Appeal allowed and summary judgment of Master set aside

Appellant (First Defendant) : Michell Sillar McPhee

Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362

Fry v Lane [1888] 40 Ch D 312

Lord Hatherly, O'Rorke v Bolingbroke (1877) 2 App Cas 814

National Australia Bank Ltd v Nobile & Martelli [1988] FCA 72; (1988) 100 ALR 227

Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649

1 WALLWORK J: I agree with the reasons for judgment of Scott J and with the conclusions reached by his Honour.

3 ANDERSON J: I would dismiss this appeal. In my opinion, the Master was correct to order summary judgment in favour of the respondent lenders. Because I am in the minority, I will state my reasons briefly.

4 The lenders are not a bank. They are 11 investors who were separately invited by the appellant's broker, Fermanis, to contribute to a pool of funds to raise $400,000 which they were told was to be loaned to the appellant and her son on the security of a first mortgage over the appellant's property. They had no contact with the appellant or her son. They dealt only with the appellant's broker, Fermanis. There is no evidence that they acted unconscionably in dealing with Fermanis and there is no evidence that any undue influence was brought to bear by them upon Fermanis, the appellant or her son. So far as appears, they simply provided their respective portions to Fermanis, leaving it to him to perfect the security. The mortgage was prepared by solicitors engaged by Fermanis. On settlement, the mortgage was registered and the money they put up was disbursed in various directions, including as to the sum of $70,000 to St George Bank to pay out a loan which the bank had made to the appellant. Most of the rest of the money found its way into the son's hands for his computer systems business.

5 It is now said that the lenders should be deprived of the security of the mortgage and that the loans which they made should be declared by a court of equity to be unsecured, essentially because the lenders did not insist that the appellant obtain independent advice before signing the mortgage. This is a very serious step to take. It is obvious that if this were to happen, the respondent lenders would lose their money.

6 Counsel for the appellant relied on several decisions of the High Court which, in my opinion, are clearly inapplicable. This is not a case of a volunteer surety mother putting up property to secure a borrowing by her son. That is neither the form nor the substance of the transaction. As to form, it is quite clear that the appellant was not a volunteer surety but the borrower. In the mortgage she acknowledges that the principal sum is "owing by the mortgagor", that is, by her. The mortgage contains a covenant on her part to repay the principal sum on demand and it contains a charging clause whereby she expressly mortgages the property to secure her promise to repay. In point of fact, a substantial part of the proceeds

of the loan was from the outset to be applied in repayment of an existing loan to her by the St George Bank, whereby the mortgage granted by her to that bank was to be discharged; and this was done. In form and in substance, this was a loan to the appellant.

7 It is not to the point to analyse the two mortgages with a view to demonstrating that the mortgage in suit was more onerous than the mortgage which it replaced. Nor is it to the point that from the outset it was the appellant's intention to assist her son in his business venture by giving him most of the borrowed money. The point is that not only is the appellant shown in the mortgage to be the borrower, she in fact received and used a substantial portion of the borrowed funds for her own purposes. Neither is it to the point that the earlier mortgage may have been taken out by her in order to provide money to her son for business purposes. There is nothing to suggest that there was anything amiss with that earlier transaction and there is nothing untoward about the fact that the appellant was providing financial assistance to her son. There was nothing to warn the lenders that the son was in a position of dominance in relation to the appellant which he was or might be abusing. Parental financial assistance to children for their businesses is commonplace.

8 These facts distinguish the case from cases such as Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 and Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395.

9 Underlying the appellant's case is the proposition that some equity arose out of the circumstance that the appellant was, in effect, borrowing money to give to her son to invest in a risky business venture of which she had no understanding. One answer to this is that there is no obligation on lenders to investigate the wisdom or the commercial soundness of the transaction proposed to be entered into by the borrower, generally speaking: Micarone v Perpetual Trustees Ltd [1999] SASC 265; (1999) 75 SASR 1; Banco Exterior International SA v Thomas [1996] EWCA Civ 676; [1997] 1 WLR 221 per Sir Richard Scott VC at 230-231.

