ST GEORGE BANK LTD v TRIMARCHI & ANOR

LOWER COURT Supreme Court - Common Law Division JURISDICTION : LOWER COURT 12097/99 FILE NUMBER(S) : LOWER COURT Dunford J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40385/03

MASON P SHELLER JA CRIPPS AJA

Tuesday 20 April 2004 ST GEORGE BANK LTD v Domenica TRIMARCHI & Anor JUDGMENT 1 MASON P: The appellant sought to enforce a Loan Agreement and Mortgage entered into by the respondents in late 1995 and early 1996. The mortgaged lands were two rented investment properties previously acquired by the respondents and the respondents' matrimonial home. There was also a property at 72-74 Bathurst Street Liverpool in which the respondent Mr Domenico Trimarchi had a one-third interest. 2 The Loan Agreement and Mortgage were part of a wider set of interlocking agreements that included mortgages over other properties owned by the respondents' son and daughter-in-law. 3 The respondents' son Anthony Trimarchi was a solicitor at the time. He practised in partnership with Mr Adrian Matiussi until 31 December 1995. The son was subsequently struck-off, convicted and imprisoned. 4 The Loan Agreement and Mortgage treated the respondents, their son and daughter-in-law as joint borrowers. In fact, the parents were the guarantors of their son's debt, as between themselves and their son, for reasons later explained. 5 The son defaulted. The mortgaged properties in which he had an interest were sold by the appellant with the proceeds being applied towards the outstanding debt. As at 8 July 2002 $1,148,075 remained outstanding and it was this sum that the appellant sought to recover from the respondents. 6 The agreements and mortgages entered into in favour of the appellant (hereafter compendiously referred to as the "St George Bank transaction"), were in consideration of the appellant advancing $2,675,000. $75,000 of that sum was made available to the son by way of overdraft accommodation for use in his law practice. The balance of $2,600,000 was paid to National Mutual Trustees Ltd (National Mutual) to discharge borrowings from that institution that were in default. Those borrowings had also been secured upon mortgages given by the senior and junior branches of the Trimarchi family over the same properties as were the subject of the St George Bank transaction. The National Mutual transaction had been entered into in June 1994. 7 Pursuant to s7(1) of the Contracts Review Act 1980 (the Act), Dunford J found that the Mortgages granted by the respondents and the underlying Loan Agreement, so far as it affected the respondents, were unjust contracts at the time they were made. Pursuant to s7(1)(b), the Mortgage was declared wholly void ab initio. Likewise for the Loan Agreement in so far as it purported to relate to the respondents. There were ancillary judgments and orders including an order for costs in the respondents' favour. These are the substantive orders challenged in this appeal. 8 The appellant also challenged a ruling admitting into evidence a report of Mr John Findley (Blue 348). The challenge was only faintly pressed and it is convenient to dispose of it forthwith. Mr Findley gave evidence about the steps that a prudent "mortgage originator" would have taken in June 1994, when the respondents mortgaged their three properties to National Mutual. The admission into evidence of Mr Findley's evidence was opposed on the bases that it was irrelevant and that, as an expert's opinion, it did not comply with the principles expounded in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 esp at 735 [76]. Dunford J overruled the objection for reasons given in a judgment of 9 August 2002 with which I entirely agree. The faintly-pressed ground of appeal merely reagitates the objections taken below. Mr Findley's evidence at Black 267-8 shows that he adhered to his opinion after having had his attention drawn to the certificates that purported to show that the respondents obtained legal and financial advice about the National Mutual transaction.

Key factual findings 9 Very few of the findings of primary fact are challenged in the grounds of appeal. 10 The core findings in the judgment under appeal (St George Bank Ltd v Timarchi [2003] NSWSC 151) were as follows:

(a) Mr Trimarchi senior, the first respondent, was born in Sicily in 1927. He came to Australia in 1948. He received a basic education to about the age of 10 years. His English is limited, he has difficulty understanding technical words, his literacy is poor. His knowledge of business affairs other than market gardening and "spec" building is limited (J21, 30, 45 and 91).

(b) Mrs Trimarchi, the second respondent, was born in Sicily in 1934. She too had little education, poor literacy and even less business experience than her husband. She had joined her husband as a partner in the "spec building" of properties they acquired from time to time, but she left all the decisions to her husband (J31, 45, 91).

