St George Bank Limited v Trimarchi

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12097/99 St George Bank Limited v Domenico Trimarchi & anor

JUDGMENT 1 His Honour: In these proceedings the plaintiff, St George Bank Limited, sues the defendants, Domenico and Lucia Trimarchi, to recover moneys allegedly due to it pursuant to a Loan Agreement made between them on or about 20 December 1995 secured by a Mortgage registered no. 857803 dated 19 January 1996, and possession of the properties securing the said debt. It also makes an alternative claim that, if for any reason the said mortgage is void or unenforceable, the plaintiff be subrogated to the rights of National Mutual Trustees Limited (National Mutual) whose mortgage of the same lands registered no. U 404152 was paid out of the moneys advanced by the plaintiff pursuant to its agreements and mortgage, and that the said moneys and possession of the said lands be recovered accordingly. 2 Although a number of other defences were pleaded, e.g. non est factum, and unconscientious conduct, the substantial defences and cross-claim relied on at the trial were that the agreement and mortgage with the plaintiff were "unjust" within the Contracts Review Act 1980 (the Act), and should therefore be set aside; and that the plaintiff could not recover on the ground that it was subrogated to the rights of National Mutual because its mortgage was also "unjust" and likewise liable to be set aside. In addition, the second defendant relied on the principles expounded in cases such as Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Limited (1998) 194 CLR 395. 3 (In this judgment the prefixes A or B followed by a number refer to the document with that number in exhibit A or B, P followed by a number refers to the page number in exhibit 1 and T to the page number in the transcript.)

The Subject Contracts 4 I am satisfied (and it was not disputed) that on 20 December 1995 the defendants together with their son, Anthony Trimarchi, and his then wife, Heather Trimarchi, as borrowers accepted an offer of a finance facility from the plaintiff (P 173-181), and on 19 January 1996 the defendants executed a mortgage in favour of the plaintiff over the three properties known as 75 Fifteenth Avenue, West Hoxton, 138 Hoxton Park Road, Liverpool and 159 Hoxton Park Road, Liverpool (P 201-2). Pursuant to the agreement of 20 December 1995 and on the security of the subject mortgage, together with mortgages over other properties known as 72-74 Bathurst Street, Liverpool by Anthony and Heather Trimarchi and the first defendant (A 78), and over 80 Glenfield Road, Cross Roads by Anthony and Heather Trimarchi, the plaintiff on 22 January 1996 advanced the sum of $2,675,000 by paying the same to National Mutual to discharge the debt and mortgages over the same properties previously held by that company. The money was not repaid by the due date, namely 22 January 1997. Possession was obtained of the properties at 72-74 Bathurst Street and 80 Glenfield Road and they were sold by the plaintiff and the proceeds applied towards the debt, but at 8 July 2002 the sum of $1,148,075 remained outstanding. 5 The appropriate notices under the Real Property Act 1900 were served and, subject to the defences and cross-claims referred to above, the plaintiff is entitled to judgment for the amount claimed and possession of the properties. 6 The defendants are husband and wife, born in Sicily in 1927 and 1934 respectively, who came to Australia in 1948 and 1952 and their son, Anthony Trimarchi was until 1997 (when he lost his practising certificate on account of trust account defalcations for which he was subsequently convicted and imprisoned) a solicitor practising in Liverpool. He was also involved in property development and speculation. 7 In 1994 the defendants had mortgaged the subject properties to National Mutual, in circumstances which I shall later consider in detail, as security along with other securities for a loan to finance Anthony's property investments. This loan was due for repayment on 30 June 1995 but was not repaid on that date and Anthony, Heather and the defendants became liable to pay default rate interest on the loan. They were also served with notices under s 57(2)(b) of the Real Property Act 1900. That for the first defendant was left at his home with the second defendant who showed them to her son who told her not to worry as he would "fix it up". 8 By letter dated 4 March 1995, Global Funds Management (Vic) Limited (Global), who was managing the loan on behalf of National Mutual, had notified Anthony Trimarchi that the loan facility would not be extended beyond its maturity date of 29 June 1995. He then started seeking alternative finance, and as early as April 1995 he was in touch with Chris Briggs, the Area Manager, Commercial Banking of the plaintiff (see reference to "indicative proposal dated 21 April 1995" at P 257(c) and reference to "impending $2.6m refinancing transaction" in August (P 257(e))). In due course the repayment date was extended to 29 August 1995 but a penalty interest rate was imposed (P 141). 9 None of this was known to the defendants. In his statement (Ex. 2) Anthony Trimarchi said: "The National Mutual Loan was not repaid in accordance with its terms as at 30 June 1995. By this stage I felt a sense of overall panic at my financial predicament. By September 1995 my marriage had broken down caused, at least in part, by the pressures I had felt arising from my financial situation. During this period I continued to keep any alarm concerning my financial situation from my parents. I was anxious that they continued to think that I was successful. At around this time I began drinking very heavily. Additionally, in order to pay pressing creditors, I commenced a process of defalcating from my clients ..." 