10 There is not the slightest evidence that the appellant was under any special disadvantage or disability or, if she was, that this was known to or ought to have been known to the lenders. She had worked in her son's business for a number of years performing secretarial services. She had supported the business financially in the past. She might have had good reason to support the business on this occasion. There is no evidence that the respondents or any agents acting for them knew of any facts which would have placed a reasonable person on notice of anything untoward.

11 The recent House of Lords judgment in Royal Bank of Scotland v Etridge [2001] UKHL 44 provides the appellant with no support. That was an opinion given in cases in which several wives had charged their interest in their homes in favour of banks as security for their husband's indebtedness or the indebtedness of companies through which the husbands carried on business and all later claimed to have signed the charges under the undue influence of the husbands. The cases had proceeded separately through the courts below but came together in the House of Lords. On behalf of the wives it was contended that the banks were on notice that the wives' participation in the transactions had been procured by their husbands' undue influence, due to the relationship between them, that is, the relationship of husband and wife. Even supposing that the principles which apply in the case of husbands and wives also apply as between parents and children, there is nothing in the speeches in the House of Lords which would support a proposition that a lender is put on inquiry as to the existence of undue influence where the loan is to the very person who is providing the security. The matters that may put a lender on inquiry are that the parties do stand in a relationship in which there is a risk that the debtor has abused the trust and confidence reposed in him or her by a surety and the transaction is, on its face, not to the financial advantage of the surety. The lender is not put on inquiry in a transaction where the money is being advanced or has been advanced to the party providing the security or to the parties jointly - at any rate, not unless the lender is actually aware that the loan is being made for the dominant party's purposes, as distinct from their joint purposes: Royal Bank of Scotland Plc v Etridge (supra) at par 48; CIBC Mortgages Plc v Pitt [1993] UKHL 7; [1994] 1 AC 200.

12 In short, this case had no features which were so abnormal and which were known to, or ought to have been known to, the lenders as to put them on inquiry. On the face of it, a mother and her son wished to borrow $400,000 on the security of the mother's property, the value of which was represented to be well in excess of that sum, and her son was to provide collateral security by way of a guarantee. Part of the loan was to pay off an existing mortgage over the mother's property and repay her loan, and the rest was to go into the son's business, in which the mother worked. There was simply nothing about the transaction which should have appeared to the lenders to be wrong such as to render their conduct unconscionable or unfair unless they insisted that the appellant obtain independent advice.

13 In the speeches of Lord Bingham and Lord Nicholls in Royal Bank of Scotland v Etridge, there is a clear warning against allowing the law to

become over-protective of people who enter into commercial borrowing transactions. The warning is that, if the law does become too protective, lenders will lose confidence in the enforceability of the securities which they obtain and will stop lending. So, it is most important that a line be drawn between giving reasonable protection to people who put up security for borrowings made by others and affording reasonable protection to lenders who rely on the enforceability of the securities which are provided.

14 In my opinion, this case is well and truly on the lenders' side of the line, so much so that there is no real prospect that the appellant's case will succeed at trial.

15 SCOTT J: This is an appeal against a decision of a Master of this Court granting summary judgment to the plaintiffs (respondents) in a mortgage action. The learned Master ordered that the respondents be granted possession of property pursuant to their rights under a mortgage.

16 The factual circumstances surrounding the matter are that the appellant is a widow who was born on 16 June 1923. Her husband died in 1970.

17 The appellant had limited work experience following the completion of her schooling in 1940. The appellant married in 1946 at the age of 23 years and has not worked since apart from some occasional work for her son David Siglin for whom she worked on an unpaid basis doing secretarial work.

18 The action commenced by the respondents against the appellant arises out of a mortgage dated 15 May 1998 ("the mortgage") pursuant to which the appellant mortgaged the unit in which she lived at Unit 21, 23 Swan Street, South Perth ("the mortgaged property") to secure the sum of $400,000.

