Plaintiffs v Defendant

3 The form of mortgage was comprised of a cover sheet and separate Memorandum of Common Provisions ("MCP"). The MCP provided that the mortgage secured all money owing by Mr and Mrs Vouzas under a credit contract or related guarantee. The cover sheet recited that the mortgage was given for valuable consideration and for the purposes of securing the payment of the amount owing by Mr and Mrs Vouzas to Sibonna. The cover sheet also stated in that part of it reserved for "stamp duty use only" that the amount advanced was $500,000. The variation of mortgage referred to Sibonna's agreement to increase the principal sum from $500,000 to $1.3 million and recorded that Mr and Mrs Vouzas "shall repay the sum of $1,300,000.00 on or before 1 October 2009 however they will use their best endeavours to reduce this sum substantially beforehand".

4 Mr and Mrs Vouzas rely on the terms of the MCP and say that no money is secured by the mortgage because there is no underlying loan agreement or guarantee. They claim that the proceeds of sale are held on trust and, together with other amounts, should be paid to them. In total they claim in excess of $1 million.

5 Sibonna says that it was entitled to sell the properties as mortgagee. It primarily relies on the stamp duty notation on the mortgage cover sheet and the repayment statement on the variation of mortgage to establish that a debt was secured by the mortgage. It also says that it should be inferred from the evidence that Mr and Mrs Vouzas agreed to give the mortgage to Sibonna and authorised their son to arrange it. Sibonna raises a set-off (to the extent of the claim by Mr and Mrs Vouzas) and counterclaims for a debt of $1.3 million plus interest at the rate of 16%. Sibonna also claims that Mr and Mrs Vouzas have acknowledged the debt through two documents signed by their son. Sibonna also says that, because of what is recorded in the mortgage cover sheet and variation, Mr and Mrs Vouzas are estopped from denying that the mortgage was given for valuable consideration and secures an obligation to repay the sum of $1.3 million.

6 There are three questions for determination: Was any amount secured by the mortgage without a separate loan agreement or guarantee? If not, was there an underlying agreement or have Mr and Mrs Vouzas acknowledged the debt? If not, are Mr and Mrs Vouzas estopped from denying that they were indebted to Sibonna such that it was entitled to sell the properties?

7 I have come to the conclusion that, properly construed, the mortgage required there to be either an underlying credit contract or guarantee before Mr and Mrs Vouzas had any liability under the mortgage to pay any amount. No such underlying agreement existed. Further, there has been no acknowledgment of debt and no estoppel operates against Mr and Mrs Vouzas. The mortgage secured no debt, Sibonna was not entitled to serve a notice to pay (because there was no default) and Sibonna had no right to sell the property. Mr and Mrs Vouzas are entitled to the relief that they seek.

8 My more detailed reasons for these conclusions are set out below. I deal first with the factual background as to how the mortgage and variation came to be executed. I then set out the relevant terms of the mortgage and follow that with a summary of the pleadings. I then consider the proper construction of the mortgage, whether there was a credit contract or guarantee, whether Mr and Mrs Vouzas acknowledged the debt and whether any estoppel operates.

How did the mortgage and variation come to be executed and registered?

9 Mr and Mrs Vouzas are Greek immigrants with a limited understanding of the English language and limited formal education. They both emigrated to Australia in 1965, met a few years later and were married in 1968. The following year they opened a fish and chip shop business at 185-187 Victoria Street, Albert Park. They lived above the shop. Some time in the 1970's they purchased that property.

10 In about 1985 they started to operate a supermarket business in Armstrong Street, Middle Park and they still conduct that business.

11 Mr and Mrs Vouzas bought a family home at 372 Danks Street, Middle Park in about 1989. They are renovating it and have not lived there for the last four or five years. Their mail is still delivered to that address and family members collect the mail from time to time. They currently live in an apartment in Port Melbourne.

12 About six years ago they bought the property at 189 Victoria Street, Albert Park, on which there is a convenience store. This property adjoins the property at 185-187 Victoria Street.

13 Mrs Vouzas gave evidence that the Albert Park properties were for her retirement. Mr Vouzas said that he had an emotional attachment to the property at 185-187 Victoria Street, that being where his children were born.

14 Mr and Mrs Vouzas have three children. They are very proud of them and they trust them. Their middle child, Steven, assists them with their business activities and they rely on him to help them. He has dealt with their accountant and bank in relation to their affairs. He dealt with the tenants who, in recent times, leased the retail shops on the Albert Park properties. He helped his parents with the payment of wages, internet banking and other administrative tasks. From time to time, their other children have also assisted Mr and Mrs Vouzas in their businesses.

15 Helen Wolfers is the director of the defendant, Sibonna Nominees Pty Ltd. Mrs Wolfers is retired. When her husband passed away in 1994, Mrs Wolfers sold the residential investments which they had and, with the money from those sales, she started lending money to generate income. Mrs Wolfers uses that income to support herself and, where necessary, her children and grandchildren.

16 Mrs Wolfers gave evidence as did Mr and Mrs Vouzas. Their son, Steven, was not called as a witness.

17 Sometime before 2007, Mrs Wolfers met Steven Vouzas through a solicitor who had acted for her in relation to loans made by Sibonna to borrowers on second mortgage security. Sibonna lent money to Steven Vouzas on occasion and the loans were repaid. The relationship of lender and borrower developed between them.

18 From November 2007, Sibonna advanced moneys to Steven Vouzas and his company, Speck Projects Pty Ltd. The initial advances were made on a handshake. Mrs Wolfers' evidence was that the loans were acknowledged in writing and confirmed by Steven Vouzas on his own account and on behalf of his parents. There are a number of emails between Mrs Wolfers and Steven Vouzas regarding these loans. Frequently, he acknowledges that funds have been advanced. He sometimes uses the word "we". It is not clear to whom he is referring when he uses that pronoun.

19 According to Mrs Wolfers, the loans were originally unsecured and intended to be for a short term, namely a few weeks. However, when the loans were not repaid in that timeframe, she told Steven Vouzas that she required properly documented security with commercial interest to be paid. Steven Vouzas told her that he would provide his parents' properties as security and he took her to see the properties. Mrs Wolfers was satisfied with the properties as security. Steven Vouzas suggested that more could be lent to him on that security and Mrs Wolfers agreed.

20 On 30 May 2008, Sibonna's solicitors, Rotman & Morris, wrote to Mrs Wolfers. They stated that they had prepared mortgage and associated documents and had forwarded them to Mr and Mrs Vouzas for signing. They also stated that they had prepared a guarantee document for execution by Steven Vouzas and Speck Projects. On 17 June 2008, Sibonna's solicitors sent a letter to Mr and Mrs Vouzas and Steven Vouzas. It was sent to 372 Danks Street, Middle Park and was following up the return of executed mortgage documents. As noted above, Mr and Mrs Vouzas were not living at that address at that time and both said that they did not see the letter from Rotman & Morris.

21 On 27 June 2008, Mrs Wolfers sent an email to her solicitor informing him that she had advanced to Steven Vouzas a further $200,000 on 28 June 2008, bringing the total advanced to $600,000. In her email she stated:

My arrangement with him [Steven Vouzas] is that

- the term of the loan is for one year (when we finally get a date settled)

- Interest on the first $500,000 is at 15%.

- Interest on the remainder of the loan will be at 17%.

22 Later the same day, Mrs Wolfers sent an email to Steven Vouzas with the subject heading "Albert Park loan". Mrs Wolfers stated that no-one else was keeping a record of the loan so, in her words, they had to pursue it "meticulously". She said that she had instructed her solicitors on the terms as originally agreed and not as they had rearranged them the day before. She asked Steven Vouzas to adjust the interest payments for July and August with $400,000 to be at 15% for July ($5,000) and $500,000 at 15% plus $100,000 at 16% for August ($7,583.33). She asked Steven Vouzas to check her figures again. She stated:

When you have finally finished borrowing on this security there will be a fixed monthly repayment possible again. In the meantime the interest has to be adjusted monthly whichever way we do it and I cannot see that there will be any additional legal fees in setting up the mortgage with our agreed arrangement in place.

23 The mortgage dated 25 August 2008 was signed by Mr and Mrs Vouzas and was registered over the Albert Park properties as a second mortgage (there already being a first registered mortgage in favour of National Australia Bank Limited). Mrs Wolfers says that the Sibonna mortgage was to secure the advances made to Steven Vouzas and Speck Projects. Mrs Wolfers swore that Steven Vouzas gave her the impression and she believed that "he was intrinsically involved in his parents' affairs and they were intrinsically involved in his." She went on to state that while the properties were registered in the names of Mr and Mrs Vouzas, "Steven acted as if he had full authority to deal with them". There was no evidence that Mrs Wolfers asked Steven Vouzas if he was authorised by his parents to represent them in dealings with her or Sibonna, nor was there evidence that he had told her that he was acting with his parents' authority.

24 There is an email dated 22 October 2008 from Mrs Wolfers to Steven Vouzas containing an epitome of second mortgage. It sets out that the principal sum is $900,000, the interest rate is 16% per annum (lower rate) 21% per annum (higher rate) commencing 1 November 2008 with the security listed as the Albert Park properties. Other than this, there is no evidence as to other advances beyond $600,000 having been made by Sibonna at this time to take the total amount lent to $900,000.