(c) In June 1994 the respondents mortgaged their properties to National Mutual as part of a complex set of transactions to secure a loan sought by their son Anthony for property investment purposes (J44-45, 51-54). This loan was due for repayment on 30 June 1995, but it was not repaid. Appropriate notices under s57(2)(b) of the Real Property Act 1900 had been served on the respondents (J5). Their son told Mrs Trimarchi not to worry and that he would "fix it up" (J85).

(d) The circumstances under which the respondents entered into the National Mutual transaction were in themselves held sufficient to render that transaction unjust as regards the respondents (J102). (This finding and the issues spanning from it will be addressed in detail below.)

(e) Anthony Trimarchi sought the St George Bank loan to re-finance that which, as between him and his parents (and perhaps also as between him and his then wife), was his primary liability. The respondents were in substance merely guarantors for the debts incurred by their son in his property speculation business (J64-65).

(f) The son dealt with Mr Chris Briggs, the appellant's Area Manager, Commercial Banking. Mr Briggs was not called as a witness and his absence was unexplained. The respondents knew nothing of the circumstances surrounding default under the National Mutual Mortgage or their son's approach to Mr Briggs seeking to re-finance the National Mutual Loan which then stood in excess of $2.6 million (J8-9).

(g) Anthony Trimarchi had presented to his parents and others as a successful suburban solicitor. In fact, by mid 1995 he had (in his own words) "a sense of overall panic at [his] financial predicament" . He commenced "defalcating" from his clients. He also forged his parents' signature on the form provided to the appellant as a statement of their assets and liabilities, materially misrepresenting their financial position (J9, 10). The application was false to his knowledge in that it showed his parents as having no liabilities, whereas they were liable to National Mutual under the earlier transaction.

(h) Without reference to the respondents, Anthony Trimarchi offered their three properties as security for the $2.6 million advance he needed to roll over the National Mutual Loan that was in default. He also offered the properties as security for an overdraft for his solicitor's practice from which he was stealing at the time (J9, 12, 18-20, 90).

(i) The respondents executed the St George Loan Agreement and later the Mortgage knowing that their properties were put up as security and that if the money was not repaid the properties could be taken to pay out the mortgage (J32, 54).

(j) Nevertheless, the respondents acted at their son's behest and without the benefit of any independent legal or financial advice as to its implications. They had no dealings with Mr Briggs and no correspondence was addressed to them otherwise than c/- the son at his office (J14). The respondents never even told their own accountant about the borrowing from the appellant (J34). Dunford J found (J91-92): 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. 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. (k) The respondents knew that they were signing mortgages over their properties, but they did not know or have any meaningful appreciation of a mortgage that secured a business loan raised to fund a series of speculative investments, that was for a one year fixed term, that contained "all moneys" clauses and that was security for debts not even related to the particular investments, ie the solicitor's overdraft (J29, 32-34).

(l) The transactions secured by the respondents with both National Mutual (in 1994) and the appellant (in 1995) were "high-risk" so far as the respondents were concerned. Compliance with the agreements, particularly as to repayment, was unreasonably difficult because there was no provision for amortisation, with the result that the only way the advance could be repaid was through highly speculative asset sales (J89). These findings are challenged in the appeal.

(m) Mr Briggs, the manager and who gave initial approval of the advance to Mr Trimarchi junior on 21 April 1995 and who had the conduct of the loan on behalf of the appellant: (i) never contacted the respondents in connection with the proposed advanced (J14); (ii) entrusted Mr Trimarchi junior with the documents for execution (J14); (iii) recommended that the respondents obtain independent advice, as a condition precedent to the advance, and obtained formal approval on this express basis (J69 and 95); (iv) notwithstanding these conditions, which reflected the appellant's internal guidelines, took no steps to ascertain whether independent advice was obtained. In fact it was never obtained (J94-95).

(n) Through Mr Briggs, the appellant knew of Anthony Trimarchi's precarious financial position, his desperation to obtain the loan from the appellant, his broken promises concerning reduction of his overdraft and the failure of one of his projects to produce anticipated funds (J16, 17, 70, 100). These findings are disputed, as regards the inferences of Briggs' knowledge that were drawn in the absence of his testimony.

(o) Mr Trimarchi senior would not have proceeded had he known the true nature and implications of the St George Bank transaction (J34). Neither would Mrs Trimarchi (J31).