19 The mortgage is in standard form except for cl 21 and cl 22 which provide:

"21. That in consideration of the principal sum agreed to be advanced under this security to the mortgagor and to DAVID SIGLIN of Unit 21, 23 Swan Street, South Perth (the Borrower and Guarantor) by the Mortgagee the Mortgagor for the purpose of securing the payment of the principal sum and interest the Mortgagor mortgages to the Mortgagee the estate and interest specified in the said

land and the Mortgagor and the Borrower hereby covenant with the Mortgagee as follows:

That the Mortgagor will on demand in any of the ways herein mentioned and so long as such payments have not been made by the Borrower pay to the Mortgagee the principal sum and any other moneys as shall remain unpaid but at the rate stated computed from the date mentioned in Clause 3 hereof PROVIDED FURTHER that if the Mortgagor shall observe and perform all the covenants contained or implied herein and shall pay to the Mortgagee such sums due and owing as shall not have been paid by the Borrower then the Mortgagee shall not demand nor seek to enforce payment of any of the moneys aforesaid and interest from the Mortgagor otherwise than by the said instalments.

22. That the said DAVID SIGLIN has agreed to the covenants herein and by his willingness to sign as borrower and guarantor at the foot of this mortgage is severally and jointly bound by the terms of this contract."

20 The appellant signed the document as mortgagor and David Siglin signed as guarantor.

21 The sum raised by the mortgage, namely the $400,000 was disbursed (as set out in the settlement statement) by the payment of pre-paid interest $38,000; discharge of the existing mortgage to the St George Bank Ltd, $72,940.66; brokerage $40,000; Ron O'Connor (fee for valuation $1,000); stamp duty on mortgage $1,551.50; legal costs $980; disbursements $79.50; FID and BAD tax $250; registration fee on discharge of mortgage $60; balance payable to J I Siglin $245,138.34.

22 Although the balance is shown as being payable to the appellant it is common ground that the solicitors who prepared the mortgage paid the balance of $245,138.34 to David Siglin by way of a trust account cheque (on 20 May 1998).

23 The writ of summons dated 30 April 2001 was issued against both the appellant and David Siglin claiming monies due under the mortgage in the sum of $420,102.66 plus ongoing interest at $126.03 per day.

24 The appellant and her son David Siglin filed a defence to the action in person. The defence contains a number of denials including a denial that the plaintiffs (respondents) are entitled to the relief as alleged or at all.

25 The plaintiffs (respondents) then brought an application for summary judgment which was determined by a Master on 31 August 2001. The learned Master granted summary judgment against both the appellant and her son David Siglin. David Siglin we were told has not appealed against that decision but the appellant has appealed to this Court against the order for summary judgment. The grounds of appeal are:

"1. The Learned Master erred as a matter of law and fact in determining that:

1.1 the Appellant (First Defendant) was not entitled to relief because she was named in the subject mortgage as a borrower.

1.2 the Appellant (First Defendant) gained from the signing of the mortgage because an earlier mortgage was discharged from the title and replaced by the subject mortgage, and therefore was not a 'volunteer', as required by the principles for granting the relief sought.

1.3 The Appellant (First Defendant) was not in a position of special disability with respect to the Respondents (Plaintiffs), in the subject transaction.

2. The Learned Master should have held, as a matter of fact and law, that;

2.1 The issue was not as to the capacity (either as borrower or guarantor) in which Appellant (First Defendant) is shown by the document as having signed the mortgage; but whether the circumstances of the case in which the appellant (First Defendant) signed the document, were unfair or unconscionable; and if so, whether, as a result of such circumstances the mortgage should be set aside; irrespective of the capacity in which the Appellant (First Defendant) is shown on the document to have signed it.