25 In early November 2008, Steven Vouzas asked Mrs Wolfers to lend him a further $200,000 for a very short period. In the previous year, she had done this several times and the money had always been repaid promptly. According to Mrs Wolfers, at this time if she had not had the mortgage as security for $500,000 she would not have advanced any further moneys beyond $900,000. On 11 November 2008, Mrs Wolfers sent an email to Steven Vouzas with the subject "Bridging Loan". Mrs Wolfers asked him to email her a brief summary with commencing and ending dates to cover the $200,000 loan for her files. Steven Vouzas responded the next day confirming receipt of $200,000 as a short term loan to Speck Projects and stating that it was to be repaid by the end of the month from refinance of a property in Noble Park. Mrs Wolfers (or an entity associated with her) held a second registered mortgage over that property in respect of other advances made to Steven Vouzas or his company.

26 Mrs Wolfers deposed that Steven Vouzas sought a further $200,000 loan later in November 2008, which she agreed to provide. Although she was concerned about the economic climate and wanted to reduce Sibonna's risk exposure, Mrs Wolfers had done business with Steven Vouzas before and she trusted him.

27 On 24 November 2008, Steven Vouzas sent an email to Mrs Wolfers in respect of the further $200,000 loan which was said to be for one month at 16% interest rate to be returned at discharge of the Noble Park loan on or about 27 November 2008.

28 On 8 December 2008, Mrs Wolfers sent Steven Vouzas an email with the subject "floating loans". She stated that she wanted to update the status of "our two floating loans" and then stated that $200,000 was to be repaid as soon as possible and a further $200,000 was to be repaid by the end of the week. According to Mrs Wolfers, these loans were given on a handshake to help out Steven Vouzas with end of month payments.

29 By mid December 2008, Mrs Wolfers wanted the overdue loan secured by the second mortgage over the Noble Park property to be repaid and, if that was not to happen, then she required that Sibonna be given some security in the form of an equity participation in a redevelopment of the Albert Park properties owned by Mr and Mrs Vouzas and the Beach Hotel, which was adjacent to those properties. All of this was recorded in an email of 14 December 2008, which Mrs Wolfers exhibited to her affidavit. Mrs Wolfers deposed that she had sent this email to Steven Vouzas. However, the email disclosed that she had not sent it to him but had sent it to herself. In cross examination, Mrs Wolfers accepted that the email had not been sent to Steven Vouzas.

30 According to Mrs Wolfers, Steven Vouzas suggested various alternatives in the hope of giving her some security for the further advances that she had made so that she would not call up the loans. Mrs Wolfers relies on a document as confirming the terms of the agreement that she reached with Steven Vouzas in this regard. The document reads:

The current loans from Sibonna Nominees Pty Ltd to Steven Vouzas and/or Nominees (being Speck projects Pty Ltd, and E&C Vouzas) are as follows:

I Steven Vouzas here by acknowledge that in the event of a material default to either of the above mortgages, which shall result in a financial loss to Sibbona Nominees, the quantum of the loss shall be converted into equity into any current or future developments controlled by me.

The conversion to equity shall be calculated by totalling the financial loss in the mortgages suffered by Sibonna as a percentage of the available equity in the selected project of Helen Wolfers' choice, at the time.

• Victoria avenue - Includes the current 3 shops owned by E&C Vouzas and the Beach hotel currently under contract to be purchased by Steven Vouzas.

.............................. ......................... Dec. 20th 2008

31 Signatures appear above the typed names at the foot of the document and the company seal of Sibonna appears beneath Mrs Wolfers' name.

32 Mrs Vouzas gave evidence that she knew that her son wanted to purchase the Beach Hotel with Mrs Wolfers. According to Mrs Vouzas, her son told her that Mrs Wolfers also wanted to buy their Albert Park properties, but she told him that there was no way that they would agree to that because the properties were for their two other children and their retirement. Mr Vouzas gave similar evidence.

33 Mrs Wolfers evidence was that she was not the business partner of Steven Vouzas; she was only a lender. According to her, Steven Vouzas told her that he wanted to purchase the Beach Hotel and then redevelop it and the adjacent Albert Park properties into a large supermarket with some adjacent shops and residential properties above it. Mrs Wolfers said that at the time it was becoming evident that Steven Vouzas was having difficulties in repaying the loans he owed her, but he did not want her to call them up because he was in delicate negotiations with his bank and finance companies. Mrs Wolfers was prepared to co-operate with Steven Vouzas because if she had called up his loans, it would have damaged his chances of refinancing. In that context, they discussed a partnership in what they termed the Albert Park venture. This proposal did not come to fruition.

34 On 20 December 2008, Mrs Wolfers sent an email to her solicitor copied to Steven Vouzas about a variation of the Albert Park mortgage to increase it to $1.3 million. The interest rate was to be 16% and the loan was to commence from 16 September 2008.

35 Her solicitor responded on 22 December 2008 stating that he was unable to prepare any documents before the close of his office the next day and he stated that he was not happy with the way that the loan arrangement had been conducted and Mrs Wolfers' exposure. He said:

I suggest that you arrange for Steve and his parents who own the Victoria Avenue properties, to sign an acknowledgement of the $1.3m loan as per your email below and confirm that the loan will be documented correctly, and the Nab's further consent obtained, after 19 January 2009 when our office re-opens.

36 This was not the first time that Mr Morris had raised his concerns with Mrs Wolfers. He had told her a couple of times that he did not like what she was doing.

37 Mrs Wolfers sent an email to Steven Vouzas on 23 December 2008 stating that she wanted him to respond to her solicitor's email (and copy that response to her) and have his parents sign a fax to her solicitor as an acknowledgement of the increase in the mortgage from $500,000 to $1.3 million before close of business the next day. She said she would like to meet up with them herself over the holiday period and discuss the situation that had developed.

38 Mr and Mrs Vouzas never gave such confirmation, nor did Mrs Wolfers meet with them.

39 Later in January 2009, Steven Vouzas sent an email to Mrs Wolfers' solicitors requesting preparation of new documents to vary the existing loan secured by the properties at Victoria Avenue by increasing the amount advanced to $1.3 million. He confirmed that the money had been fully advanced by Sibonna. He stated that "we expect the above loan will be repaid over the next two/three months."

40 There is then correspondence between Mrs Wolfers and Steven Vouzas from which it is clear that interest was not being paid and that he was promising payment in the near future with Mrs Wolfers pressing for such payment.

41 On 28 January 2009, Mrs Wolfers sent an email to Steven Vouzas with the subject "Interest adjustment". In the body of the email Mrs Wolfers set out what she said was the interest due on the $400,000 which had been added to the Albert Park mortgage. The interest rate referred to in the email was 16%. Mrs Wolfers stated that although the money was being added to the mortgage on the Albert Park properties she was expecting it to be repaid as soon as possible.

42 A variation of mortgage dated 15 February 2009 was signed by Mr and Mrs Vouzas. The variation of mortgage referred to Sibonna's agreement to increase the principal sum from $500,000 to $1.3 million and recorded that Mr and Mrs Vouzas "shall repay the sum of $1,300,000.00 on or before 1 October 2009 however they will use their best endeavours to reduce this sum substantially beforehand".

43 On 21 February 2009, Mrs Wolfers sent an email to her solicitor copied to Steven Vouzas. In part she stated:

Now that the increase in principal to $1.3 million has been put in place I would very much appreciate if you could attend to the following.

1. Send me an updated epitome of mortgage, in accordance with the outline summarised in my e-mail to you of December 20. In case you have not kept a copy I will repeat it here

principal $1.3 million

interest rate 16%

commencement date 26/9/08

due date 26/9/09

Security evaluation $5.4 million

first mortgage $3.110 million (capped)

LVR 81.67%

Monthly interest payments $17,333.34 (interest payable monthly in advance)

44 On 3 June 2009, Steven Vouzas sent an email to Sibonna's solicitor and in a postscript he stated that he was "chasing up nab for the variation mortgage document which has been with the legal department for over a week". He said that he would get the variation of mortgage to the solicitor as soon as possible.

45 On 24 November 2009, Sibonna's solicitors wrote to the National Australia Bank Limited seeking confirmation that the principal limit secured by its first registered mortgage over the Albert Park properties remained at $3.1 million. The letter stated that the variation of mortgage had been provided to the bank for their consent by Steven Vouzas and they enquired as to when the relevant Certificates of Title would be made available at the Titles Office so that the variation of mortgage could be registered.

46 On 18 December 2009, Lewenberg & Lewenberg, who were then acting for Sibonna, wrote to Mr and Mrs Vouzas at 372 Danks Street, Middle Park. They stated that there had been a failure to pay under the terms of the mortgage to Sibonna and said that they were instructed to commence proceedings with the view to the recovery of money due to Sibonna. They foreshadowed that, unless an acceptable arrangement for repayment of the principal sum and interest due to their client was entered into, formal notices would be served under the mortgage.

47 On 8 February 2010, Lewenberg & Lewenberg, on behalf of Sibonna, sent a notice to pay and notice to quit to Mr and Mrs Vouzas at the Danks Street address. The notice to pay stated that there had been default in repayment of the principal sum, all interest and other money payable under the mortgage. The amount claimed was $1,524,871 plus interest accruing daily at a rate of 21% per annum. In response, Lewenberg & Lewenberg received a letter on E&C Vouzas - Partnership letterhead dated 22 February 2010. The body of the letter read as follows:

Re: Mortgage to Sibonna Nominees Pty Ltd

We refer to your correspondence of the 8th February 2010 enclosing Notice to Pay and Notice to Quit.