(p) The St George Bank transaction conferred only limited benefit on the respondents, because the National Mutual Mortgage that was discharged with $2.6 million of the moneys advanced was also an unjust contract that would have been liable to be set aside as regards the respondents had they received timely advice (J102, 105). This finding is disputed.

(q) There was clear material inequality in bargaining power between the parties to the appeal. This went beyond the normal imbalance between a substantial lending institution and a private borrower. Here the inequality was aggravated "by reason of the fact that whatever little bargaining power the [respondents] 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" (J84).

(r) No provisions of the bank documents were the subject of negotiation (J87). Indeed, the loan conditions were not reasonably necessary for the legitimate interests of either the appellant or the respondents. Dunford J held (J88) that: … 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 P154 that it was not intended that this was to be "fully-crossed", as Mr Dwyer conceded (T41), 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. (s) The conduct of Anthony Trimarchi in procuring the loan on the terms offered was held to represent unfair pressure and unfair tactics (J96: cf s9(2)(j) of the Act). 11 The evaluative findings as to unjustness were as follows (J101-102): 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 reasons 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 details 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 Succo 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 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.

The appellant's challenges to the primary facts 12 As indicated, most of the primary findings are unchallenged in the notice of appeal. This alone is sufficient reason for the Court to eschew any detailed examination of the underlying oral and documentary evidence. I content myself by observing the very substantial difficulties facing the appellant in challenging the findings relating to the capacities of the respondents, who gave evidence at the trial, and the findings based upon inferences properly drawn from evidence that was uncontradicted by Mr Briggs, who did not. 13 I turn to the factual challenges that were pressed in the notice of appeal.

(i) Findings relating to Westpac mortgage 14 $650,000 of the funds advanced by National Mutual were paid to Westpac to discharge mortgages over four properties, three of which belonged to the respondents. Those mortgages had been granted between 1986 and 1988. 15 Dunford J held that the third of those mortgages, over 159 Hoxton Park Road, Liverpool was itself invalid. This finding stemmed from the fact that Domenico Trimarchi was overseas at the time and the mortgage was executed purportedly on his behalf by Anthony as attorney pursuant to a power of attorney granted in 1979. The purpose of the loan was to build a house for Anthony and Heather Trimarchi at 80 Glenfield Road, Cross Roads (J36). Dunford J held this mortgage "invalid", certainly against Domenico Trimarchi, and probably also as against his wife Lucia (J36). His Honour concluded that Mrs Trimarchi would not have understood the explanation for what would have been a third party mortgage purportedly provided by a man named Pierre Commarmord, who gave evidence at the trial. His accent was such that Dunford J found that any description of the third party mortgage given by him to Mrs Trimarchi in English would have been totally incomprehensible to her (J36). It was also found that the power of attorney pursuant to which Anthony purported to sign on his father's behalf did not extend to the transaction in question, because the relevant powers were restricted to powers to act in the interests of Mr Domenico Trimarchi. The mortgage was in fact given to secure a debt owing by Anthony Trimarchi and his wife and its execution was not in any sense an act done for or on behalf of the father (J37-38). 16 The appellant challenges these findings (Grounds I-J. See also Grounds K-L asserting that the primary judge should have found that the respondents received a benefit from the National Mutual mortgage because the funds provided by National Mutual went to discharge their indebtedness under the Westpac mortgage). 17 The appellant submits that the power of attorney should not have been construed restrictively, confining itself to a power to grant mortgages to secure debts that were of direct financial benefit to the respondents. Alternatively, it was submitted that Westpac's title was indefeasible by the time National Mutual came on the scene (Porter v Latec Finance (Qld) Pty Ltd (1963) 111 CLR 177, Grgic v Australia & New Zealand Banking Group Ltd (1994) 33 NSWLR 202). 18 In my view, the findings referable to the Westpac transaction have not been displaced. I do not consider that the power of attorney was broad enough to permit the agent to mortgage his father's property for a transaction that benefited the agent and his wife, but not the father. The indefeasibility argument overlooks the personal equity that the respondents would have had, if properly advised at the relevant time, to challenge the Westpac mortgage under the general law or the Act (see Grgic). 19 In any event, at the end of the day it becomes unnecessary to resolve these questions. Similarly, it is unnecessary to resolve an issue (raised by the appellant in its oral submissions) as to whether the judge was entitled to find on the evidence that the property at 75 Fifteenth Avenue, West Hoxton had not been subject to a Westpac mortgage at the time when Westpac was paid out with the proceeds of the National Mutual advance (J52). 20 The fact remains that, at the very least, substantial portions of the money advanced by Westpac respectively were advances to Anthony Trimarchi (and in some cases his wife). The mortgages granted by the respondents to Westpac were to that extent third party mortgages in which there was no direct financial benefit to the respondents.