2.2 In the determination of the said issue, factors to be taken into account include:

(a) Prima facie, the failure by the Respondents' (Plaintiffs') solicitor, who drew the mortgage to explain to the Appellant (First Defendant) the meaning and effect of the mortgage and to advise the Appellant (First Defendant) to seek independent legal or other advice in relation to her position in relation to the mortgage, placed the Appellant (First Defendant) in a special disadvantage towards the Respondents (Plaintiffs) and made the circumstances of the transaction so unconscionable as to justify the relief sought.

(b) The relevant circumstances of the case which were, or ought to have been, apparent to the Respondents' (Plaintiffs') solicitor which made it necessary for the Respondents' (Plaintiffs') solicitor to explain the meaning and effect of the mortgage to the Appellant (First Defendant) and that she obtain independent advice before signing the mortgage, were these:

(i) The risk that the venture would fail and the Appellant (First Defendant) would lose her home without being told clearly before she committed to the transaction that this was a possible consequence of her doing so.

(ii) The Appellant (First Defendant) was an elderly woman who attended to sign the mortgage on the Respondents solicitor, with her son, who was an interested party in obtaining the funds to be secured by the mortgage.

(iii) The money was being secured over the home of the Appellant (First Defendant) and (by the terms of the mortgage which the solicitor had drawn for the proposed lenders) the Appellant (First Defendant) was to be named as 'borrower' in the mortgage in relation to a transaction where the funds were to be outlaid for a project relating to the business of the Second Defendant and not paid to the Appellant (First Defendant).

(iv) The loan was in relation to a venture which on its face was speculative and not self funding, this being indicated by the provision, within the loan itself, of twelve months interest in advance as well as all commission and all expenses.

(v) The Respondents' solicitor had no information as to the financial circumstances of the appellant (First Defendant) or her ability to suffer a financial loss, or the loss of her home, if the venture was not successful.

(vi) The Respondents' solicitor intended to, and did, render the Appellant (First Defendant) an account for services rendered in drawing the mortgage and in relation to the transaction.

2.3 The Appellant (First Defendant) did not gain from the mortgage, because on the evidence presented in opposition to the application for Summary Judgment it was at least arguable that;

(a) The subject mortgage of 15th May 1998 was more onerous than the mortgage it replaced, it being for the value of $400,000, whereas the discharged mortgage to St George Bank secured an amount of $70,000.

(b) The balance of the loan of $245,138.34 (after payment of fees and commissions) was paid to the Second Defendant, or at his direction, and not the Appellant (First Defendant).

(c) The Appellant (First Defendant) did not receive any of the money from the loan. All of the money was given to the Second Defendant, or at his direction, to finance a project which subsequently failed, as had the money from the previous (discharged) mortgage in favour of the St George Bank. The Appellant received no money or other actual benefit from either mortgage.

(d) No benefit flowed to the Appellant (First Defendant) from the Second Defendant's business and although the Appellant (First Defendant) worked in the Second Defendant's business she worked without pay and was 'completely under the sway' of the Second Defendant, her son.

(e) Had the meaning and effect of the mortgage been explained to the Appellant (First Defendant) the transaction would not have taken place; and the mortgage would not have been signed by the Appellant (First Defendant) at all."

26 The learned Master had before him on the application for summary judgment an affidavit of the appellant, and an affidavit of the solicitor who prepared the mortgage. The learned Master also had before him an affidavit by one of the respondents in response.

27 In the applicant's affidavit, she recites her history and then sets out her financial dealings in relation to her son. The appellant says that she was aware that her son was involved in business with another person, but that she only had limited knowledge of his business operations. Her affidavit deposes to the fact that she was aware that her son had an interest in a project developing a "system" in relation to computers.

28 The evidence before the learned Master indicated that the appellant had previously obtained a mortgage in the sum of $70,000 from the St George Bank. That money was borrowed on the basis that the capital did not have to be repaid but would accrue with interest against the appellant's estate and be repayable upon her death. She had previously signed a mortgage 22 years before to buy the mortgaged property pending the sale of her family home at Guildford.