We advise that in our view the Notice to Pay is defective in numerous respects. In particular the total amount due and payable has been incorrectly calculated, in that it applies an incorrect rate of interest across all monies purported to be secured by the mortgage. The monies secured by the mortgage were advanced at different points in time, to different entities, upon different terms.

In our view the Notice issued is invalid.

48 The letter was signed by Steven Vouzas. "E & C Vouzas" is typed under his signature. Mrs Vouzas deposed that she first became aware that the notice to pay and a notice to quit had been served by Sibonna's solicitors after these proceedings had commenced. Mr Vouzas said that he did not receive these documents.

49 On 23 February 2010, Lewenberg & Lewenberg, on behalf of Sibonna, sent letters to the tenants of each of the Albert Park properties informing them that Sibonna intended to sell the relevant property by way of auction and requesting that they forward a copy of the lease to them. Further correspondence dated 15 March 2010 was sent by Lewenberg & Lewenberg to the tenants of 185 and 187 Victoria Avenue informing them that the property was to be sold by auction on 15 April 2010 and requesting that future rental payments be made payable to National Australia Bank and be forwarded to their offices. Separate letters requesting access to the property for the purpose of inspection were also sent. Other correspondence to the tenants included a letter of 19 April 2010 to the tenant at 187 Victoria Avenue and a letter of 5 May 2010 to the tenant of 185 Victoria Avenue.

50 According to Mr Vouzas, at some stage before 19 April 2010 the tenants spoke to him about the correspondence that they had received from Mrs Wolfers demanding that they pay their rent to her. He told the tenants to keep paying their rent into his account. The tenants then complained to him about telephone calls from Mrs Wolfers about the rent not being paid to her. Mr Vouzas said that he spoke to his son Steven who told him that he should not worry about his properties because it was something to do with his business dealings with Mrs Wolfers and he would speak to her and take care of it.

51 Mr Vouzas had a meeting with a solicitor at his son's office on 19 April 2010 about what could be done to prevent the auction. Mr Vouzas said that neither he nor his son expected Mrs Wolfers would put the properties up for auction. Mr Vouzas expected that Mrs Wolfers would contact him if she had a problem with his son to tell him what the problem was and to tell him what was happening rather than contacting the tenants.

52 Mrs Vouzas' evidence about when she learnt that Sibonna was proposing to auction the Albert Park properties was not clear. In her affidavit evidence, she deposed that in late April 2010 she saw a "for sale" sign on the properties. In cross-examination, she first said that when she saw the sale board, the tenant of the fish and chip shop told her that the property was being put up for auction by her son's friend, but she did not know then who the friend was and only found out days later. She said that after speaking to the tenant, she went home and screamed at her husband who tried to calm her down but he did not tell her that it was Mrs Wolfers who was selling. She said that a few days later, Mr Vouzas suffered a heart attack and at about that time she learnt that it was Mrs Wolfers who was proposing to sell the Albert Park properties. Later in cross examination, she said that the tenant told her it was Mrs Wolfers who was selling. Then later again she said that it was not the tenant but rather her husband, who told her on the day she saw the sale board. Her evidence then was that a few days later she spoke to her son who told her not to worry, as Mrs Wolfers would not sell the Albert Park properties and explained that he owed money to Mrs Wolfers from the business deals that they had together.

53 On 18 May 2010 (two days before the Albert Park properties were to be auctioned) Mr and Mrs Vouzas began these proceedings. They sought an urgent interlocutory injunction to prevent the auctions proceeding. On that application, the main thrust of the case asserted on behalf of Mr and Mrs Vouzas was that the mortgage was procured by unconscionable conduct. That application was dismissed. In evidence on the first application for an injunction was a written acknowledgement of the debt by the then solicitor for Mr and Mrs Vouzas. Mrs Vouzas deposed that neither she nor her husband instructed the solicitors to send the letter and she said that she did not know that the solicitor was acting on her behalf until much later.

54 Both properties were sold by Sibonna at auction on 20 May 2010. Before the sales settled, Mr and Mrs Vouzas made a second application for an injunction to restrain Sibonna from dealing with the balance of the proceeds of the sale of the properties after payment of an amount owed to the first mortgagee, National Australia Bank Limited. They were represented by different solicitors and counsel on this hearing. The unconscionable conduct claim was abandoned and the claim was formulated in the same manner as was pursued at trial, that is, that no moneys are secured by the mortgage, there had been no default, and Sibonna was not entitled to sell as mortgagee.

55 Settlement of the sale of the property at 185 - 187 Victoria Avenue took place on 26 July 2010. National Australia Bank Limited received the net proceeds of sale as first mortgagee. Settlement of the sale of 189 Victoria Avenue took place on 3 September 2010. After payment of the balance of the debt owed to National Australia Bank Limited, net proceeds of the sale were paid to Sibonna. There is an issue about how much Sibonna actually received and from what sources (ie the deposits paid by the purchasers, the net proceeds of sale on settlement and the tenants). Counsel agreed that that issue might best be resolved after I delivered my decision in relation to liability.

56 Mr and Mrs Vouzas understand the concept of a mortgage and have from time to time borrowed money from other lenders secured by a mortgage. As noted above, there was the first registered mortgage in favour of National Australia Bank Limited over the Albert Park properties when the second mortgage was registered in favour of Sibonna.

57 One of the mortgages that Mr and Mrs Vouzas had given in 2003 was over a piece of land at the rear of 185-187 Victoria Avenue, Albert Park. The mortgagees were Farlbut Pty Ltd and three individuals. There were a number of variations of that mortgage executed by Mr and Mrs Vouzas which extended the date for repayment. Mr Vouzas said that his son, Steven, made the arrangements for the payment date extensions under this mortgage. Mrs Vouzas was cross examined about the variations of this mortgage. She could not recall them and did not know who the mortgagees were. Mrs Vouzas said that whenever there was a mortgage to be signed, there was always either a bank officer or a lawyer present or someone to explain to her the terms of borrowing and how much was being borrowed. The evidence of Mr Vouzas was to the same effect.

58 Mr and Mrs Vouzas each recognise their signature on the Sibonna mortgage and variation but they do not recall signing either document. They both said that they sign documents every day in their business. In an affidavit in support of the application for the first interlocutory injunction, which was translated to her by her daughter before she swore it, Mrs Vouzas deposed that her son Steven had told them that he gave them the mortgage and variation to sign but did not tell them that they were signing a mortgage guaranteeing his liabilities to Sibonna. In cross examination, Mrs Vouzas denied saying this and said that she did not know who had written the statement in her affidavit. She said that her daughter had told her that they had to go to court to save the properties, that it was all very rushed and that was why she signed the affidavit. Mr Vouzas also denied that his son had told him that he arranged for them to sign the mortgage. Both denied that they had asked their son about how the mortgage came to be registered over their properties. At one point in cross examination, Mr Vouzas said that this case was about finding out how the mortgage came to be signed by him and his wife.

59 Mr and Mrs Vouzas gave evidence that they did not intend to mortgage the Albert Park properties, did not agree to borrow any moneys from Sibonna, did not agree to guarantee or act as guarantor in relation to any money lent to their son or his company, and did not receive any moneys prior to or after signing the mortgage and variation. Mr and Mrs Vouzas also deposed that they had never seen the MCP and the terms of the mortgage were not explained to them. Mrs Vouzas deposed that if she had seen the MCP she would have been alarmed by the size of the document and the emblem on it and she would have sought an explanation of what it was and what it meant. It was clear that Mrs Vouzas leaves many of the family financial affairs to her husband.

60 Mr Vouzas gave evidence that he would help his children by giving them money, but he would not put his properties up as security for their debts.

61 Up until the time when Sibonna sought to enforce the mortgage, all of the communication about the moneys advanced was between Mrs Wolfers, on behalf of Sibonna, and Steven Vouzas. Mrs Wolfers never spoke to Mr and Mrs Vouzas about the mortgage or the variation before they were signed. However, Mrs Wolfers deposed that she did meet Mrs Vouzas once in late 2009, after the mortgage and variation had been registered. Her evidence was that Mrs Vouzas said words to the effect of: "Thank you so much for the assistance that you have given us" or "thank you for the help you have given us". Mrs Wolfers says that Mrs Vouzas asked her if she would like to join them on their next trip to Greece. Mrs Vouzas disputes what was said during that discussion. Her evidence was that her son telephoned her and told her that he and Mrs Wolfers would come and see her because they were having coffee opposite. She says that he told her that they were looking over the area because they had business dealings with Mrs Wolfer's son in law, and there was a very short meeting of about five minutes on the footpath outside their shop in Armstrong Street. Mrs Vouzas says that she invited Mrs Wolfers in for coffee but she said that she would not come in because they were in a hurry.

62 Mr Vouzas only met Mrs Wolfers twice prior to this proceeding being brought. The first time was at an auction of a property in Noble Park which he attended with his son Steven. The three of them had a coffee together afterwards.