10 Eventually for the purpose of his application to St George Bank, Anthony Trimarchi completed two "Personal Financial - Income/Expenditure Statements", one in the name of himself and his then wife, and one in the name of the defendants. The application (P 151-2) in the name of his parents was false in that it showed them as having no liabilities although they were, as he well knew, liable for the full amount of the National Mutual mortgage, and thus he was able to represent them as having a surplus of assets over liabilities of $770,000. On the second page, no details were filled in, either as to their income or expenditure and their purported signatures were forged by Anthony Trimarchi. 11 As security for the proposed loans he offered the subject properties, the residential property he owned with Heather at 80 Glenfield Road, Cross Roads and the commercial property at 72-74 Bathurst St, Liverpool then standing in the names of himself, Heather and the first defendant. 12 He also proposed that the plaintiff take over the overdraft account of the solicitors' practice Matiussi and Trimarchi, which up to that stage had been held with Westpac. The partnership was to be dissolved as from 31 December 1995, as in fact eventuated, and he continued in practice as a sole practitioner. 13 Mr Briggs recommended the facility be granted subject to a condition precedent that the defendants receive independent advice (P 159). The plaintiff's Divisional Credit Division approved the proposed facility subject to certain conditions (P 167) and the facility was offered on 20 December 1995 (P 173). It consisted of a fixed rate loan (P 176) for $1,850,000.00 for a term of one year, the purpose of which was to refinance the borrowers' existing loans with Westpac and National Mutual, two Executive Housing Loans of $400,000 each (P 178-179), the purpose of which were described as "a home loan facility", which they were not, and the overdraft facility for Anthony Trimarchi of $75,000 (P 180), making a total of $2,650,000. 14 The special conditions included a "recommendation" as opposed to a "condition" for independent legal advice for the defendants and Heather Trimarchi prior to execution of the security documents. The covering letter was addressed to Anthony at the address of his legal practice (P 173) and each of the specific offers were addressed to all four offerees at 80 Glenfield Road, Cross Roads, the residential address of Anthony and Heather. Nothing was addressed to the defendants at their own residential address, neither of them ever went near the plaintiff bank, met Chris Briggs nor had any contact whatsoever with anyone from the Bank, although the plaintiff claims that they were both principals and not mere sureties. 15 The defendants claim that they signed the acceptance (P 175) and subsequently the mortgage (P 201-2), without reading or understanding their terms or the standard terms referred to, at the instigation of Anthony, who did not explain the import of the transaction to them. Although both defendants gave evidence that they had not signed any documents in their son's office in the presence of his partner, Mr Matiussi, I am satisfied that they did; but although he gave evidence of giving them an explanation 18 months earlier about the National Mutual mortgage, which I shall deal with when considering that mortgage, Mr Matiussi did not claim to have given any explanation of this mortgage. The moneys were advanced on 22 January 1996 and the National Mutual mortgage was paid out. 16 In the meantime, and unbeknown to the defendants, but known to Chris Briggs, Anthony Trimarchi was experiencing financial difficulties in relation to other property developments of his. He appears to have been granted a temporary overdraft of $25,000 in August 1995 by Chris Briggs (P 257(e)), but by 5 October it was overdrawn, arrangements were not adhered to (P 257(d)), and it remained overdrawn until the advance of 22 January 1996 (P 257(b)). None of it was known to the defendants. 17 In his statement (Ex. 2, para 28) Anthony Trimarchi also said that in the period 1992 to 1995 he was involved in a joint venture investment seeking to develop commercial industrial land at Campbelltown which resulted in him incurring a loss of approximately $850,000, and in a letter to Global dated 12 January 1996, 10 days prior to the advance (P 189) he detailed the loss of a sale of 72-74 Bathurst Street and the non renewal of leases by two major tenants in the previous year. Once again, none of these matters were known to the defendants, but at least some of them appear to have been known to Chris Briggs (P 257(d) to (a)).

The Defendants' Liability for the Overdraft 18 On behalf of the plaintiff it was submitted that the subject mortgage was not security for the overdraft account in the name of Anthony Trimarchi, but I am satisfied that it was. 19 Although the page in the Offer of Facility relating to the overdraft (P 180) only named Anthony Trimarchi as the borrower, the clause on that page relating to securities required the provision of securities "as specified in the Offer Letter" which refers back to P 173 where the defendants' properties are specified. The mortgage incorporates the provisions of Memorandum no. W 123759 which in turn defines "Security Provider" in terms wide enough to include Anthony Trimarchi because he was a party to the mortgage over 72-74 Bathurst Street which was security for a debt for which Domenico Trimarchi at least was jointly liable. The defendants as mortgagors under this mortgage were therefore obliged "to duly cause to be performed" any obligation of a Security Provider (including Anthony Trimarchi) to the Bank: clause 2.1, see also clauses 16.2 and 17.2, and the definition of "Secured Money". 20 In any event, the subject properties together with the Bathurst Street and Glenfield Road properties were all treated as collateral securities for the whole of the indebtedness arising under the Loan Agreement when the Bathurst Street and Glenfield Road properties were sold by the plaintiff as mortgagee: see affidavit of RD Lawless sworn 28 June 2002 para 5 (h)(i)(k). Whilst the Bank was entitled to appropriate the moneys in this manner, it is hardly consistent with the proposition that the securities given by the defendants were not, at least in effect, security for the overdraft account.