29 The appellant deposes that when she went to sign the mortgage she went with her son who she says "also signed as guarantor". She says that she was asked by the solicitor to sign the mortgage and did so. She received no explanation of the terms of the mortgage, or what it meant in relation to her property. She says in her affidavit that she did not think of any risk to her unit at the time, and that it did not occur to her that there might be a failure of her son's project. The appellant also says that she was not advised to seek independent legal advice in relation to the mortgage. She did not seek any such advice, because she trusted her son completely, and thought that her signature on the mortgage was "simply an ordinary matter for the operation of the business".

30 It would appear that at the same meeting, or about that time, the appellant also signed a certificate of appointment and brokerage agreement to enable mortgage brokers to negotiate the loan for her. The appellant says that she cannot recall signing that document, but assumed that she did so at the request of her son. Again she had no independent legal advice in relation to that document and the contents were not explained to her. The appellant testifies that she did not know the amount of the mortgage, nor did she know how the funds were to be disbursed. The manner in which the funds were disbursed has been referred to earlier in these reasons, but the appellant says she had no knowledge of it.

31 The appellant also says in her affidavit that she may have signed an extension of mortgage in October 1999 but that she did not recall signing that document, and that if she did do so, it would have been on the basis of complying with a request in that regard from her son.

32 The appellant deposes that if she had obtained independent and appropriate legal advice prior to the execution of the mortgage, she would at the very least, have sought information as to the project in which her son was involved before committing her signature. She says that her signature would not have been given if the true facts had been known.

33 An affidavit was also provided to the Master by the solicitor who prepared the mortgage and disbursed the funds, Geoffrey Edwin Hayles ("Mr Hayles") who deposed to the formal steps taken in relation to the exercise of default powers under the mortgage. In that affidavit nothing is said about the circumstances in which the mortgage was executed, nor is anything said as to the capacity in which Mr Hayles acted, or the party or persons who instructed him in relation to the preparation of the mortgage.

34 In dealing with the application the learned Master referred to Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395 where Gaudron, McHugh, Gummow and Hayne JJ said at 408 [31]:

"It [Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649] holds further in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:

(a) in fact the surety did not understand the purport and effect of the transaction;

(b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);

(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet

(d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her."

35 Having referred to those tests the learned Master then analysed each of those principles in relation to the appellant. In summary he held that the first principle did not apply because the appellant was a borrower, rather than a surety. The second principle did not apply because the appellant gained from the transaction (by way of the discharge of the earlier mortgage). Thirdly, although the principles in Garcia purported to apply to a husband and wife, in the view of the learned Master they could equally apply to an elderly mother and her son. In that respect the learned Master referred to the knowledge that Mr Hayles may have had in relation to the mortgage, particularly in relation to the way in which the funds were disbursed. The learned Master concluded that because the appellant (or more properly, her son) could not get a cheaper loan from a bank and because the appellant (or her son) was unlikely to generate enough income to meet the interest instalments which were deducted from the loan funds, those matters should have "sounded alarm bells" in the mind of an experienced solicitor. In addition the learned Master referred to the fact that the balance of monies payable from the settlement went to David Siglin rather than the appellant as set out in the settlement statement. The Master concluded:

"The evidence on whether Mr Hayles (the solicitor concerned) knew that the balance of the loan was going to Mr Siglin is not particularly clear on the papers before me but it may become clear at trial after the defendants have had the benefit of discovery and cross-examination."

36 In relation to the third principle from Garcia the learned Master concluded that the principle only applied to a surety, which the appellant was not.

37 In relation to the fourth principle, the learned Master concluded that the lenders did not take steps to explain the transaction to the appellant or find out that a stranger had explained it to her. This principle did apply to the appellant. However the learned Master concluded that, because the appellant had failed to establish that all four of the principles applied to her, she had not established sufficient to set aside the mortgage. The learned Master concluded that the appellant did not have an arguable defence of unconscionable conduct open to her in all the circumstances of the case.