63 Both Mr and Mrs Vouzas said that they did not know anything about their son's business dealings other than that they knew that he had a business relationship with Mrs Wolfers.

64 The mortgage is dated 25 August 2008. Mr and Mrs Vouzas are named as the mortgagor. In addition to the execution clauses which they signed, there are also execution clauses for Steven Vouzas and Speck Projects Pty Ltd but neither executed the mortgage.

65 On its face, the mortgage includes the following:

This mortgage is given for valuable consideration and for the purpose of securing the payment of the amount owing by the mortgagor to the mortgagee .... The provisions contained ... in the Memorandum of Common Provisions retained by the Registrar of Titles in No. AA690 ... are incorporated in this mortgage.

66 There is also a panel on the first page of the mortgage headed "STAMP DUTY USE ONLY". Beneath that heading the following appears:

The amount advanced pursuant to this Mortgage was $500,000.00

67 On the second page of the cover sheet of the mortgage, under the heading "COVENANTS" one provision states:

If there is an inconsistency between this cover sheet and the Memorandum [of Common Provisions], this cover sheet prevails.

68 The Memorandum of Common Provisions includes the following clauses:

5.1 The secured money is all money that, for any reason, you owe us now or in the future:

(a) under a credit contract;

(b) under a related guarantee;

...

6.1 You must pay us the secured money at the time and in the way set out in the agreement that creates your obligation to pay us the secured money.

...

7.1 You must pay the secured money in full. You must not make a set-off, counter-claim or a deduction, or attach any condition to the payment, except as required or permitted by legislation.

...

37.1 It is a default under the mortgage if any of the following occur without our prior consent in writing:

(a) any part of the secured money is not paid when that part falls due and payable;

...

43.1 A variation of the mortgage must be in writing and signed by us and you.

69 The terms also provided that if a default occurred, Sibonna could exercise any of its rights and provision was made for the service of the relevant notice under the Transfer of Land Act 1958 (Vic).

70 There are a number of definitions in the MCP that are relevant. "You" is defined as the mortgagors (in this case Mr and Mrs Vouzas) and "us" as the mortgagee (here, Sibonna). "Related guarantee" is defined to mean a guarantee or guarantee and indemnity (entered into now or in the future) in which you agree to guarantee or guarantee and indemnify us concerning a debtor's liabilities under a credit contract. "Guarantee" is defined to mean any guarantee, indemnity or guarantee and indemnity.

... any agreement (whether entered into now or in the future) in which we provide you with credit (as defined in the Consumer Credit Code).

72 Under the Consumer Credit 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).

73 The variation of mortgage is dated 15 February 2009. The particulars of variation read:

The Mortgagee has agreed to increase the principal sum from $500,000.00 to $1,300,000.00. The Mortgagors shall repay the sum of $1,300,000.00 on or before 1 October 2009 however they will use their best endeavours to reduce this sum substantially beforehand.

In all other respects the terms and conditions of the mortgage are hereby confirmed.

74 In their amended statement of claim, Mr and Mrs Vouzas plead that they did not intend to grant a mortgage of the Albert Park properties when they executed the mortgage and did not intend to further encumber those properties for the amount of $1.3 million when they executed the variation of mortgage. They rely on clauses 5.1 and 6.1 of the MCP[2] and plead that at no time was there a credit contract, related guarantee or other agreement that created any obligation to pay any secured money. They also plead that no moneys were advanced by Sibonna to them pursuant to any agreement or at their request. By reason of these matters, they plead that the mortgage is void and unenforceable and that the notice to pay was a nullity as no debt owed by Mr and Mrs Vouzas was secured by the mortgage, nor was any sum payable by them. They claim that the moneys from the sale of the properties are held on trust for them. They also claim other loss and damage, such as the rent received by Sibonna from the tenants. They seek declaratory relief, orders for the taking of accounts and an inquiry, and orders directing that the sale proceeds be paid to them.

75 Sibonna denies all of these allegations except that it admits the terms of the MCP. However, counsel for Sibonna did concede at trial that the moneys were not advanced to Mr and Mrs Vouzas and, if there was no money secured by the mortgage, there was no entitlement to sell and that Sibonna would hold any moneys it received on trust.

76 As part of its defence, Sibonna pleads that Mr and Mrs Vouzas are indebted to it in an amount of $1.3 million plus interest at the rate of 16% per annum and it pleads that it is entitled to set off that debt against the moneys realized from the sale of the Albert Park properties.

77 By its counterclaim, Sibonna pleads that the mortgage is a deed and that Mr and Mrs Vouzas are therefore estopped from denying that the mortgage was given for valuable consideration and for the purpose of securing the amount owing by them to Sibonna and are also estopped from denying that Sibonna had agreed to increase the principal sum secured from $500,000 to $1.3 million. Sibonna pleads in the alternative that the variation of mortgage contained an express obligation on the part of Mr and Mrs Vouzas to repay the sum of $1.3 million on or before 1 October 2009 and to use their best endeavours to reduce that sum substantially beforehand. Sibonna claims that Mr and Mrs Vouzas have breached those terms of the variation of mortgage. Sibonna pleads that $900,000 was advanced to Steven Vouzas between January and October 2008 with a further $400,000 advanced in November 2008 with those amounts to be repaid within a short time frame. Sibonna also pleads that in or about August 2008, in consideration of Sibonna forbearing to demand and sue for repayment of the advances that had been made by that time, Mr and Mrs Vouzas agreed to become jointly liable as borrowers and agreed to execute the mortgage to secure the amount then outstanding of $500,000. No particulars of the agreement are given. It is then pleaded by Sibonna that as at December 2008 the amount of $900,000 (and interest calculated at the rate of 15% per annum up to $500,000 and 16% per annum over that amount) and the further $400,000 (and interest) were overdue and Sibonna foreshadowed at that time an intention to demand repayment and sue unless it was granted additional security for the total amount owing.

78 It is then pleaded that in consideration of Sibonna's forbearance to sue, Mr and Mrs Vouzas agreed to become jointly liable as borrowers for $1.3 million and agreed to execute the variation of mortgage. The particulars of this agreement are said to be that it was partly in writing and partly oral. Insofar as it is in writing, it is said to be contained in the email from Mrs Wolfers of 14 December 2008,[3] an email from Steven Vouzas to Sibonna's solicitor of 22 January 2009[4] and the variation of mortgage. Insofar as the agreement is alleged to be oral, it is said to be contained in discussions in December 2008 and January 2009 between Mrs Wolfers and Steven Vouzas, on his own behalf and on behalf of Speck Projects and Mr and Mrs Vouzas. Sibonna also pleads that the debt has been acknowledged by Mr and Mrs Vouzas and relies on the 20 December 2008 document[5] and on the email of 22 January 2009[6] from Steven Vouzas to Sibonna's solicitor. If Sibonna is not entitled to set off the debt against the amount of the sale proceeds, then it counterclaims for the debt of $1.3 million together with interest.

79 In defence to the counterclaim, Mr and Mrs Vouzas plead that no estoppel can arise against them if there is an equitable right to rescission of the mortgage and variation; alternatively, no estoppel can arise in reliance on a deed which was induced and executed by reason of a mistake on the part of Mr and Mrs Vouzas and no estoppel can arise where a deed is unenforceable. They also repeat the allegations made in the amended statement of claim as a defence to the counterclaim.

Was any amount secured by the mortgage in the absence of a separate loan agreement or guarantee?

80 Mr and Mrs Vouzas, having signed the mortgage and variation, are bound by their terms as they did not claim that they were induced to sign by fraud, mistake or misrepresentation, nor did they seek rectification or rely on allegations of unconscionability or non est factum.[7] Further, no consideration was necessary as the mortgage is a deed.[8] Mr and Mrs Vouzas rely solely on an argument based on the construction of the mortgage and variation. They contend that the provisions in the MCP, and in particular, clause 5.1, require there to be an underlying credit contract or guarantee with clause 6.1 only requiring payment in accordance with that underlying agreement. As Sibonna did not produce any underlying loan agreement or guarantee document which purports to bind Mr and Mrs Vouzas to the payment of money advanced to them or at their request, it was contended that the mortgage is void as it secures no underlying debt or facility provided by Sibonna to Mr and Mrs Vouzas. It was also submitted that there has been no default by Mr and Mrs Vouzas under the mortgage such that the notice to pay was a nullity and Sibonna was not entitled to exercise a power of sale pursuant to section 77 of the Transfer of Land Act 1958 (Vic).

81 Mr and Mrs Vouzas rely on the decision of Perpetual Trustees Victoria Limited v Tsai.[9] In that case, there was a simple two page mortgage document which incorporated a memorandum of provisions filed with the Registrar General. There was also a separate loan agreement for a draw down facility. The mortgagor denied signing the mortgage and loan agreement. It was almost common ground that the mortgage was forged. A clause in the memorandum provided:

The Mortgage is security for payment to you of the Secured Money and for the performance of all my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage.

82 "Secured Money" was defined as "all amounts which are payable at any time or are contingently owing or payable to you under a Secured Agreement and Enforcement Expenses."

Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgment that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type of mortgage because the production of the security document was prima facie evidence of the existence of the debt (Piccock v Brown [1734] EngR 52; (1734) 3 P Wms 288; 24 ER 1069) and that, unless the fact was put in issue by the pleadings, the security itself was sufficient evidence of the payment (Minot v Eaton (1826) 4 LJ (OS) Ch 134, but see Wansworth Norton Solicitors Nominee Company Limited v Edmonds [1992] 1 NZLR 596). This is set out in the Australian edition of Fisher and Lightwood on Mortgages at par [16.45] and [39.8]. The modern clause, however, does not go that far especially in a facility mortgage requiring draw downs to be made later. It would thus not seem that any of the traditional protections to mortgagees apply to mortgagees who use this form of loan agreement and mortgage.

It is clear that if no monies are lent under a mortgage then the mortgage is just completely void: see GM Industries Pty Ltd and the Companies Act (1980) ACLC 40-665 per Needham J. His Honour was there dealing with a company charge rather than a registered mortgage so that the GM decision has to be read subject to the effect of indefeasibility of a registered Mortgage. However, as Mr Walsh, who appeared for the Registrar General, so eloquently put it, there may be a registered mortgage, but it may be a registered mortgage which secures nothing.[10]

As the secured agreement itself does not bring with it any concept of indefeasibility and as there is an issue between the parties as to whether or not it was ever signed by the appellant or merely signed by a person impersonating the appellant, there is not the material to demonstrate to the required standard that there was a loan to the appellant.

If there has been no loan to the appellant he could not be in default not repaying the loan, and therefore, the mortgagee was not entitled to possession.[11]

85 Counsel for Mr and Mrs Vouzas also sought to rely on another route which was followed in Provident Capital Ltd v Printy[12] to arrive at the same destination. That case involved a forged mortgage and forged underlying deed of loan which specified the amount of the loan and repayments to be made. The New South Wales Court of Appeal considered whether the statutory power of sale had been properly invoked. Section 57(2)(a) of the Real Property Act 1900 (NSW) provided that a mortgagee may exercise a power of sale if "default has been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage... or in the payment, in accordance with the terms of the mortgage..., of the principal, interest... or other money the payment of which is secured by the mortgage...". It was held that the section required identification of a "default" in one of two circumstances: first, in the observance of any covenant in the mortgage or, secondly, in the payment in accordance with the terms of the mortgage of money the payment of which is secured by the mortgage. Neither requirement was satisfied. In relation to the first, the relevant covenant in the mortgage required the mortgagor to pay the secured money to the mortgagee as provided in any related agreement. The court held that default in that respect could only be identified by reference to the terms of the separate deed of loan but the terms of the deed were not incorporated into the mortgage and could not be described as covenants, agreements, or conditions "expressed...in the mortgage". As such, the first limb of s 57(2)(a) did not assist the mortgagee to found a right to exercise the power of sale. As to the second circumstance which would give rise to a right to sell, the court held that where the mortgage did not itself contain terms specifying the amounts of and times for making payments, there could be no default in making a payment "in accordance with the terms of the mortgage". The mortgagee had no right to sell and the mortgagor was entitled to recover the proceeds of sale.

86 Section 76(1) of the Transfer of Land Act 1958 (Vic) (which is the equivalent of s 57(2)(a) of the Real Property Act 1900 (NSW)) is in the following terms:

If default is made in payment of the principal sum interest or annuity secured or any part thereof or in the performance or observance of any covenant express or implied in any such mortgage or charge and continues for one month or such other period as is therein expressly fixed, the mortgagee or annuitant may serve on the mortgagor or grantor of the annuity and such other persons as appear by the Register to be affected notice in writing to pay the money owing or to perform and observe the covenants (as the case may be).

87 Relevantly, whilst the two provisions are similar, the Victorian section omits the words "in accordance with the terms of the mortgage" which appear in the second limb of the New South Wales provision and which were critical to the findings of the court in Printy.

88 Sibonna sought to distinguish the decisions in Tsai and Printy and other similar decisions[13] which involved forged mortgages because in those cases the forgery results in there being no agreement at all, so all that is secured is what is protected by registration of the mortgage and the resultant indefeasibility. However, it seems to me that regardless of whether forgery is involved or not, the principle in Tsai applies if, on a proper construction of the mortgage, the mortgage requires the existence of a separate agreement to establish an obligation of the mortgagor to pay and there is no such separate agreement. In that circumstance, there is no loan secured by the mortgage. Similarly, the principles in Printy will apply if the prerequisites in s 76(1) of the Transfer of Land Act for the exercise of the power of sale have not been fulfilled.

89 Courts adopt an objective approach in construing the terms of an agreement by determining what a reasonable person would have understood them to mean in the circumstances.[14] This normally requires consideration not only of the text, but the surrounding circumstances known to the parties and the purpose and object of the transaction.[15] The whole of the contract must be considered.[16] Further, a literal interpretation of the terms of a contract will not be applied if it would lead to an absurd result. In Fitzgerald & Anor v Masters,[17] a contract included a statement that the usual conditions of sale in use or approved by the Real Estate Institute of New South Wales were deemed to be incorporated into the contract insofar as they were "inconsistent" with the terms of the contract. The High Court held that the clause should be interpreted as if the word "consistent" had been used as otherwise the result would be absurd. In Westpac Banking Corporation v Tanzone Pty Limited[18] a rent review clause in a commercial lease, if literally interpreted, would have meant that the tenant would have been obliged to pay rental increases of more than 65%, which was well in excess of the inflation rate. The New South Wales Court of Appeal held that the rent review clause should be interpreted to include words that must have been omitted by mistake so that the absurdity of the rent review clause as drafted was avoided.

90 Nevertheless, in certain circumstances, such as in the case of a guarantee, terms will be interpreted contra proferentum, that is against the party putting forward the document.[19] An example of this is the decision in Chan v Cresdon Pty Ltd.[20] In that case, a lease contained a term that the guarantor (who was a party to the lease) guaranteed the performance by the tenant of its obligations "under this lease". The lease was not registered under the relevant legislation and was therefore not valid at law. However, once the tenant entered into possession of the property and paid rent, a common law tenancy came into existence with one of the terms being that the tenant would pay rent in accordance with the terms of the unregistered lease. The High Court referred to the principle that ambiguous contractual provisions should be construed in favour of the guarantor and held that the guarantee did not extend to the tenant's obligations which, at best, did not arise under the lease at law but under the equitable lease which was the equivalent of the lease at law.[21]

How should the mortgage signed by Mr and Mrs Vouzas be construed?

91 It was submitted on behalf of Mr and Mrs Vouzas that the mortgage should not be construed as one between commercial parties but as if it were one between consumers and a credit provider and that it should therefore be construed contra proferentum, such that the principles espoused in Westpac v Tanzone[22] are inapplicable in this case. It was put that the form of mortgage used by Sibonna was not the form of mortgage that was available to secure a third party obligation.

92 Counsel for Sibonna accepted that the terms in the MCP were manifestly inappropriate. However, it was submitted that there is no difficulty of construction of the mortgage as the original mortgage, in the stamp duty panel on the cover sheet, bore the statement to the effect that it secured an advance of $500,000 and the variation of mortgage contains an express acknowledgement of the increase in principal and an express obligation to repay the sum of $1.3 million on or before 1 October 2009. It was put by counsel for Sibonna that these are express terms and to the extent that they are inconsistent with the terms of the MCP, they prevail. It was further contended that the stamp duty notation suggests that the parties intended to create a mortgage securing $500,000 and that there was no intention to create a separate document or agreement. It was put that the Court should prefer a construction which upholds the mortgage documents and gives them a sensible commercial meaning rather than one which destroys their effect. It was contended that the surrounding circumstances known to the parties included that there was no agreement or loan directly between Sibonna and Mr and Mrs Vouzas; there was no separate written credit contract and no separate written guarantee. If giving effect to the terms in the MCP resulted in an absurd outcome, then it was contended that they should be ignored on the principles espoused in Westpac v Tanzone[23] and Fitzgerald v Masters.[24]

93 The mortgage and variation were executed in circumstances where moneys had been advanced to Steven Vouzas or his company and where the purpose of the mortgage given by Mr and Mrs Vouzas was to secure his obligation to repay those moneys. Mr and Mrs Vouzas are in the position of guarantors and any ambiguity in the mortgage terms should be interpreted in their favour.

How should the mortgage be construed before the variation of mortgage?

94 The mortgage provided that it was security for the amount owing by Mr and Mrs Vouzas to Sibonna. By virtue of clauses 5.1 and 6.1 of the MCP, for them to owe any "secured money", there had to be an underlying credit contract or guarantee entered into between them and Sibonna that created an obligation to pay and that set out how and when any secured money was to be paid to Sibonna. At the time of entry into the mortgage, no such agreement existed. In my view, the notation in the stamp duty box on the cover sheet of the mortgage does not amount to a term of the mortgage or a credit contract or guarantee between Mr and Mrs Vouzas and Sibonna. It certainly does not set out how and when any amount is to be paid. As the heading makes clear, it is nothing more than a statement for stamp duty use "only" (albeit that duty has not been payable on mortgages since 1 July 2004[25]). In those circumstances, no inconsistency arises as between the terms on the cover sheet and the MCP.

How should the mortgage be construed after the variation of mortgage?