The Defendants 21 The first defendant, Domenico Trimarchi was born in 1927 in Sicily and came to Australia in 1948. He received a basic education to about the age of 10 years. He speaks limited English and was able to give a number of his answers in the witness box in English, but for more complicated questions required the services of the interpreter. He can read some English, but has difficulty understanding technical words or words that are not part of everyday conversation. 22 In Sicily he was a fisherman, but after arriving in Australia he went to North Queensland where he worked as a labourer on sugar cane and tobacco farms. He then came to the Liverpool area and worked as a market gardener. Ultimately he acquired a property in Hoxton Park, on which he built a house at 159 Hoxton Park Road, Liverpool, and he still lives there with his wife. He continued working as a builder's labourer, learning on the job, and ultimately obtained his builder's licence. Over time he acquired a number of properties on which he built houses, some of which he sold to buy other land, and ultimately he and his wife let the two other house properties which are included in the current mortgage, namely 75 Fifteenth Avenue, West Hoxton and 138 Hoxton Park Road, Liverpool. 23 He said that he was aware Anthony was involved in property development, but he had nothing to do with such business. From time to time, Anthony used to come home and ask him to sign some documents, which he did, as he trusted Anthony, and he normally signed without reading the document or asking what it was. He could not recall signing any document in Anthony's office with another solicitor present. 24 He said it was only since the proceedings commenced that he learnt that his name was on the title to 72-74 Bathurst Street, and he had no recollection of signing any document in relation to it. He said he also became aware since the proceedings commenced that his name may have been on the title for 79 Bathurst Street which was the site of his son's first office. 25 He said that he helped out with some building work on no. 79 and there was some suggestion that his name may have been placed on the title as some form of payment in kind. 26 It was submitted on behalf of the plaintiff that his answers at T 182-184 showed that he knew he had an interest in nos. 72-74 Bathurst Street, but in my view those answers are confusing and not conclusive. 27 Lucia Trimarchi also went to school until about age 10 and has received no other education. She says she can read and write basic conversational English, but Italian is still her first language. After her marriage, apart from caring for the children, she helped her husband in the market gardens and also worked as a sewing machinist in factories. She had nothing to do with the purchase of 159 Hoxton Park Road nor with the purchase of any other properties, and had no dealings with banks although she did sign mortgages to help her daughters buy houses, on which occasions she went to the bank and signed some documents at her daughters' request. 28 She also said that Anthony brought documents home from time to time and asked her to sign them. She did not read the documents nor ask Anthony to explain them because she trusted him. She used to visit his office for social events but did not recall signing any documents in his office, and in particular she denied signing any documents in front of Anthony Matiussi. She said she knew nothing about any mortgage from National Mutual and Anthony never told her of that loan. She did not remember signing any document in front of Kim Knight, she denied signing the Offer of Facility of 20 December and did not recall ever being aware of the National Mutual mortgage until the commencement of the proceedings. She never met or spoke to Chris Briggs or anyone else from St George Bank. 29 In cross-examination she often used the mantra, "Don't remember". I do not accept that as a genuine answer and I took it to mean, "I do not want to answer that question". She was not an overly satisfactory witness, she was not sophisticated and I formed the view that if she was not sure where the question might be leading she was inclined to say, "Don't remember". But I am satisfied, at the end of the day, that she had no meaningful, if any, knowledge of what was going on, and even if someone had explained it to her, she probably would not have understood. 30 Mr Trimarchi is foreign born, of low education, with no experience in business affairs except that he conducted a market garden and "spec-built" a few houses over the years. For this latter purpose he was in the habit of buying land, often with the aid of a mortgage, building the house, selling the house and discharging the mortgage. More recently he kept two of them for letting purposes to provide an income by way of rents, and at one stage he also gave a mortgage over his own home where he lives with his wife. 31 His wife, also foreign born and of low education, had even less business experience, joined as a partner in the "spec-building" and residential letting business of her husband, but as a sleeping partner, and she left all the decisions to her husband. She also helped her daughters with mortgages on their houses. 32 They each said they did not know what a mortgage was. I am satisfied that they did, and to this extent their evidence was not accurate. But there is a great difference between a simple housing loan, for a fixed amount, secured by a mortgage over the relevant housing property, and a mortgage to secure a business loan raised to fund an investment, or series of speculative investments, undertaken with others and secured by mortgages over properties not the subject of the investment. These differences are compounded when the loans and mortgages are for short fixed terms (e.g. one year), contain "all moneys" clauses and are security for debts not even related to the particular investments e.g. the solicitor's overdraft. I do not believe that either of them knew or had any meaningful appreciation of a mortgage of this nature. 33 Anthony Trimarchi in his evidence tried to give the impression that his parents would have understood what was going on because of what he would have told them, but I am satisfied he did not tell them very much, and probably nothing meaningful, in 1994 or in 1995. 34 Domenico was quite explicit that he would not have signed for anything "heavy", meaning a large amount, or if he knew it was "that much money". This evidence had a ring of truth about it, and is corroborated to a degree by Mr Mura who was his accountant, who was never told about the mortgages and who believed that any interest which the first defendant had in 72-74 Bathurst Street had been "gifted to him" as part of a tax minimisation scheme for Anthony. He also said that if he had been consulted, he would have advised him against entering into the National Mutual and St George transactions.