(ii) The vulnerability of the National Mutual transaction 21 The parties also joined issue as to the enforceability, in light of the Act, of the National Mutual transaction as regards the respondents. 22 The perceived relevance of examining the unjustness of the 1994 transaction was that the appellant argued that its conduct could not be unjust within s9 of the Act because it resulted in the respondents being discharged from their obligations to National Mutual. These were obligations as principal borrowers vis-à-vis National Mutual, whatever might be their rights of recoupment against their son, the principal debtor (Grounds B-C). 23 Alternatively, it was argued that avoidance of the respondents' mortgages was an excessive and disproportionate remedy in so far as the respondents had obtained the discharge of the earlier mortgages. 24 The direct relevance of the respondents' position vis-à-vis National Mutual to the issues joined between the present parties is not immediately apparent. Certainly, the fact that the St George money discharged the National Mutual debt is not conclusive (as the appellant contended: see Grounds B-C). 25 The Act requires separate attention to be given to the transaction being sought to be enforced and the "justness" of that contract. Simply because the money advanced by St George went to discharge the earlier mortgage transaction involving National Mutual did not mean that relief had to be withheld, a fortiori where the respondents were effectively guarantors of their son's primary obligation, to the knowledge of the appellant through Mr Briggs; where the earlier transaction was tainted as regards the respondents; and where one element of the unjustness of the present transaction was the absence of independent legal advice as to the respondents' rights to challenge the National Mutual loan or financial advice as to the consequence of committing to the St George Bank transaction (J62-63). 26 Dunford J's findings in relation to the National Mutual advance were (J51-61):

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. 27 The appellant raised various grounds of appeal in relation to these findings about the National Mutual Mortgage (Grounds D-I). It submitted that the primary judge erred in finding that the National Mutual Mortgage would itself have been liable to be set aside under the Act as regards the respondents (Ground D). Grounds E-I advanced particular challenges to this ultimate finding. 28 The National Mutual Mortgage was arranged by Anthony Trimarchi, without reference to his parents, and for the purpose of financing his own property developments. Some of the mortgages given by the respondents replaced earlier mortgages in favour of Westpac some of which were themselves held to have been the product of earlier deceptions practised by the son on his parents (J35-38). 29 National Mutual stipulated that it was a condition of its loan that guarantors and/or third party mortgagors provide written evidence of having obtained independent legal and financial advice. To say the least, this was understandable given that the valuations at hand when the National Mutual loan was recommended meant that the lender would not have proceeded unless the respondents were prepared to commit their properties as security for their son's borrowing (Blue 895-906). The National Mutual loan recommendation disclosed information from which one could infer that the respondents were guaranteeing their son's borrowings and that they were not active venturers on their own account (Blue 901-2; see CA Tr pp37-8). 30 The Certificate as to legal advice came from Mr Matiussi, who was in partnership with the son at the time. Dunford J correctly observed (J55) that he could not be regarded as an independent person in this context. His Certificate also disclosed on its face that he dealt with all four Trimarchis globally (Blue 4/839). 31 The Certificate as to "independent financial advice" came from Mr Demasi. As Dunford J points out (J59), the Certificate disclosed on its face that the advice related to the effect of the instrument, ie it was legal and not financial advice. It also disclosed that the explanation was given in English to all four Trimarchis at a single meeting and in the office of Mattiusi and Trimarchi. Mr Demasi was Anthony Trimarchi's accountant. Mr Demasi had no idea about the assets and liabilities position of the respondents when he gave the advice (Black 320, 328). And he saw it as no part of his role to advise whether or not it was a good idea for the respondents to go ahead with the proposal (Black 326). 32 The findings concerning Messrs Matiussi and Demasi have not been shown to be wrong in any respect. To them must be added the findings as to the respondents' actual level of understanding of the nature and impact of the National Mutual transaction, which findings are unchallenged. 33 Furthermore, the respondents' accountant, Mr Mura, was not involved. His evidence was that, if he had been approached, he would have advised against the respondents entering into the National Mutual or St George Bank transactions (J34, 63). 34 Against this background, the particular challenges to the findings referable to the National Mutual transaction are significantly undermined. 35 A main thrust of the appellant's attack is the submission that National Mutual was entitled to treat the Certificates at face value (Grounds E-F). Not being on notice that the respondents laboured under material disadvantage in understanding the nature and effect of the National Mutual transaction, National Mutual could not be said to have been party to an unjust contract (Ground G). 36 These submissions overlook the deficiencies disclosed on the face of the Certificates. Moreover, they are legally misconceived, because a transaction may be unjust even though one party to it was not privy to or on notice of (all of) the circumstances rendering it unjust (see eg Collier v Morlend Finance Corporation (Vic) Ltd (1989) 6 BPR 13,337, Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482). Of course, the state of mind of the "innocent" party is relevant to the unjustness calculus and to the discretionary remedial response. 37 One further ground of appeal (H) contends that there was no evidence from which the judge could conclude that any deficiency in the advice of Messrs Matiussi or Demasi had caused the respondents to execute the National Mutual mortgage. It is unclear if this ground was pressed. It is untenable in light of the evidence of the respondents and that of their accountant, Mr Mura (J34, 63). 38 It was faintly raised that the appellant was subrogated to the rights of National Mutual whose mortgage it had paid out (cf Collier). The primary judge answered this concern by observing that subrogation does not confer rights not enjoyed by the person who is paid out (Sydney Turf Club v Crowley [1971] 1 NSWLR 724 at 734) and by linking this with his findings about the vulnerability of the National Mutual transaction vis-à-vis the respondents. Another answer to the rather half-hearted subrogation submission is that it ran into the sand given the absence of National Mutual as a party to the proceedings.