95 What then is the position after the variation of mortgage was executed? How are clauses 5.1 and 6.1 of the MCP to be interpreted having regard to the particulars of variation which state that Mr and Mrs Vouzas "shall repay the sum of $1,300,000 on or before 1 October 2009 however they will use their best endeavours to reduce this sum substantially beforehand"? I do not think that the particulars of variation supplant clauses 5.1 and 6.1, nor are they inconsistent with those clauses. The particulars of variation do not stand alone to create a different basis for liability under the mortgage. It is still necessary for there to be a credit contract or guarantee before any liability on the part of Mr and Mrs Vouzas arises. Hence, the question is whether the particulars of variation constitute a credit contract or related guarantee for the purposes of clause 5.1 of the mortgage and whether, for the purpose of clause 6.1, they set out the time and way in which any moneys are to be paid to Sibonna.

Was there a separate credit contract or guarantee?

Is the variation of mortgage a credit contract or guarantee?

96 It was submitted on behalf of Sibonna that the credit contract between Mr and Mrs Vouzas and Sibonna is to be found in the variation of mortgage. Counsel submitted that it was an agreement to pay a certain amount of money on a later date; it constituted a deferred obligation and fell within the definition of credit contract. Counsel submitted that it did not matter whether the word "pay" or "repay" had been used. It was put that when a person agrees to repay money, which in fact has not been lent to that person but to another, the person is taking on with the other a joint obligation so that, in effect, there are joint borrowers rather than borrower and surety. This was to be contrasted with those forms of mortgage in which the nature of the agreement is such that it only secures advances which are made thereafter, in which case the mortgagee would need to prove that advances were made to show that something was secured. Counsel contended that the agreement could be construed either as a direct obligation or as one of guarantee.

97 As to the argument that the variation of mortgage amounts to a principal obligation taken on by Mr and Mrs Vouzas, their counsel submitted that the terms of any such possible agreement are not clear. As examples, counsel pointed to the fact that no reference was made to an obligation to pay interest (which was one of the grounds of default) and to that part of the variation which provided that Mr and Mrs Vouzas would "use their best endeavours to reduce this sum substantially beforehand". Counsel submitted that the wording in the variation was so unclear and uncertain that it did not rise above the original mortgage and gives no comfort that either the original mortgage or the mortgage as varied established a clear enforceable obligation to repay for the debts of a third person.

98 Further, counsel submitted that the variation did not constitute an obligation to "pay" but rather it was an obligation to "repay" moneys advanced. Counsel contended that the use of the word "repay" presupposes the making of an advance to Mr and Mrs Vouzas. Further, it was put that when the terms of the MCP are taken into account, the obligation is to pay moneys advanced by Sibonna to Mr and Mrs Vouzas.

99 In truth, counsel submitted, the particulars of variation would need to do a great deal of work to establish an enforceable agreement, with an obligation to pay by a particular time a particular amount with a particular interest rate for which a failure to pay constitutes an event of default which would entitle the mortgagee to exercise the power of sale. Counsel submitted the clause would need to create an obligation to repay moneys advanced to a third party (which is not recited in the variation of mortgage), on or before a particular date, presumably if that other third party does not pay it. Counsel further contended that the mortgage and variation do not satisfy the requirements of s 126 of the Instruments Act 1958 (Vic) because they do not, as a matter of construction, evidence in writing a special promise to answer for the debt, default or miscarriage of Steven Vouzas.

100 I do not think it matters that the word "repay" rather than "pay" was used. When an advance is made, the term "repay" is apt to describe what is to occur, regardless of whether the person making the payment was the person who received the advance. However, in this case, the requirements of clauses 5.1 and 6.1 of the MCP still have to be met and they have not been met in this case. The variation of the mortgage does not constitute a credit contract. The variation is not an agreement in which Sibonna provided credit to Mr and Mrs Vouzas. There has been no loan to them. No obligation to pay a debt was created by the variation. No credit was provided by Sibonna because there is no deferral of a debt owed by Mr and Mrs Vouzas, nor have Mr and Mrs Vouzas incurred a deferred debt to Sibonna. On a proper construction, the mortgage does not secure advances that were not paid to the mortgagors but rather to a third party unless there is a guarantee. The variation does not constitute a guarantee. By signing the variation of mortgage, Mr and Mrs Vouzas were not thereby agreeing to guarantee their son's liabilities under a credit contract. Nor does the variation evidence a guarantee. Rather, the variation simply records Sibonna's agreement to increase the amount of the principal sum and extends the date for repayment of moneys if they had been advanced to Mr and Mrs Vouzas.

Is there otherwise an agreement by Mr and Mrs Vouzas obliging them to pay?

101 It was also argued on behalf of Sibonna that, leaving to one side the mortgage and variation, there was an express or implied agreement that in consideration of Sibonna forbearing to immediately exercise its rights against their son and his company, Mr and Mrs Vouzas would be jointly liable (either as joint principals or as guarantors) in respect of the advances originally totalling $500,000 and later $1.3 million. To the extent that a guarantee must be evidenced in writing under s 126 of the Instruments Act 1958 (Vic), it was submitted that the mortgage and the variation of mortgage satisfy this requirement. It was submitted that Mr and Mrs Vouzas conveyed their agreement to take on the obligation via their son. Counsel accepted that such an agreement could only be inferred from the evidence as there was no direct evidence that Mr and Mrs Vouzas did agree. In relation to the first $500,000, it was submitted that the execution of the mortgage by Mr and Mrs Vouzas and Sibonna refraining from calling up the debt already owed by Steven Vouzas and his company amounted to conduct from which it could be implied that there was an agreement by Mr and Mrs Vouzas. Counsel also submitted that I should infer that there were conversations between Mr and Mrs Vouzas and their son to the effect that they would give a mortgage and that he had express actual authority to act on their behalf; they must have been aware that they were granting a mortgage. I was urged to have regard to the contradictory nature of the evidence of Mr and Mrs Vouzas and to draw the inferences from the following:

(a) An officer of National Australia Bank Limited recorded in an annual review memorandum dated about 6 weeks prior to the date of the mortgage that E and C Vouzas had requested consent for a second mortgage over the Albert Park properties in favour of Sibonna.

(b) When the claim was first brought it was put as an unconscionable conduct claim but, at trial, Mr and Mrs Vouzas resiled from the evidence that they had given in support of that claim.

(c) Mr and Mrs Vouzas still have confidence in and trust their son in the management, administration and operation of their financial affairs; if he misled or deceived them in having the mortgage and variation signed then they would not have left him in charge.

(d) Counsel pointed to inconsistencies in the evidence of Mr and Mrs Vouzas about what they did when they found out that the properties were to be sold by Sibonna. This included their evidence that when they spoke to their son, they did not question him about how there came to be a mortgage over the properties. Rather their evidence was that they were given some form of assurance by him that he would look after it and everything would be alright.

(e) Mr Vouzas was upset with Mrs Wolfers because she did not speak to him. It was put that that is only consistent with him understanding that there is some obligation on his part to Mrs Wolfers; it is not consistent with there being no mortgage.

(f) The conflicting evidence given by Mrs Wolfers and Mrs Vouzas about the footpath conversation between them and Steven Vouzas. It was submitted that there was no easy explanation for why Mrs Vouzas went to meet Mrs Wolfers, unless she was aware that her family owed Mrs Wolfers a debt of gratitude for the financial assistance that she had given to them. It was contended that the footpath conversation supports the inference that the son's affairs were part of the family's affairs and that Mr and Mrs Vouzas were fully aware of them; they were willing and knowing participants in the enterprise who put up their own properties as security.

(g) When the loan could not be repaid, Steven Vouzas tried to fix the problem without telling his parents about it. Once his father knew about the problem, he did not tell his wife but tried to fix the problem with his son.

102 Counsel submitted that I could be more assured in drawing the inferences because of the absence of Steven Vouzas as a witness who might have given evidence to rebut the inference.[26]

103 Counsel for Mr and Mrs Vouzas contended that it was not put to them in cross examination that they gave their son actual authority to pledge the two shops as security. However, it was put to Mrs Vouzas that her son had asked her to put up the Albert Park properties as security and that she had agreed to do that. Much of the cross examination of Mr Vouzas also went to this point.

104 Counsel for Mr and Mrs Vouzas also submitted that no adverse inference should be drawn because they did not call their son to give evidence.[27] It was submitted that in order for an adverse inference to be drawn, the witness to be called has to be able to give evidence as to a material fact, and, in this case, the admission having been made that no moneys were ever advanced to Mr and Mrs Vouzas and that their son or his company received all of the moneys, there was no relevant evidence that he could have given in relation to either the construction argument or any other issue that was made apparent on the pleadings. On the pleadings, the agency point was only apparent in respect of the variation of mortgage having been given in consideration of the forbearance to sue for the outstanding moneys. It was put that this was only addressed fleetingly in Mrs Wolfers' affidavit; there was no evidence that there was any direct conversation with Steven Vouzas about those issues; on its face one of the documents Mrs Wolfers relied on was never sent to Steven Vouzas and the rest of the conversations were never put to Mrs Wolfers in evidence. Counsel contended that there were no issues on which Mr and Mrs Vouzas bear the onus of proof in respect of which Steven Vouzas ought to have been called or an explanation given as to why he was not called. Secondly, counsel contended that a Jones v. Dunkel[28] inference cannot be used to fill a gap in the evidence: it cannot be inferred by the absence of calling Steven Vouzas that he had actual authority from his parents to pledge the Albert Park properties.

