, and 620 [145].
[675] Defendant's closing written submissions, at [43].
[676] It was not put by Counsel for the defendant that Mr Stephens had changed his position based on the actual receipt of $30,000 from the Bank on 25 September 2008, see Transcript 12/05/16, at 1357 (Mr Matters).
[678] Transcript 12/05/16, at 1348 (Mr Matters).
[679] Transcript 16/05/16, at 1550 (Mr Carew).
[680] Transcript 16/05/16, at 1551 (Mr Carew).
[681] Transcript 16/05/16, at 1550 (Mr Carew).
[682] Transcript 16/05/16, at 1551 (Mr Carew).
[683] Transcript 16/05/16, at 1550 (Mr Carew).
[684] [2001] UKPC 50; [2002] 1 All ER (Comm) 193 at 201-202 [27].
[685] Ibid, at 204 [38] (emphasis added).
[687] Ibid, at 205 [39] (emphasis added).
[688] AFSL v Hills Industries Ltd [2014] HCA 14; (2014) 253 CLR 560 at 580 [22] (per French CJ), 594 fn 200 (per Hayne, Crennan, Kiefel, Bell and Keane JJ), and 620 [145] (per Gageler J.
[689] Ibid at 620 [145]. See also the extra-judicial discussion of Dextra and security of receipt in James Edelman J, 'Change of Position: A Defence of Unjust Disenrichment' (2012) 92(3) Boston University Law Review 1009.
[690] The Bank tendered (as Exhibit P5.2) an agreed calculation in respect of interest referable to its restitution claim.
[691] The Bank pleaded in its Statement of Claim (at [20(g)] and [20(l)]) that the payment was made in two sums, as follows on 19 December 2008:
• First, the sum of $852,082.20 was debited to Mr Stephens' account no. 827 502 009 (the First Perpetual Payment); and
• Secondly, the sum of $513,580.24 was debited to Mr Stephens' account no. 827 501 903 (the Second Perpetual Payment).
[694] The Perpetual loan agreement is in writing and comprises the 'Loan Schedule' and the 'Terms and Conditions of Your Loan Agreement': see Statement of Claim, at [23B].
[695] See Statement of Claim, at [23C].
[697] If the Court finds that the Bank is subrogated to Perpetual's rights under the Perpetual mortgage, it claims that the Perpetual mortgage secures the payment by the defendant of an amount equal to:
(a) the payment made to Perpetual (i.e., the total sum of $1,365,662.44);
(b) plus interest calculated at a rate of 9.75% from 19 December 2008 until 24 June 2010 (i.e., the date of the first notice) or alternatively 1 August 2012 (i.e., the date of the first notice);
(c) alternatively to para (b), interest calculated at the Bank's standard variable rate from 19 December 2008 until 24 June 2010 or alternatively 1 August 2012, and
[698] [2009] HCA 44; (2009) 239 CLR 269 ('Bofinger')
[699] Ibid, at 278-279 [1] (Gummow, Hayne, Heydon, Kiefel and Bell JJ), citing Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 559.
[701] [2009] HCA 44; (2009) 239 CLR 269 at 301 [94].
[703] Ibid, at 183 [49], adopting the description from C Mitchell, The Law of Subrogation (1994, Oxford, Clarendon Press) at 3 which was cited with approval in Highland v Exception Holdings Pty Ltd (in liq) [2006] NSWCA 318; (2007) 60 ACSR 223 per Santow JA at [90].
[704] (1985) 3 NSWLR 403 at 405.
[705] [2013] NSWCA 393; (2013) 86 NSWLR 174, at 183 [52]-[53].
[707] [2004] EWCA Civ 291, at [32]-[44].
[708] With whom Giles and Hodgson JJA agreed on the question of subrogation.
[709] [2006] NSWCA 318; (2007) 60 ACSR 223 at 242 [106].
[710] [2013] NSWCA 393; (2013) 86 NSWLR 174 at 185 [59].
[711] Ghana Commerical Bank v Chandiram [1960] AC 732 at 745 per Lord Jenkins.
[712] See, Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; (2013) 86 NSWLR 174; Western Trust & Saving Ltd v Rock [1993] NPC 89 (CA).
[713] Plaintiff's closing submissions, at [72].
[715] Supreme Court of Victoria, 22 December 1994, unreported, Hansen J (S CI 1991 04167). In oral closing submissions, counsel for the Bank stated 'it seems to me on reflection that Justice Hansen's orders, with respect, are the safer course'. (Transcript 16/05/16, at 1555).
[717] Defendant's closing written submissions, at [46].
[718] See Exhibit P5.1: Compound Interest calculated pursuant to the [Bank's] Standard Variable Rate Home Loan/Investment Home Loan on the sum of $1,365,662.44 in respect of the subrogation claim (compounded on the Perpetual Rest Date being 9th each month). See, also, Rogers v Resi-Statewide Corporation Ltd [No 2] [1991] FCA 535; (1991) 105 ALR 145 at 154.
[724] [2001] NSWCA 445, at [31].
[725] Transcript 16/05/16, at 1562-1563 (Mr Carew). As noted above. the Bank tendered (as Exhibit P5.1) an agreed calculation in respect of interest referable to its subrogation claim.
Commonwealth Bank of Australia
Stephens [2017] VSC 385
(1983) 151 CLR 422
(2004) 218 CLR 592
(2013) 44 VR 202
(1956) 99 CLR 362
(1983) 151 CLR 447
(2013) 250 CLR 392
(1992) 175 CLR 353
(2009) 239 CLR 269
(2013) 86 NSWLR 174
(1964) 111 CLR 177
(1953) 53 CLR 643
(1959) 101 CLR 298
(2011) 34 VR 445
(2009) 238 CLR 304
(1995) 49 NSWLR 315
(2013) 250 CLR 640
(1992) 175 CLR 514
(2002) 210 CLR 109
(1985) 157 CLR 215
(1998) 196 CLR 494
(1995) 55 FCR 147
(1996) 66 FCR 246
(2003) 59 IPR 435
(2009) 253 ALR 324
(2010) 268 ALR 321
(2003) 214 CLR 51
(1953) 90 CLR 113
(2003) 217 CLR 315
(1992) 175 CLR 621
(1997) 188 CLR 449
(2008) 72 NSWLR 44
(1984) 158 CLR 426
(1986) 5 NSWLR 610
(1991) 23 NSWLR 256
(1997) 41 NSWLR 482
(2014) 253 CLR 560
(1995) 182 CLR 544
(1985) 3 NSWLR 403
(1991) 105 ALR 145
(2001) 53 NSWLR 600