(iii) The circumstances of the respondents' entry into the St George Bank transaction. 39 The effect of the respondents' entry into the St George Bank transaction was to commit themselves as "borrowers" and mortgagors (offering their three properties as security) in respect of an advance of $2,675.000. Apart from $75,000, this was the sum paid by the appellant to National Mutual to discharge the debt and mortgages held by that company under the 1994 transaction that had been in substantial default since mid 1995. 40 The respondents were jointly liable (together with their son and daughter-in-law) to National Mutual for this sum. But four qualifications to this statement need to be stated immediately:

(a) The respondents were substantially in the dark about the scope and implications of this indebtedness, due to the inadequate explanations received from Messrs Matiussi and Demasi.

(b) National Mutual's right to enforce the debt against the respondents and their properties was itself subject to the rights conferred on the respondents by the Act. As indicated, Dunford J correctly held that the National Mutual contracts could have been avoided at the suit of the respondents.

(c) The relationship between the respondents and their son Anthony was that of surety (the respondents) and principal debtor (the son) having regard to the fact that the respondents had entered into the National Mutual transaction at the request of and for the benefit of the son for whose purposes the borrowing was made.

(d) Unlike the appellant's Mr Briggs, the respondents were ignorant of the extent of the default under the National Mutual transaction (see J8, 16). 41 With this background, I turn to the particular grounds of appeal that confronted Dunford J's findings of primary fact referable to the St George Bank transaction. The challenges are threefold. 42 First, it was contended that there was no evidence supporting the finding (J96) that Anthony Trimarchi used unfair tactics or unfair pressure to obtain his parents' signature on the loan and mortgage documents (Orange 44G). There is no ground of appeal raising this quite insupportable submission. It cannot stand in light of the findings that the son misrepresented his parents' financial position to the appellant, forged the statement of assets and liabilities purportedly made on their behalf, and took no steps to obtain any independent advice for them. This was even though he knew of his precarious position as a defaulter under the National Mutual transaction and his parents' ignorance of this fact; and even though he was both solicitor and the principal beneficiary of the third party mortgages that he procured his parents to sign. There were ample findings, well supported in the evidence, as to the unfair conduct of Anthony Trimarchi as regards his parents (see J10, 15-17, 34, 84-5). It was entirely inappropriate for the respondents to be given no independent advice relating to the St George Bank transaction. They were simply brought to the offices of Matiussi and Trimarchi to execute the contractual documents. This was all the more unconscionable when the mortgage would be securing the firm's $75,000 overdraft that had been separately arranged by Mr Trimarchi junior. 43 Secondly, the appellant submitted that the judge erred by considering it a relevant consideration that the appellant did not comply with its own internal safeguards regarding independent advice (Ground N). This ground is partially based upon a misreading of the judge's reasons, but in any event it is wholly lacking in substance. Dunford J observed that it was of particular significance that Mr Briggs did not comply with his own requirements for safeguards in the circumstances of the transaction. He had strongly recommended that independent advice be obtained (Blue 1041) and (at his behest) the loan offer contained a similar recommendation (Blue 1058). This was fully in accordance with the appellant's internal policies for dealing with guarantors and persons with a poor command of English (see Blue 1156, 1162, 1163, 1193, 1195). Dunford J correctly observed that, in the absence of Mr Briggs, there was no explanation as to why these conditions were not complied with and he drew the appropriate inference (J69, 95). 44 The appellant seeks to construe these remarks as if his Honour were stating that the departure from the loan conditions and the bank policies were in themselves directly significant to the resolution of the issues thrown up by s9 of the Act. This was not the point that the judge was making. The loan conditions and internal policies were, however, strong evidence (if evidence was needed) of normal and appropriate lending practice, nonetheless so because the internal policies of the bank were designed for the bank's own protection. 