Historical Background 35 On 12 April 1988, a mortgage over 159 Hoxton Park Road was purportedly given by the defendants to Westpac Banking Corporation (A 42). Domenico was at the time overseas and the mortgage was executed on his behalf by Anthony as attorney pursuant to a Power of Attorney granted on 4 October 1979 (A 30). It was executed by Lucia personally and her signature witnessed by Heather Trimarchi. It is a third party mortgage, the debtors being described as Anthony and Heather Trimarchi and the guarantors are Domenico and Lucia. The mortgage was stamped for $562,000 and it appears that the purpose of the loan was to build a house for Anthony and Heather at 80 Glenfield Road, Cross Roads. 36 In my view, the mortgage was invalid, certainly as against Domenico, and probably also as against Lucia. It contains a certificate by Pierre Commarmord to the effect that he explained the nature and effect of the document to Lucia Trimarchi and she appeared to understand it. Mr Commarmord gave evidence before me and, because he speaks with a foreign accent, I had difficulty myself in understanding what he was saying, and I consider that any description of the effect of a third party mortgage given by him to a person who was of low education and whose first language was not English would be totally incomprehensible. I am satisfied that Mrs Trimarchi had no idea of what was going on, but just signed what was placed in front of her. 37 The Power of Attorney (A 30) is in very general terms and authorises the carrying out and executing of a very large number of specified transactions and documents, including a specific power at the bottom of the first page to enter into mortgages, but the overall context of the document, as appears from the recital, is to enable Anthony "to manage, conduct and carry on my property business and affairs", and the power is conferred as attorney "for me" (my underlining). Moreover, the power to enter into mortgages previously referred to is prefaced with the words, "For the purpose of securing any debt (etc) now due or owing or hereafter to become due or owing from me …". 38 This mortgage was not given to secure any debt owing or to become owing by Domenico, but to secure a debt owing by Anthony and Heather, and the execution of the mortgage was not in any sense an act done for or on behalf of Domenico. It was therefore not an act authorised by the Power of Attorney: Tobin v Broadbent (1947) 75 CLR 378, Reckitt v Barnett, Pembroke and Slater Limited [1929] AC 176. The execution of the mortgage provided no benefit to the defendants but only to Anthony and his then wife. This mortgage was discharged in June 1994 (A 65) when the National Mutual mortgage was substituted. 39 In 1985-1986 Anthony Trimarchi, in conjunction with members of the Sacco family, arranged for the purchase of an office building at 72-74 Bathurst Street, Liverpool. It was originally the subject of two separate titles. One parcel was purchased on 11 November 1985 by Old System Conveyance Book 3760 no. 386 (A 32) for $164,000 in the names of Domenico Trimarchi (as to a two thirds share) and Antonio and Lucia Sacco (as joint tenants as to a one third share) as tenants in common and was the same day mortgaged to GIFC Limited (A 33) to secure a loan of $100,000. The mortgage to GIFC Limited was discharged 20 November 1986 (A 37), when replaced by the mortgage no. W 721763 (A 38). 40 Sometime prior to 1987 the land comprised in Certificate of Title vol. 13802 folio 79 (A 89) was transferred to Anthony and Heather Trimarchi as joint tenants as to one half share and Vittoria and Laurel Sacco as joint tenants as to one half share as tenants in common and this land was mortgaged to Westpac Banking Corporation by mortgage no. W 721764 dated 20 November 1986 to secure a loan of $1,000,000 (A 38). 41 On 25 March 1987 these two parcels (comprising 72-74 Bathurst St) were consolidated as folio 6/740371. It was further mortgaged to Westpac on 28 January 1992 (A 56) apparently to secure debts owing by Anthony and Heather (see schedule to the mortgage). 42 Meanwhile the property at 79 Bathurst Street, where the legal practice of Matiussi and Trimarchi was conducted and two office suites leased, was also the subject of two separate titles and was acquired by a number of persons in the Trimarchi, Matiussi and Di Donato families in varying proportions by transfers no. W 526440 (A 34) and W 526441 (A 35) for $120,000. Domenico and Lucia Trimarchi were each registered as the owners of 2/36 shares as were their daughters, Josephine and Rita and also Anthony and Heather, so that the family together had 12/36 or a one third share in the property. 43 About that time this property was mortgaged to Westpac Savings Bank Limited (A 36). This was discharged 8 December 1989 (A 46) and the Di Donato interests bought out by Anthony and Heather Trimarchi and A and J Matiussi (A 47). In 1991 part of the property was sold to Sebastian Sofi (A 49). 44 Then in 1994, being under pressure from Westpac to reduce its exposure, Anthony Trimarchi decided to buy out the Sacco family from nos. 72-74 and pay out the Westpac loan; and it was for this purpose that he negotiated the loan from National Mutual. It would seem that at the time he also had interests in other development prospects but the evidence is not clear on this: see P 257 (c)(d). 45 These conveyancing transactions were quite complex including the various purchases of shares as tenants in common with other families, title consolidations, mortgages, buy-outs of other interests and re-finance of the various properties, particularly 72-74 and 79 Bathurst Street, and I am still not sure that I have it all completely accurate. As counsel said (T 480), "It was a series of conveyancing transactions significantly more complicated than the theory of relativity". To suggest that two middle-aged semi-literate Italian migrants could have had a full or sufficient understanding of what was involved simply defies credibility. 46 Some copy taxation returns are in evidence but they are incomplete and not very informative. B 12-15 and P 57-P60 contain returns for the individual defendants for the years ended 30 June 1992 and 1993, and Ex. E contains the 1995 returns for the individual defendants, and for their partnership. It also contains 1994 and 1995 Distribution Statements for the AH&D Partnership (72-74 Bathurst Street) and the Matiussi and Trimarchi Property Partnership (79 Bathurst Street). The 1994 Distribution Statement for 72-74 Bathurst Street includes distributions to the Di Donatos, although that family was never on the title for 72-74, but only for 79 Bathurst Street: transfers W 526440 and W 526441 (A 34-35). 47 The results for the AH&D Trimarchi partnership (72-74 Bathurst Street) shows a loss for the year of $79,390. As Domenico allegedly had an interest in 72-74 Bathurst Street and Lucia did not, I have some difficulty in understanding how they had the same income as I would expect his income or loss (it was in fact the latter) to be brought to account thus leading to a difference between them. 48 Exhibit F contains similar returns for 1996. The return for the partnership AH&D Trimarchi (72-74 Bathurst St) shows a net loss for the year of $109,368, which is not surprising when one sees that rents received totalled $249,355 and interest paid amounted to $266,743 (and total expenditure was $358,810). Exhibit H appears to only contain copies of documents included in the earlier exhibits. 49 This evidence is not very specific and in the events which have happened becomes irrelevant in relation to no. 79 as the money advanced by the plaintiff was not used for any purpose associated with 79 Bathurst Street. In relation to nos. 72-74 I consider the probability is that putting his parents on the title and purportedly sharing the rents with them was part of a tax minimisation scheme on the part of Anthony Trimarchi. Lucia was never on the title for nos. 72-74, and I am satisfied she did not know that she was on the title for no. 79. 50 Domenico Trimarchi also said he did not know he was on the title to either property and I accept his evidence that he put no money up to purchase either property. He told his accountant, Mario Mura, that he had "guaranteed the partnership", but Mr Mura was not aware that he was on the title because, as he said, if he had known that, it would have had land tax implications.