38 The learned Master then went on to consider the case of Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. He considered the issue as to whether the appellant was in a position of disadvantage in relation to the respondents. He concluded that the appellant was elderly and had received no explanation from the respondents' solicitors about the mortgage, nor was she told to seek independent advice on that matter. The learned Master, however, concluded that the appellant was not inexperienced in mortgage matters, because this was her third mortgage. The second one to the St George Bank had only been entered into a year earlier and was for the benefit of her son David. The learned Master considered the question as to whether the respondents, through their solicitor Mr Hayles, took an unconscionable advantage of the appellant in getting her to sign the mortgage. The learned Master analysed the fact reflecting upon that issue and concluded that the solicitor, Mr Hayles "could never have had the intimate knowledge of Mr Siglin's business ventures which the bank had of business ventures of the Amadio's son" and concluded that the appellant had not made out, and would not be able to make out at trial, a defence of unconscionable conduct.

39 A further case of significance in this area of the law is Tranchita v Retravision (WA) Pty Ltd [2000] WASCA 265 where the Full Court comprising of Malcolm CJ, Wallwork and Owen JJ gave consideration to the enforceability of a personal guarantee where undue influence and unconscionable dealings were alleged. Owen J with whom Malcolm CJ and Wallwork J agreed said at 48:

"Undue influence is an equitable concept that has regard to the conscience and antecedent relationship of the parties. The enforceable nature of a contract is reliant on the circumstances under which the contract was entered into. If one party is in a position of influence over another party with whom they are seeking to engage in a contractual relationship, the degree of influence exerted in concluding the contract must not be of such a nature as to amount unconscionable behaviour. If it does, the transaction is liable to be set aside."

40 Here, however, it is to be remembered that there is no suggestion that the respondents exercise any type of influence over the appellant. Rather, the suggestion is that the appellant's son (for whose benefit the mortgage was entered into), exercised undue influence over the appellant so that the mortgage which she executed was obtained through her son's unconscionable behaviour.

41 In my view there can be no suggestion that the respondents engaged in any unconscionable conduct which could justify a court concluding that the mortgage should be set aside.

42 The second category of case referred to by Owen J in Tranchita's case is where undue influence by one party over another was such as to amount to unconscionable behaviour. In such circumstances the transaction is liable to be set aside.

43 In this case the appellant contends that undue influence was exercised over her, and her will was overborne as a result of the representations made to her by her son. As a result, she maintains that the mortgage was executed without her having full knowledge of its terms or the effect that it may have had upon her property. In such a case Owen J said at [52]:

"The question therefore is not whether the appellant understood the relevant transaction but 'whether (s)he executed it as the result the free exercise of her independent will' Adenan v Buise [1984] WAR 61 per Burt CJ and Kennedy J at 68. The party on whom the burden falls must be able to point to features of the relationship that make the exercise of undue influence likely: Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VicRp 69; [1971] VR 573."

44 Owen J went on to draw a distinction between unconscionable conduct which he said is directed towards the conduct of the stronger party and undue influence which focuses upon the position and quality of consent of the weaker party. If that distinction applies in this case then the focus must be upon the absence of consent by the appellant to the terms of the mortgage.

"Although it is impossible to describe definitively all the situations in which disadvantage will result in the court's intervention, there are three general categories of disadvantage relevant to unconscionable conduct. They are physical incapability, intellectual or emotional deficiencies, lack of endowments (such as education). As Fullagar J in Blomley v Ryan (1956) 99 CLR at 405 set out:

'The circumstances adversely effecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other'."

46 In relation to the need for independent advice Owen J said at [67]:

"The lack of independent advice alone does not render the conduct of the respondent unconscionable. This is especially so when viewed in the context of the appellant's previous business experience and relative intricacy of the business structure in which the appellant was involved. These factors also make it difficult to conclude that the appellant suffered from a deficiency of understanding sufficient to result in a disability."