45 Thirdly, the appellant sought to make much of the absence of any finding that it knew either that the respondents had not obtained independent advice or of the unfair tactics of Anthony Trimarchi. However, the absence of such a finding is not to be confused with a finding that the appellant was not on notice of either or both of these matters. The latter finding could never have been made in light of the matters proved to be known by Mr Briggs and the appellant's failure to call him as a witness (see below). It was certainly the case that the appellant took no steps to follow through on compliance with its internal policies and the conditions of the loan as regards the respondents. On the contrary, it left everything up to Anthony Trimarchi, which is a major problem for its case as distinct from an answer to the problem. Finally, as indicated above, it is pertinent to observe that s9 of the Act does not require the party seeking to enforce a contract to be on notice of the circumstances rendering it unfair. This is not to say that absence of notice is irrelevant.

(iv) The riskiness of the transactions and the appellant's knowledge of this through Mr Briggs 46 Another quite untenable ground of appeal is the contention that there was no evidence to support the findings that the transactions constituted by the contracts between the parties were "risky and quite probably doomed to failure" and that "the Appellant, through Mr Briggs, had reason to suspect this" (Ground M). 47 The words quoted are from the conclusions in J101. There are also findings (at J16-17, J70) as to Mr Briggs' knowledge of Anthony Trimarchi's financial difficulties, his desperation to obtain the St George loan, his broken promises concerning reduction of his overdraft and the failure of one of his projects to produce the anticipated funds. 48 There was ample evidence to support the conclusion that the St George Bank transaction carried significant risks for the respondents. This stemmed mainly from Anthony's financial difficulties, which if they continued (as they did) would seriously impede the capacity of all four "borrowers" to repay the St George loan at the expiry of its short (12 months) term. These problems were manifest by the time Anthony was arranging the loan with Mr Briggs (J8) and later developments gave greater confirmation of them. Mr Briggs' assessment as to risk on 12 December 1995 recorded that "Servicing capacity is considered to be tight should a high interest rate environment emerge". 49 The St George advance was required because the National Mutual borrowing was in substantial default (incurring "penalty" interest of 13% in lieu of 9%). Notices pursuant to s57(2)(b) of the Real Property Act had issued. 50 Dunford J inferred the appellant's knowledge of Anthony's worsening position from several of Mr Briggs' diary notes between 18 August 1995 and 22 January 1996 (Blue 1135-9), and from the terms of Mr Briggs' final appraisal of the refinancing proposal (Blue 1035-1041). 51 These records amply sustain the inferences as to knowledge that the judge was able to draw, all the more confidently in the absence of Mr Briggs' testimony. It is true that the documents show Mr Briggs' consideration that Anthony Trimarchi was a satisfactory risk (if supported by the mortgages from his parents). But the records also reveal his knowledge of a position worsening in late 1995, evidenced by Anthony's inability to repay the "temporary" overdraft of $25,000 granted in August 1995 that was intended to be repaid before drawdown (Blue 1139); and the later addition of the $75,000 overdraft arrangement that was made after various broken promises on Anthony Trimarchi's part. One third of the overdraft amount represented the rolling over of the $25,000 temporary overdraft that was still unpaid (Blue 1136) (cf Blue 1137-8). During this period the National Mutual loan continued in default, incurring interest at penalty rates. 52 At the end of the day, the appellant through Mr Briggs only approved the loan on the basis of obtaining the mortgages from the respondents. These mortgages made the risk acceptable to the appellant. Yet the appellant took inadequate steps to ensure that the respondents received proper independent legal and financial advice. It follows that the appellant was on notice that the transaction was risky for the respondents because the security offered by Anthony Trimarchi was inadequate in its own right and that Anthony Trimarchi's capacity to repay the debt was problematic. 53 There was also expert evidence as to the riskiness of the transaction and its predecessor with National Mutual (see the evidence of Messrs Findley and Jones). This does not prove Mr Briggs' knowledge of such riskiness other than, perhaps, indirectly through what would have been apparent to an experienced banker (which is how Mr Briggs was presented - to Anthony Trimarchi at last - by the appellant). 54 There was ample evidence to support the findings.