The National Mutual Advance 51 The application for the National Mutual advance was made by Anthony Trimarchi, without any reference to his parents, through Ian Wilson (mortgage broker) to Global, described as a "mortgage originator". The loan recommendation dated 10 May 1994 (P 18-29) stated that the purpose of the loan for $2,600,000 was threefold: (a) To buy out the Sacco interests in 72-74 Bathurst Street: $920,000 (b) To discharge the Westpac mortgage over 72-74 Bathurst Street: $1,000,000 (c) To discharge the mortgage to Westpac on account of Anthony and Heather Trimarchi said to be secured by mortgages over 80 Glenfield Road, Cross Roads, 138 Hoxton Park Road, Liverpool, 75 Fifteenth Avenue, West Hoxton, 159 Hoxton Park Road, Liverpool: $680,000. Total: $2,600,000. 52 As far as I can see, there were no mortgages at that time over 138 Hoxton Park Road or 75 Fifteenth Avenue and I have already held that the mortgage by the defendants over 159 Hoxton Park Road was invalid. It is also worth observing that the buy-out of the Sacco interests resulted in that family's share 2/3 being transferred to Anthony and Heather Trimarchi (P 71-72), so that there was no direct benefit to either of the defendants. 53 The National Mutual loan was approved on 10 May 1994 (P 30-37) and accepted on 16 May 1994 (P 43). Special condition (ii) at P 35 required that Guarantors and/or Third Party Mortgagors provide written evidence to the lender's solicitors of having obtained independent legal and financial advice. 54 The mortgage over the subject properties is dated 30 June 1994 (P 109-127) and the certificates of legal advice by Adrian Matiussi and financial advice by Aldo Demasi were completed on 24 June 1994 (B 35). Mr Matiussi had no specific recollection of giving this explanation but described his usual practice in his affidavit of 7 August 2002 para 5 and was cross-examined on this at T 298 et seq. It appears that the explanation given by Mr Matiussi as to the legal effect of the mortgage was formally and technically correct, namely that the properties were being put up as security and if the money was not repaid the properties could be taken to pay out the mortgage. 55 However, he treated the defendants together with their son and his then wife as a single entity, as they were described on the certificate. He interviewed them all together and quite obviously his explanation was a mere formality in so far as he was explaining the effect of the mortgage to Anthony. As the partner of Anthony Trimarchi, he could hardly be regarded as an independent person in this context. Although the defendants denied having a meeting with Mr Matiussi on this occasion, I am satisfied that they did, but I am also satisfied that with the four of them sitting in the room together and Mr Matiussi treating them as a singly entity, it would have been at most a peremptory and formal explanation to Anthony. 56 He agreed with the suggestion that he merely sought an assurance from someone on behalf of all the mortgagors that they understood the effect of the document, and I infer that such assurance would have been given by Anthony Trimarchi. Mr Matiussi regarded them all as joint borrowers and not as being third party guarantors of a loan to Anthony Trimarchi. 57 To give such advice in the circumstances in which it was given would have been totally meaningless to the defendants, who were in the habit of acquiescing in whatever their son told them about legal matters. 58 I am satisfied that he did not tell them in clear and specific terms that they could be liable for up to $2.6 million plus interest and that they could lose their home where they lived and the two properties which they had for rental purposes, that the mortgage was for only a one year term and at the end of that term it would be necessary to either sell properties or refinance the loan. The advice he gave according to his own evidence fell far short of that which the expert evidence of Mr Blunden (T 341) indicated should have been given. 59 The efforts at independent expert advice by Mr Demasi were even more lamentable. He was required to give financial advice, but really did no such thing. It is clear both from the form of the certificate, his affidavit of 18 July 2002 and his evidence (T 324-5, 329-30) that he gave legal advice concerning the effect of the instrument, and not financial advice. He did not attempt to explain or consider the total financial effect of the mortgage, he did not advise the defendants as to the prudence of entering into the transaction or raise or discuss with them where the money was going to come from to repay the loan, the extent of their liability before entering into the mortgage compared with after, or any similar issues, including the various other liabilities of Anthony. 60 It would seem their liability under the Westpac mortgages was $650,000 but under the National Mutual mortgage, their liability was $2,600,000, the increase being mainly due to the money required to buy out the Sacco interests in 72-74 Bathurst Street, and to pay out the various Westpac mortgages. But the additional $920,000 raised to pay out the Saccos was entirely to Anthony's benefit as he received the interests in the land previously held by the Saccos (P 71). 61 No one claims to have told the defendants of this sudden increase in their liabilities, reasons for it, or pointed out that the only person whose share in 72-74 Bathurst Street increased was their son. The certificates of independent advice may be provided for the benefit of the lender but the independent advice is for the borrowers/guarantors, and they did not receive meaningful independent advice from Mr Matiussi or Mr Demasi but only "banal generalities": cf Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 at 264. 62 Moreover, proper independent legal advice at the time of the St George loan being negotiated to pay out the National Mutual loan would have directed attention to whether there were grounds for seeking relief under the Act in respect of the National Mutual loan, and both the defendants said they would have been interested in pursuing this remedy at that time if the possibility had been brought to their attention. 63 Similarly, proper independent advice at the time of the National Mutual advance would have raised the question of having the Westpac mortgage signed by Anthony Trimarchi as attorney under power set aside. Mr Mura said that if asked he would have advised Domenico not to enter into the St George agreements, and Domenico was in the habit of taking his advice.

Principals or guarantors 64 On behalf of the plaintiff it was submitted that the defendants were borrowers or principal debtors, but I am satisfied that they were in substance and in fact merely guarantors for the debts incurred by their son in his property speculation business. Their own properties at 75 Fifteenth Avenue, West Hoxton, 138 and 159 Hoxton Park Road, Liverpool had been fully paid for many years previously, and they only became involved in these mortgages when their son borrowed money to finance the building of his own home at 80 Glenfield Road, Cross Roads, and his purchase of shares in the properties at 72-74 and at 79 Bathurst Street. 65 I have already dealt with their limited interests in these properties and their respective lack of, or minimal, knowledge of whatever interests they had in such properties. Even if Domenico had a beneficial interest in 72-74 Bathurst Street, his wife was not even on that title, and on no basis whatever did they have any interest in their son's overdraft account for his legal practice. 66 In any event, although most cases under the Act relating to mortgages concern guarantees or third party mortgages, there is no reason why relief cannot be granted in respect of a mortgage given by a principal debtor if the conditions of the Act are otherwise satisfied.