47 Owen J went on to consider Wilton v Farnworth [1948] HCA 20; (1948) 76 CLR 646 at 649:

"... a man cannot escape the consequences of signing a document by saying, and proving, that he did not understand it. Unless he was prepared to take the chance of being bound by the terms of the document, whatever they might be, it was for him to protect himself by abstaining from signing the document until he understood it and was satisfied with it. Any weakening of these principles would make chaos of every-day business transactions."

48 The difficulty in this case arises because the respondents are all investors who took part in a pooled mortgage. So far as the evidence before the Master and this Court is concerned, there is no evidence to suggest that the respondents had any knowledge of the appellant or David Siglin's financial affairs. There is no evidence as to how the mortgage was to be repaid beyond the prepaid interest which was paid in advance from the mortgage sum. Whether such evidence would emerge at trial it is not possible to say.

49 All of these considerations lead inevitably to the conclusion that the appellant may have considerable difficulty in establishing her defence at trial. Bearing in mind that there is no evidence to suggest that the respondents were in any way involved in any unconscionable or other conduct which could amount to undue influence, it is difficult to see how the appellant could set aside the mortgage as against them. Whether a court may conclude that Mr Hayles as solicitor for the respondents should have exercised a greater degree of prudence than he did acting on behalf of the respondents, is a matter which may be explored at trial. It is important, however, to note that Mr Hayles is not a party to these proceedings, and there is no pleading which alleges that anything done by Mr Hayles on behalf of the respondents would justify setting aside the mortgage.

50 In dealing with this appeal it is important to recall that this was an application for summary judgment by the respondents. In dealing with such an application it is timely to recall the judgment of Mason, Murphy, Wilson, Deane and Dawson JJ in Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99:

"The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried."

51 See also General Steel Industries Inc v Commissioner for Railways NSW [1964] HCA 69; (1964) 112 CLR 125 at 129. It is also important to bear in mind that this application was determined on affidavit evidence where the evidence was not tested by cross-examination and issues of credibility were not resolved. On the other hand it is also important to bear in mind that for the appellant to go to trial (if it be the case that she has no realistic chance of defending the matter) may ultimately lead to financial disaster for her in that the appellant may be forced to pay legal costs in circumstances where any remaining equity in the mortgaged property may disappear. The extent to which that is a factor to be evaluated in such a matter is, however, limited. The important issue for resolution is whether in all the circumstances, including those that are likely to emerge at trial, it can properly be said that in this case it is clear that there is "no real question to be tried".

52 In evaluating that issue it is important to bear in mind that the affidavit provided by the solicitor who prepared the mortgage, Mr Hayles was a brief, formal affidavit, dealing only with the production of documents and the proceedings taken following default under the mortgage. Nothing is said in that affidavit as to the circumstances in which the appellant came to execute the mortgage, nor as to any explanation given to her as to the nature and significance of the document. In addition nothing is said in that affidavit as to whether the appellant was, or was not, advised to seek independent legal advice. Nothing is said in the affidavit as to the knowledge of Mr Hayles as to the business dealings of the appellant's son, nor is anything said as to any enquiries that may have been made in relation to repayment of the sum borrowed. That last observation is of some importance, in view of the fact that the appellant was a pensioner on a small pension income, borrowing a significant sum of money. All of these issues are matters which, in the course of a trial, may be exposed.

53 Counsel for the respondent contended that the principles in Yerkey v Jones and Garcia have never in Australia been extended to the situation of a mother and son. In England, however, in Royal Bank of Scotland v Etridge [2001] UKHL 44 published on 11 October 2001, the House of Lords had occasion to consider the principles discussed in these reasons and the application of those principles to other situations. In that case Lord Nicholls of Birkenhead said at [84] to [89].