(v) Did the mortgages given by respondents to the appellant extend to the overdraft facility provided to their son? 55 The trial judge held that the mortgage granted by the respondents to the appellant extended to securing repayment of the $75,000 overdraft facility provided to their son for use in his practice (J18-20). This was one of the primary facts indicating that the contract imposed conditions that were not reasonably necessary for the legitimate interests of the Bank (see J88). It is unclear whether it entered into the final analysis as to unjustness (cf J101). 56 This primary finding is challenged in the notice of appeal (Ground A). The notice of appeal also contends (in Ground Q) that: To the extent that clause 2.1(b) of the memorandum to the St George Mortgage is capable of causing the St George mortgage to operate as security for the Overdraft Account His Honour erred by not limiting the relief granted under the Act to the operation of this clause. 57 The formal Offer of Facility was made by letter dated 20 December 1995 addressed to Mr Anthony Trimarchi at his business address (Blue 1050). Pages 4-8 offered four different "facilities":

• A fixed rate loan addressed to Anthony, Heather, Domenico and Lucia Trimarchi as "Borrower". There was a credit limit of $1,850,000.

• Executive Housing Loan (No 1) offered to the same four "Borrowers" with a credit limit of $400,000.

• Executive Housing Loan (No 2) offered to the same four "Borrowers" with a credit limit of $400,000.

• An Overdraft Facility offered to Anthony Trimarchi as "Borrower" with a credit limit of $75,000. The purpose of this facility was said to be that the borrower undertook to use drawings on the facility for "ongoing working capital requirements" . 58 The Offer of Facility stipulated that it was a "condition of the facilities that the following securities be provided to St George": [Five first registered mortgages were detailed, including the three given by the respondents and the one given by the first respondent together with his son and daughter in law in relation to 72-74 Bathurst Street Liverpool.]

59 The Offer had provision for a composite "acceptance and acknowledgment" signed by each of the four "individual borrowers" (Blue 1052). 60 It was a condition of each of the four facilities that the securities specified had to be first provided before any facility could be drawn upon (Blue 20). 61 Each of the three facilities offered to the respondents were said to be subject to special conditions as set out on page 9 of the Offer of Facility letter. None of these special conditions cast any light upon the present issue, ie whether the respondents gave security that extended to the $75,000 overdraft facility offered to their son Anthony Trimarchi. 62 In a curious reversal of the roles usually adopted in lending disputes, the appellant argued that nothing in the "all moneys" clause of the respondents' mortgages or any other part of the contractual arrangements involved the giving of a third party security in relation to the overdraft security. The respondents took the opposite position, but only as a springboard for an attack on the unjustness of the whole transaction. 63 Dunford J was satisfied that the respondents' mortgage was security for the overdraft account. His reasons (at J18-20) were challenged by the appellant and supported by the respondents in this Court. 64 Dunford J proceeded by the following steps (J19):

• The Overdraft Facility offered to Anthony Trimarchi as borrower stipulated that it was a condition of drawdown that "the securities as specified in the Offer Letter" were to be provided. These included the mortgages over the respondents' properties.

• The Mortgage executed by the respondents on 19 January 1996 (Blue 1078) defines "Security Provider" to mean: … any person who at any time gives or has given a Security to St. George to secure any obligations of the Borrower or Mortgagor to St. George.

• Anthony Trimarchi was a "Borrower" within a definitional clause that included: … a person who at any time in any capacity has obligations to St. George in respect of which the Mortgagor has given a guarantee or indemnity to St. George.