Mr Briggs 67 As previously noted, all negotiations for the loan agreement the subject of these proceedings were conducted between Mr Briggs on behalf of the Bank and the principal debtor, Anthony Trimarchi, and there was never any direct contact between Mr Briggs or anyone else on behalf of the Bank and the defendants; all correspondence was directed to Anthony Trimarchi's address, and the Bank acted on an application for loan (P 151-2) which was completed by Anthony Trimarchi, which contained a number of material inaccuracies completed on which the defendants' signatures were forged. 68 The moneys were being used to pay out the National Mutual loan on which the defendants were apparently liable, yet the application showed them as having no liabilities, and no details were supplied as to their income and expenditure. For the Bank to have acted on the basis of this application form without further enquiry is itself very strange, but Mr Briggs who may have been able to explain it and who was the bank officer most directly concerned, was not called and no reason was advanced for his non-appearance, although the plaintiff's solicitors had apparently been in touch with him and obtained instructions for an affidavit, although it is not clear that he actually swore it (P 335). 69 Other matters on which Mr Briggs may have been able to shed light include why he went ahead with the advance without the defendants receiving independent advice, having twice gone to Divisional Credit on the basis that it was a necessary precondition that independent advice be obtained by the defendants. 70 Furthermore, it is apparent from a number of diary notes (e.g. P 257(a) to (e)) and his notes at P 162 that he had substantial knowledge of Anthony Trimarchi's precarious financial position, his desperation to obtain this loan, his broken promises concerning reduction of his overdraft and the failure of another one of his projects to produce the anticipated funds. 71 These and a number of other questions remain unanswered from the plaintiff's point of view and they could presumably have been answered by Mr Briggs. His non-appearance leads me to infer that his answers would not have assisted the Bank, although such absence cannot be used to fill in gaps in the defendants' evidence or convert conjecture and suspicion into inference. 72 His absence in the present case, bearing in mind the pivotal role he played in the negotiations becomes even more significant in view of the fact that the Bank's Branch Securities file cannot be located (affidavit of Rodney David Lawless of 28 June 2002, para 2).

The Contracts Review Act 73 The Act provides that where the Court finds a contract, or a provision of a contract, to have been unjust in the circumstances at the time it was made, it may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, grant relief by doing any of a number of specified things (s 7(1)). It is beneficial legislation whose evident purpose is to overcome the common law failure to provide a comprehensive doctrinal framework to deal with "unjust" contacts and it must be interpreted liberally: West v AGC (Advances) Limited (1986) 5 NSLWR 610 at 621, 631. 74 Accordingly, relief under the Act is not to be confined to situations and circumstances where there was previously power for the Court to set aside contracts, such as where the applicant was not aware or did not understand the nature and effect of the document being executed, non est factum: Petelin v Cullen (1975) 132 CLR 355, unconscientious conduct: Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447. It follows that whilst a party's understanding of the nature and effect of the documents being signed is relevant to whether the contract is "unjust" in the manner in which it was made, that is by no means the sole issue in the case. 75 "Unjust" includes unconscionable, harsh or oppressive, and "injustice" is to be construed in a corresponding manner, although these definitions are not exclusive: West at 620G. In determining whether a contract or a provision therein is unjust the Court must have regard to the public interest and to all the circumstances of the case, including the matters as specified in s 9(1) and (2), but once again such a list is not exhaustive and is not limited to cases where the contract or one of its terms is unconscionable, harsh or oppressive: West at 620-1. 76 A contract may be unjust because of the way in which it was made (procedural injustice) or because of the way in which it operates (substantial injustice): West at 620, and although it is always relevant, unfairness by the other party to the contract is not essential to a finding that the contract was unjust or to the granting of relief, nor is knowledge on the part of the other party: Antonovic v Volker (1986) 7 NSWLR 151, at 157-8, Collier v Morlend Finance Corporation (Vic) Pty Limited (1989) 6 BPR 13,337, although it is a factor which will tend against granting relief: Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 at 277, Nguyen v Taylor (1992) 27 NSWLR 48, Esanda Finance Corporation Limited v Tong (1997) 41 NSWLR 482 at 490-491. 77 I was referred to a number of cases, but to a large extent such cases depended on their own facts, and care must be taken in deducing from the result of one case general rules of universal application to others: Karavas at 268. The primary direction in the Act is for the Court to consider the matters set out in s 9 and other relevant matters and, if it determines that the contract was unjust either in the manner in which it was made or because of the way in which it operates, the Court has a discretion whether to grant relief, and if so in what form. 78 However, before proceeding to consider these matters it is necessary to consider a submission by the plaintiff to the effect that Mr and Mrs Trimarchi were carrying on a business and are therefore denied relief by the operation of s 6 (2) of the Act. That subsection, so far as material, provides as follows: "A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking … to be carried on by him wholly or principally in New South Wales". 79 It has been held that where the proprietors of a company give a guarantee to secure the debts of the company which carries on business, such proprietors are not prevented by the section from seeking relief under the Act because it is the company rather than themselves which is carrying on the business: Toscano v Holland Securities Pty Limited (1985) 1 NSWLR 145, Australian Bank Limited v Stokes (1985) 3 NSWLR 174. See also Collins v Parker (1984) NSW Conv R #55-212 at 57,469, Coombs v Bahama Palm Trading Pty Limited (1991) ASC #56-097 at 57,025. 80 The section refers to a contract entered into "in the course of", or "for the purpose of" a business etc, carried on by the applicant. These loans were not entered into "in the course of" any business carried on by Mr and Mrs Trimarchi because they were not in the business of entering into loan agreements, and the question arises whether they were entered into "for the purpose of" a business carried on by them. 81 Even if Domenico Trimarchi is to be regarded as having a beneficial interest in 72-74 Bathurst Street, it cannot be said that in any real sense he was carrying on a business in relation to investment in that property. He had no say in its management, organisation, or control. Investment in that property and in the other properties was a business carried on by his son Anthony Trimarchi, and in a very subsidiary sense by Heather Trimarchi. But it cannot be said in any realistic sense of the word that Domenico Trimarchi was carrying on the business of investing in, and letting the property at 72-74 Bathurst Street. Furthermore, Lucia had no interest in that property at all. 82 In any event, in so far as the securities were given to secure the overdraft account of Anthony Trimarchi, the solicitors' practice was entirely a business carried on or to be carried on by him and in which Domenico and Lucia Trimarchi had no part. For these reasons, the defendants are not excluded from relief under the Act by reason of s 6(2). 