105 Counsel for Sibonna submitted that the rule in Jones v Dunkel[29] is not limited to cases where the party failing to call the witness has the onus of proof. Further, he submitted that this is not a case where the absence of the witness might be explained because of a concern about whether he might not have given truthful evidence because of concern about his own position - that could not be so because Steven Vouzas had already sworn an affidavit in the proceedings. There was no suggestion that he was unwilling to come to Court. Counsel submitted that a simple tactical decision was taken not to call him but it enabled the Court more readily to draw inferences about matters from other evidence where his evidence could have been relevant. Counsel gave the example of the footpath conversation where, on the evidence of Mrs Vouzas, there were three people present for the relevant part of the conversation - Mrs Vouzas, Steven Vouzas and Mrs Wolfers.

106 It was also submitted on behalf of Sibonna that there was no proper explanation of what the money borrowed from other lenders (including National Australia Bank Limited and Farlbut Pty Ltd) had been used for and it must have been borrowed to help the family with their enterprises. It was suggested that I should draw an inference from that that this is not the first time that Steven Vouzas has arranged mortgages on behalf of his parents but it is the first time that it has gone wrong.

107 Counsel for Mr and Mrs Vouzas submitted that Sibonna was trying to construct an agreement to borrow moneys which could be implied by, in effect, negative or circumstantial evidence or an inference that there must have been some sort of agreement. Counsel for Sibonna submitted that although it was a circumstantial or inferential case, that does not mean that there is a gap in the evidence. Rather, it was contended it is just that there is no direct evidence, which is often the case.

108 I do not draw the inference from the evidence that Mr and Mrs Vouzas gave their son express actual authority to act on their behalf in dealings with Sibonna, nor the inferences urged on me that they agreed to give a mortgage and agreed to be liable in respect of the advances made by Sibonna to Steven Vouzas. In the absence of evidence given by the author of the National Australia Bank annual review memorandum, little weight can be ascribed to the statement in it that E and C Vouzas had requested consent for a second mortgage to Sibonna. The document is not a diary note recording what was said by Mr or Mrs Vouzas at a meeting with them and the basis for the statement is unknown. In this regard, there was clear evidence that Steven Vouzas dealt with the bank in relation to his parents' affairs. Therefore, whilst the statement is some evidence of what the bank understood, it is not evidence of how the bank came to have that understanding.

109 It is true that Mr and Mrs Vouzas resiled from their evidence that their son told them that he had given them the mortgage and variation to sign. Their evidence in this regard was not credible. In particular, the assertions by Mrs Vouzas that she did not know who had written her affidavit and that what was contained in it was not correct lacked credibility. The affidavit had been translated to her by her daughter. Similarly, the assertions by Mr Vouzas that he still did not know how they came to sign the mortgage and variation and that he thought this case was about finding out the answer to that question beggar belief, particularly in circumstances where their counsel opened the case on the basis that the mortgage documents were presented to them by their son who witnessed their signatures. This is a close knit family. Mr and Mrs Vouzas knew that their son had business dealings with Mrs Wolfers; other than what might be described as social pleasantries, they did not have direct dealings with Mrs Wolfers; it was Mrs Wolfers (in effect) who was auctioning the Albert Park properties; their signatures appeared on a mortgage over those properties. The only logical explanation for how the mortgage came to be signed is one that involves their son and they must have challenged him to explain to them how this all came about. I do not accept their evidence that they do not know that it was their son who gave them the mortgage and variation to sign. However, that does not lead me to infer that they must have expressly authorised him in the manner contended for by Sibonna. Rather, I infer that they did not authorise their son but seek to protect him from the serious allegations that might otherwise be directed towards him in consequence of such evidence. Similarly, the evidence given by Mr and Mrs Vouzas about what they did when they found out about the auction of the properties, how their son told them that he would fix the situation, how proud they are of their son and how Mr Vouzas tried to fix the problem without telling Mrs Vouzas is all consistent with them wanting to protect their family and son. Even leaving their son in control of their financial affairs is not necessarily inconsistent with their claim that they did not agree to give a mortgage. Whilst some parents might react by publicly excluding a child who has wronged them, others will deal with the issues in private and give the appearance of strong family unity to the outside world.

110 The suggestion that this is not the first time that Steven Vouzas has organised mortgages by his parents but it is the first time that things have gone wrong does not lead me to infer that Mr and Mrs Vouzas authorised their son and gave the mortgage knowingly as security for their son's debt. Even assuming that similar mortgages have been organised by Steven Vouzas and executed by Mr and Mrs Vouzas in the past in a similar manner to the execution of the Sibonna mortgage, if the debts were repaid when due, then there would never have been any need for them to have known of the existence of the mortgages. In any event, there is no evidence that they have ever given a mortgage as security for the debts of their son.

111 Significant weight was placed by Sibonna on the footpath conversation. I accept Mrs Wolfers' evidence that Mrs Vouzas did thank her. Mrs Wolfers assumed that what Mrs Vouzas said had something to do with the mortgage and the particular loans Sibonna says are secured by that mortgage. However, there was evidence of other loans that Steven Vouzas had with Mrs Wolfers about which Mrs Vouzas may have been thanking her or she could have been thanking her for lending her son the $1.3 million. None of that leads to the conclusion that Mr and Mrs Vouzas were fully aware of the dealings between their son and Mrs Wolfers and that they knowingly mortgaged their properties as security. Mrs Wolfers assumed that Steven Vouzas was authorised by his parents - but she never took the step of having direct contact with them in respect of the loans, mortgage or variation in circumstances where the advances had already been made and not repaid and where those advances were not made to Mr and Mrs Vouzas.

112 The evidence of Mr Vouzas that he was upset that Mrs Wolfers did not speak to him is consistent with his position as a father. If Mrs Wolfers had a problem with his son, then he expected that she would speak to them before taking action. That is not an unreasonable position. It does not mean that it is an acknowledgment by Mr Vouzas that he (rather than, or in addition to, his son) had some personal legal liability to Mrs Wolfers.

113 The absence of Steven Vouzas as a witness does not lead me to have confidence in the inferences that Sibonna urged me to draw. I accept that the failure of a party to call a witness can have an impact on the ease with which inferences may be drawn even where that party does not bear the burden of proof. Indeed, that was the situation in Jones v Dunkel[30]. However, I accept the submission on behalf of Mr and Mrs Vouzas that their son could have given no relevant evidence on a material issue that was apparent from the pleadings. Further, the fact that he had sworn an affidavit at the outset of the proceedings does not lead me to the conclusion that he would therefore have had no reason not to want to give evidence at the trial. It is one thing to swear an affidavit for an interlocutory application and quite another to be exposed to the stress of being a witness at trial, particularly where, on the pleadings, his evidence was no longer relevant.

114 Mr and Mrs Vouzas appeared highly emotional and stressed when they were giving their evidence and, in some respects, as I have already noted, their evidence was not credible. However, I do accept their evidence that they did not intend to give a mortgage over the Albert Park properties. Mr Vouzas was clear in his evidence that he would give his children money to help them but he would never give a guarantee in respect of their debts. When giving this evidence, Mr Vouzas impressed me as sincere and honest. His evidence was consistent with allowing his children to operate his bank accounts, provided they did so within the limits permitted by the bank. There is a distinction to be drawn between this and exposing his property to risk through permitting it to be used as security for his son's debts. As I have noted above, there is no evidence that Mr and Mrs Vouzas had previously mortgaged their property as security for the debts of their son. I accept that Mr and Mrs Vouzas both had an emotional attachment to the property at 185-187 Victoria Avenue and that they would not have agreed to participate in a redevelopment of their properties as part of what Mrs Wolfers and their son referred to as the Albert Park venture. Although the lease of one of the properties contained a clause entitling the landlord to terminate the tenancy if there was to be a redevelopment, I accept the evidence of Mr Vouzas that he had no intention of redeveloping the property. These findings also militate against making the inferences urged on me by Sibonna.

115 In any event, there is no certainty as to the terms of any arrangement in respect of the advances made by Sibonna. Mrs Wolfers impressed me as an honest witness who did her best to give truthful evidence. However, her recollection of events, particularly the order and date of them, was not clear and her evidence as to the amounts advanced at any particular date, the repayment arrangement and the applicable interest rates was vague. Mrs Wolfers was also unclear as to what moneys had been received from the sales of the Albert Park properties. The documentary evidence relating to the advances and repayment arrangement once the variation of mortgage was signed, is comprised of the variation itself and the email that Mrs Wolfers sent to her solicitor a few days later.[31] Those two documents are not consistent as to the terms of any underlying agreement which they might evidence. For example, the variation of mortgage refers to an obligation to use best endeavours to reduce the sum of $1.3 million, but the email makes no reference to this obligation. The email refers to an interest rate and monthly interest payments, but the variation does not make any reference to interest. The variation refers to a repayment date of 1 October 2009, but the email refers to 26 September 2009. All in all, I could not be satisfied as to the terms of the agreement between Mrs Wolfers (on behalf of Sibonna) and Steven Vouzas, let alone any agreement between her and Mr and Mrs Vouzas.

116 Further, to the extent that the agreement between Sibonna and Mr and Mrs Vouzas was contended to be one of guarantee, there is no document which satisfies the requirements of s 126 of the Instruments Act 1958 (Vic). The variation does not refer to a third party and cannot be categorised as a memorandum or note of any guarantee.