"[84] ... For reasons already discussed in relation to husbands and wives, a bank cannot be expected to probe the emotional relationship between two individuals, whoever they may be. Nor is it desirable that a bank should attempt this. Take the case where a father puts forward his daughter as a surety for his business overdraft. A bank should not be called upon to evaluate highly personal matters such as the degree of trust and confidence existing between the father with his daughter, with the bank put on inquiry in one case and not in another. As with wives, so with daughters, whether a bank is put on inquiry should not depend on the degree of trust and confidence the particular daughter places in her father in relation to financial matters. Moreover, as with wives, so with other relationships, the test of what puts a bank on inquiry should be simple, clear and easy to apply in widely varying circumstances. This suggests that, in the case of a father and daughter, knowledge by the bank of the relationship of father and daughter should suffice to put the bank on inquiry. When the bank knows of the relationship, it must then take reasonable steps to ensure the daughter knows what she is letting herself into.

85. The relationship of parent and child is one of the relationships where the law irrebuttably presumes the existence of trust and confidence. Rightly, this has already been rejected as the boundary of the O'Brien principle. O'Brien was a husband-wife case. The responsibilities of creditors were enunciated in a case where the law makes no presumption of the existence of trust and confidence.

86. But the law cannot stop at this point, with banks on inquiry only in cases where the debtor and guarantor have a sexual relationship or the relationship is one where the law presumes the existence of trust and confidence. That would be an arbitrary boundary, and the law has already moved beyond this, in the decision in Burch. As noted earlier, the reality of life is that relationships in which undue influence can be exercised are infinitely various. They cannot be exhaustively defined. Nor is it possible to produce a comprehensive list of relationships where there is a substantial risk of the exercise of undue influence, all others being excluded from the ambit of the O'Brien (Barclays Bank Plc v O'Brien [1993] UKHL 6; [1994] 1 AC 180) principle. Human affairs do not lend themselves to categorisations of this sort. The older generation of a family may exercise undue influence over a younger member, as in parent-child cases such a as Bainbrigge v Browne, 18 Ch D 188 and Powell v Powell [1900] 1 Ch 243. Sometimes it is the other way round, as with a nephew and his elderly aunt in Inche Noriah v Shaik Allie Bin Omar [1929] AC 127. An employer may take advantage of his employee, as in Credit Lyonnais Bank Nederland NV v Burch [1996] EWCA Civ 1292; [1997] 1 All ER 144. But it may be the other way round, with an employee taking advantage of her employer, as happened with the secretary-companion and her elderly employer in In re Craig, Decd [1971] Ch 95. The list could go on.

87. These considerations point forcibly to the conclusion that there is no rational cut-off point, with certain types of relationship being susceptible to the O'Brien principle and others not."

54 It is accepted, however, that there is no case in Australia where the law has extended the principles of trust and confidence to this extent. In Australia the law has focussed primarily on the position of husbands and wives as it did in the Garcia case and in relation to people at a distinct disadvantage as was the case in Amadio. In addition, cases in Australia have primarily dealt with the situation of banks as the lending institution where the bank had knowledge of the primary borrowers' financial affairs, and where the mortgage sought to secure an existing indebtedness. Those cases however do not equate with the case presently under consideration. That is not, however, to exclude the possibility that the law may extend to cover situations of the type presently under consideration. The mortgage by an elderly mother of her property in order to raise money for a child might well come within that category. That is particularly so in circumstances where the mother has had no capacity to repay the amount borrowed.

55 The full facts of this case will not be revealed until such time as the persons involved in this transaction give evidence and are cross-examined. Whether the facts emerge as they did before the Master, or in some different form, can only be determined after trial. In my view the appellant has a sufficiently arguable case to justify permitting the defence to stand.

56 For these reasons I would allow the appeal and set aside the summary judgment ordered by the Master.

57 In reaching this conclusion, I am conscious of the fact that if this mortgage is set aside, the appellant would have to repay the earlier mortgage in the sum of $70,000 discharged by the mortgage plus any other benefits obtained by her. How, if at all, that can be achieved, does not fall for consideration on this appeal.