83 I now turn to consider, to the extent that they are relevant in all the circumstances of the case, the various matters set out in s 9(2). 84 There was clearly material inequality in bargaining power between the plaintiff on the one hand and the defendants on the other. This is normally the case where a person seeks to borrow money from a bank or finance institution to pay off an existing debt, as was the case here, but this consideration was aggravated in the present case by reason of the fact that whatever little bargaining power the defendants had, including the mere power to apply for or refuse the loan, was exercised without their knowledge, and behind their backs, by Anthony Trimarchi whose interests were different to theirs. 85 The defendants were not involved in the negotiations at all, and it would seem that they did not know, or at the most had only the vaguest idea, that any application for a further loan was being made. When the notices under the Real Property Act were served on behalf of National Mutual, Anthony Trimarchi told his mother that it was a mistake and not to worry, that he would fix it up; he did not tell her how he would "fix it up"; but it was not a mistake, as there was substantial default at the time under the National Mutual mortgage. 86 Similarly in relation to the National Mutual mortgage, once again, any limited bargaining power which the defendants had was exercised not by them but by their son and for his own benefit, resulting in an increase in their liability from $650,000 to $2,600,000, and this was all tied up with the buy-out of the Saccos in the property 72-74 Bathurst St, being the culmination of a series of conveyancing transactions which the defendants could not be expected to understand, even if they were aware of them. 87 In the case of neither the St George loan nor the National Mutual loan were any of the provisions the subject of negotiation by the defendants prior to, or at the time the contract was made. If there were any negotiations in relation to the St George contract, those negotiations were between Mr Briggs and Anthony Trimarchi, and any negotiations on his part would presumably have been for his own benefit rather than for the benefit of the defendants. Similarly, in the case of neither loan was it practicable for the defendants to negotiate for the alteration of any of the provisions of the contracts. 88 There are two respects in which the contract imposed conditions which were not reasonably necessary for the legitimate interests of any party and/or which were unreasonably difficult to comply with. Firstly, the inclusion of the overdraft account of the solicitor's practice as part of the moneys secured was not reasonably necessary for the protection of the legitimate interests of the Bank. It would appear from P 154 that it was not intended that this was to be "fully-crossed", as Mr Dwyer conceded (T 41), and no explanation was given or attempted as to why this change was made. Any explanation, if there was one, could only have come from the absent Mr Briggs. 89 Secondly, compliance with the terms of the agreement, particularly as to repayment, was unreasonably difficult because there was no provision made for amortisation (P 158) in the agreements or arrangements, and so, the only way the advance could be repaid was through highly speculative asset sales. Mr Young accepted that in 1994 this was a high-risk type of transaction (T 280-1). Similar considerations applied to the National Mutual loan: see evidence of John Findley (affidavit of 1 July 2002 and oral evidence at T 257-269). 90 Whilst short term, interest only mortgages are not uncommon in the property development business, this was a case where there was ever increasing debt, doubts as to the ability to repay, and particularly in relation to the St George advance, the necessity for that advance because of the inability to repay the National Mutual advance clearly indicated the difficulty which Anthony Trimarchi (and those associated with him) were going to face, and indicated that this was just a "holding operation" in the hope that something "would turn up". Moreover, it appears that at this stage Anthony Trimarchi's position was so desperate that he was misappropriating his clients' funds (a matter not known to either the defendants or the plaintiff). 91 There was nothing in the age or the state of their physical or mental capacity which rendered either of the defendants unable to protect their interests, but their economic circumstances, educational background and literacy were all of a poor standard. Because of their economic circumstances, which included their lack of business experience, their educational background and limited literacy, I am satisfied that the defendants had no real meaningful appreciation of what they were becoming involved in, either at the time of the St George loan or at the time of the National Mutual loan. 92 It was all completely over their heads, they were signing what their son, whom they trusted, told them to sign. He was the person who represented them in their so-called dealings with both the Bank and National Mutual and he was well educated and had an understanding of the relevant matters, but although purporting to act in their interests, he was acting in his own interests and using his parents to support those interests. 93 Both contracts where wholly in writing and although the letters granting approval and general terms of the loans in both cases were in reasonable, intelligible form, the mortgages themselves would, like most mortgages, particularly bank and finance house mortgages, be substantially unintelligible to the average layperson, let alone laypersons with the language and educational difficulties of the defendants. 94 Although I am satisfied that the signatures of Domenico and Lucia on the St George mortgage were executed in the presence of and witnessed by Anthony Matiussi, he did not claim to have given them any independent advice in relation to that transaction, and I have already dealt with what I regard as the deficiencies in the advice which he and Mr Matiussi gave them in relation to the National Mutual mortgage. 95 Of particular significance in relation to the St George loan is the fact that Mr Briggs did not comply with his own requirements for safeguards in the circumstances of the transaction. Not only was his recommendation that independent advice be obtained but also the express requirements of the approval dated 18 December 1995 and the plaintiff's policy no. G4/94 were ignored. In the absence of Mr Briggs there has been no explanation as to why these conditions were not complied with. If proper advice had been given to the defendants before they entered into the St George transaction, it would have included that consideration should be given to making application to have the National Mutual mortgage set aside as against them. 96 I am satisfied that unfair pressure and unfair tactics were exerted on or used against the defendants by Anthony Trimarchi who was another party to the contract, and I note that s 9(1)(j) refers to conduct "by any other party", and is not limited to the party against whom the applicants are seeking relief. 