117 It follows that, in the absence of both a binding obligation to pay and money being advanced to Mr and Mrs Vouzas, there could be no default by them that would warrant the service of a notice to pay under s 76(1) of the Transfer of Land Act. That being so, the power of sale could not be enlivened unless there was either an acknowledgement of the debt or an estoppel that operates against Mr and Mrs Vouzas. I will next deal with those matters.

Is there any binding acknowledgement of debt by Mr and Mrs Vouzas?

118 Sibonna argued that Mr and Mrs Vouzas, by their son Steven, acknowledged the debt. They rely on the 20 December 2008 document[32] and on the letter of 22 February 2010[33]. Both documents were signed by Steven Vouzas but not by his parents. I am not satisfied that he was authorised by his parents to sign either document on their behalf and neither binds them. Further, as counsel for Mr and Mrs Vouzas submitted, as a matter of construction, neither document is an acknowledgement of debt by Mr and Mrs Vouzas. The 20 December 2008 document is headed as an agreement between Sibonna and Steven Vouzas with no reference to his parents. It is true that there is a statement that the then current loans to him and/or his nominees (being Speck Projects and E&C Vouzas) are $1.3 million for Albert Park and $1 million for Noble Park. However, this wording lacks the necessary clarity and certainty to make it a binding acknowledgement of debt by Mr and Mrs Vouzas. The letter sent by Steven Vouzas in response to the notice to pay suffers from similar deficiencies. Although the letter refers to moneys secured by the mortgage, it does not specify what those moneys are nor their amounts.

Does any estoppel operate against Mr and Mrs Vouzas?

119 A solemn and unambiguous statement in a deed must be taken as binding between the parties so that it does not admit any contradictory proof.[34]

120 It was common ground that the mortgage is a deed. It recites that it is given for valuable consideration and for the purposes of securing the payment of the amount owing by the mortgagor to the mortgagee. The variation of mortgage recites that Sibonna agreed to increase the principal sum to $1.3 million. Sibonna claims that Mr and Mrs Vouzas are estopped by their deed (ie the mortgage) from now disputing those facts and denying that the mortgage was given for valuable consideration and secures an obligation to repay the sum of $1.3 million. It was submitted that once they gave their solemn promise, it does not matter that the moneys were not advanced to them.

121 Sibonna's argument rests on the assumption that the term "valuable consideration" is referable to the $1.3 million, and that the recitation of Sibonna's agreement to increase the principal sum to that amount is equivalent to a statement by Mr and Mrs Vouzas that the principal sum has been increased, has been paid and has been received by them. Plainly, that is not so. At best, Mr and Mrs Vouzas would be estopped from denying that Sibonna made the agreement to increase the principal sum and that the mortgage was given for valuable consideration. Neither of those matters takes the case very far. It is still open to Mr and Mrs Vouzas to argue that, properly construed, the mortgage secures no money. The recital and variation of mortgage need to be interpreted in the context of the whole mortgage. That includes clauses 5.1 and 6.1 in the MCP, which require Mr and Mrs Vouzas to be parties to a credit contract or guarantee that sets out how and when they would have to pay before they can be held to owe any amount to Sibonna. For the reasons given above, those pre-requisites are not satisfied. Further, the statement that Sibonna had agreed to increase the principal sum begs the question of the identity of the party with whom the agreement had been reached to lend that principal sum. The statement in the recital is not one that I could attribute to Mr and Mrs Vouzas to found an estoppel.

122 Additionally, counsel for Mr and Mrs Vouzas relied on Greer v Kettle[35] as authority for the proposition that equity will intervene, if the case is sufficient, to prevent the common law rule of estoppel by deed prevailing. Counsel submitted that the facts here satisfy the threshold for equitable intervention: Mr and Mrs Vouzas did not know under what circumstances the documents were executed, but they did not intend to pledge their two properties as security because they were investments for all members of the family, and for their retirement; there is no evidence to suggest that they gave their son authority to pledge them; there is no direct evidence that Mrs Wolfers was told that Steven Vouzas had authority to pledge the properties. Mrs Wolfers assumed he had authority, but she never investigated it. Her lawyer does not seem to have investigated it. It was put that this all occurred in circumstances where the lender, seeking to secure a debt by way of guarantee supported by a mortgage over land, armed the borrower with the documents such that the lender can have the knowledge of the borrower or agent imputed to it in equity. Counsel contended that it was open to find that if Steven Vouzas was an agent, he was the agent of Mrs Wolfers or Sibonna. It was submitted that all of this could be taken into account when balancing the equities to determine whether or not there is an estoppel by deed which is binding upon Mr and Mrs Vouzas.

123 Counsel submitted that, on the other hand, Mrs Wolfers' evidence of what she would have done but for the existence of the mortgage defied some credibility and was gratuitous: looking at what transpired at the relevant time it would seem that Mrs Wolfers was prepared to advance funds, without the existence of the proper security, on loose terms and without confirming the position with Mr and Mrs Vouzas. So, whilst there was some evidence that she would not have advanced further moneys but for the mortgage, it was submitted that the fact of the matter was the mortgage only secured particular amounts and she was prepared to advance beyond that on oral agreements and the like, without direct contact with Mr and Mrs Vouzas. When balancing those equities, counsel submitted that the position of Mr and Mrs Vouzas outweighs that of Mrs Wolfers and Sibonna, especially in circumstances where they armed Steven Vouzas to procure the mortgage and did not seek to ensure that separate legal advice was given to the guarantors, or that there had not been some misrepresentation or some other unconscionable conduct or dealing, so as to protect the position of Mr and Mrs Vouzas and make their position unquestionable in terms of equity.

124 Counsel for Sibonna submitted that even if Mr and Mrs Vouzas did enter into the mortgage and variation under a mistake, it was not a common mistake, and it would not be enough to remove the effect of the estoppel by deed. Further, Sibonna contended that Mr and Mrs Vouzas received valuable consideration, namely Sibonna's forbearance to sue Steven Vouzas and his company in respect of the advances that had been made to them. Even if that were the position, the circumstances of this case, as outlined by counsel and described in paragraph 122 above, are such that equity would prevent any estoppel from arising against Mr and Mrs Vouzas. Of particular relevance is the conclusion that I have reached that Steven Vouzas acted as Sibonna's agent and Mrs Wolfers did not deal nor attempt to deal directly with Mr and Mrs Vouzas. It was in the interests of Sibonna to obtain the mortgage, and later the variation, as security for the advances that it had already made to Steven Vouzas. Whilst that is not conclusive, it does lend strong support to the view that Steven Vouzas was the agent of Sibonna when he was tasked with arranging for his parents to sign the mortgage and variation. Regrettably for her, Mrs Wolfers did not take steps to protect her position to ensure that there was no wrongdoing on the part of Ste[36]n Vouzas. 36

125 It was submitted on behalf of Mr and Mrs Vouzas that in the absence of an enforceable agreement entered into by them to repay moneys advanced to them or an agreement in writing to answer for the debts of another, then Sibonna's counterclaim against them, for payment of a debt due, must fail. I accept that submission.

126 Judgment should be entered in favour of Mr and Mrs Vouzas. I will hear counsel as to the form of the orders to be made to give effect to these reasons and also as to costs.

[1] Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745.

[2] The text of these clauses is set out in [68] above.

[3] As to which, see [29] above.

[4] As to which, see [39] above.

[5] The text of the document is set out in [30] above.

[6] As to which, see [39] above.

[7] Equuscorp Pty Ltd v Glengallon Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 482-483.

[8] H G & R Nominees Pty Ltd v Fava [1997] 2 VR 368.

[9] [2004] NSWSC 745. See also, Van Den Heuvel v Perpetual Trustees Victoria Limited [2010] NSWCA 171.

[10] Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745 at [20]- [21].

[12] [2008] NSWCA 131.

1. [13] Knight v New England Credit Union Ltd (1992) 5 BPR 11,744; Van den Heuvel v Perpetual Trustees Victoria Ltd [2010] NSWCA 171.

[14] Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Ors [2004] HCA 52; (2004) 219 CLR 165 at 179; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 462.

[16] Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109.

[17] [1956] HCA 53; (1956) 95 CLR 420.

[18] [2000] NSWCA 25.

[19] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 at 561.

[20] [1989] HCA 63; (1989) 168 CLR 242.

[22] Westpac Banking Corporation v Tanzone Pty Limited [2000] NSWCA 25.

[24] [1956] HCA 53; (1956) 95 CLR 420.

[25] Section 148A of the Duties Act 2000 (Vic).

[26] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

[31] The text of which is set out in [43] above.

[32] The text of which is set out in [30] above.

[33] The text of which is set out in [47] above.

[34] Greer v Kettle [1938] AC 156 at 171; Cousens v Grayridge Pty Ltd [2000] VSCA 96.

[35] [1938] AC 156.

[36] Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at 190. See also Burke v State Bank of New South Wales (1995) 37 NSWLR 53. Cf H G & R Nominees Pty Ltd v Fava [1997] 2 VR 368 where the mortgage was not sought in respect of advances already made but rather in respect of advances to be made in the future. In those circumstances, it was held that the borrower was not the agent of the mortgagee in securing the signature of the mortgagors on the mortgage.