97 Not only did Anthony Trimarchi fail to fully inform his parents of the nature of the transactions, their involvement and the risks they were taking, but he actually forged their signatures on the application for loan and provided false information in such particulars as to their assets and liabilities. Whilst these matters were presumably not known to the Bank, his unfair tactics were made possible and facilitated by the Bank because it dealt only with him and did not involve the defendants, whom it purported to regard as principals, in the negotiations or pre-contract discussions at any stage, or in any manner, a practice which I commented on in National Australia Bank Limited v Hall (1993) ASC #56-234 at 58,414 where other similar cases are referred to. 98 The plaintiff placed considerable emphasis on the fact that the defendants had previously been parties to other mortgages which could be regarded as similar contracts; but they were very different types of mortgages, being mortgages over single residential properties to secure particular loans for those properties, they were discharged when the properties were sold, and they bore no relationship to the National Mutual or St George mortgages. As to the 1984 Westpac mortgage, it is not a matter which the plaintiff can rely on as a similar contract because of the circumstance of its execution by Anthony Trimarchi on behalf of his father. 99 Subsection (1) of s 9 requires the Court to have regard to "the public interest" and to all the circumstances of the case, including such consequences or results as those arising in the event of compliance or non-compliance with, or contravention of, all or any of the provisions of the contract. In considering these matters I note that the general policy of the law is that people should honour their contracts: Baltic Shipping Co v Dillon: "Mikhail Lermontov" (1991) 22 NSWLR 1 at 9 per Gleeson CJ, that the Bank has already recovered a number of properties in partial repayment of the outstanding debt, although if relief is given to the defendants, it will lose a large amount of the interest it would otherwise be entitled to on the moneys advanced, whereas if the contracts are enforced the defendants, who have worked hard since their arrival in this country, will lose not only their rental properties but also the home in which they live, all properties which they have acquired through their own efforts, and that such loss would be not as a result of any fault of theirs, but only because they were misled by their son and such position was facilitated by the Bank which never dealt directly with them. 100 In all the circumstances, including Mr Briggs' knowledge of Anthony Trimarchi's substantial debts and inability in the period leading up to the advance to keep the overdraft account within agreed limits, the St George advance should be regarded as being risky at the time it was made, and in those circumstances there is much to be said for the Bank bearing any loss that may arise on account of the risk coming to fruition.

Conclusions 101 Having taken all these matters into account, but having regard particularly to the considerations that the defendants had no real understanding of what they were letting themselves into, were not really consulted beyond receiving some self interested assurances from their son, that the Bank never dealt with them directly, that they never received any meaningful independent legal or financial advice, that the transactions constituted by the contracts were risky and quite probably doomed to failure at the time they were entered into (a matter which it seems the Bank, through Mr Briggs had reason to suspect), and that they stood to receive no benefit from the agreement other than the discharge of their liability to National Mutual, which I will deal with next, I am satisfied that the Agreement for Loan dated 20 December 1995 and the mortgage dated 19 January 1996 registered no. 857803 were unjust at the times they were made so far as they affected the interests of the defendants. 102 Largely similar considerations apply to the National Mutual mortgage. Once again the defendants had no knowledge, or at the most very little knowledge, of what was going on, and although they may have been given a cursory explanation of the legal and practical effects of a mortgage in general terms, the detailed terms of this mortgage, the amounts for which they were letting themselves become liable, the sudden increase in their liabilities to finance the acquisition by Anthony Trimarchi of the Sacco interests in 72-74 Bathurst Street, the extent to which their assets could be taken in circumstances where there was no provision for repayment of the loan other than the raising of another loan or a fire-sale of assets were not explained to them, where once again National Mutual dealt only with Anthony Trimarchi and never involved the defendants in the negotiations or discussions, and where the only benefit the defendants received was the discharge of their apparent liabilities under the invalid Westpac mortgage were all circumstances which rendered the National Mutual mortgage unjust at the time it was made, in so far as it affected the interests of the defendants. 103 The plaintiff submitted that I should not find the St George Bank agreement unjust because the defendants received a benefit out of it, namely the discharge of their liabilities to National Mutual and Collier v Morlend Finance Corporation (Vic) Limited (1989) 6 BPR 13,337 was relied on in this regard. 104 It was further submitted that if I were to set aside the St George agreement and mortgage, the Bank, having paid out the liabilities of the defendants and their co-borrowers to National Mutual, was entitled to be subrogated to the rights of the latter against the defendants. 105 For the reasons I have given I am satisfied that as regards the defendants, the National Mutual mortgage was also an unjust contract and likewise liable to be set aside. The payment out of National Mutual was therefore the discharge of an obligation which the defendants (as opposed to Anthony, and possibly Heather Trimarchi) did not have. In these circumstances Collier is distinguishable, and as subrogation does not confer any rights not enjoyed by the person who is paid out: Sydney Turf Club v Crowley [1971] 1 NSWLR 724 at 734, no question of subrogation arises. 106 In the circumstances it becomes unnecessary to consider the alternative defence of Mrs Trimarchi based on the principles referred to in Garcia v National Australia Bank. 107 Having found the St George agreements unjust, I am satisfied the only way the injustice to the defendants can be avoided is by discharging the loan agreement and mortgage as against them from the date of this judgment, to the effect that the defendants be not liable for any further amounts to the Bank under the loan agreement or the mortgage and that the mortgage over the subject properties be discharged. Judgment in the proceedings should be entered for the defendants and the plaintiff ordered to pay the defendants' costs. The proceedings will be stood over to enable the parties to bring in Short Minutes.

Last Modified: 03/28/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.