• As "Mortgagors" , the respondents were obliged under their Mortgage "to duly perform or cause to be performed" all obligations of any Borrower or Security Provider : cl 2.1, see also cll 16.2 and 17.2 and the definition of " Secured Money " that included "any money which at any time … the Mortgagor or any Borrower … is actually or contingently liable to pay St George…". 65 His Honour observed (at J20) that, in any event, the properties mortgaged by the respondents were all treated as collateral securities for the whole of the indebtedness arising under the Loan Agreement when the properties at Bathurst Street and Glenfield Road were sold by the appellant as Mortgagee (Blue 1/94). 66 The appellant submitted that the definition of "Secured Money" set out above should be read down because the respondents did not provide any guarantee or indemnity, with the result that the definition of "Borrower" was not engaged. The respondents were "Mortgagors" but not "Borrowers" in the Offer of Facility. 67 According to the appellant, the language of the Mortgage was not so draconian that it could make the respondents mortgagors except as to obligations assumed by them under the Mortgage itself. 68 The additional reasoning of the judge (at J20) referable to the manner in which the appellant prepared its accounts after exercising its power of sale over the son's properties was said to be irrelevant (because subsequent acts were being invoked to construe the contract) and erroneous in light of a close reading of the affidavit cited by the judge at J20. These points are, in my view, well taken. 69 I therefore confine myself to the appellant's attack on the reasoning in J19. That attack fails because it concentrates upon a forced reading of the definition of "Secured Money". It does not meet the judge's reasoning (summarised above) based upon the obligations imposed upon the respondents as "Mortgagors" by cl 2.1. Those included obligations to cause to be performed all obligations of Anthony Trimarchi as "Borrower", as he undoubtedly was under the definition of that term. This type of indemnity obligation was enough to make the respondents "Borrowers" even within the read-down version of the definition of "Secured Money" proffered by the appellant. 70 It follows that this was an additional badge of unjustness in the contract entered into by the respondents. Nevertheless, the primary judge's evaluative reasons at J101 (set out above) indicate that it was not seen as a significant matter in the overall decisions as to unjustness and remedy.

Remaining grounds of appeal 71 In the context of appellate review, the Act and the case law expounding it draw a distinction between the question as to the "unjustness" of a contract and as to the remedial response to such a finding. 72 The latter is undoubtedly discretionary and attracts the principles in House v The King (1936) 55 CLR 499 (see Conley v Commonwealth Bank of Australia [2000] NSWCA 101 at [61]). 73 Whether an appeal on the unjustness issue (as distinct from challenges to findings of primary fact) is similarly constrained awaits a definitive ruling (see Nguyen v Taylor (1992) 27 NSWLR 48 at 55, Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 301, 305, Conley at [61]). The cases were recently reviewed by the Full Court of the Federal Court of Australia in Murphy v Overton Investments Pty Ltd [2002] FCAFC 129. At [109] the Court said: The weight of judicial opinion supports the proposition that, regardless of whether a decision that a contract is or is not unjust should be classified as discretionary, an appellate court should exercise restraint before interfering with the decision of a trial judge who has had the benefit of hearing the witnesses and evaluating the state of mind and conduct of the relevant persons. This is not by any means to say that an appellate court will never intervene. If, for example, a trial judge, having found a contract to be unjust, fails to consider whether any remedial orders go no further than is necessary to alleviate injustice to the weaker party, the discretion to make remedial orders may miscarry: Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482. But the appellate court will pay due regard both to the need to demonstrate error on the part of the trial Judge and the nature of the decision he or she is required to make.

74 It is unnecessary to take this debate any further. For reasons set out in this judgment, the various challenges raised by the appellant in relation to the conclusion that the contracts embodied in the St George transaction were unjust as regards the respondents fail even if the standard of review is broader than that applying to discretionary orders. 75 The appellant submits that it was disproportionate to go beyond relieving the respondents pro tanto of the burden of the overdraft indebtedness (Ground Q). There is no merit in this proposition. The additional matters relied upon (J101-105) were capable of justifying the broader remedial response. No error in the exercise of the remedial discretion has been demonstrated. 76 I have already indicated why the fact that the appellant's money went to discharge the prior indebtedness of the respondent to National Mutual did not preclude the setting aside of what were found in substance to be third party loans and mortgages (cf Grounds B-C). 77 Several of the appellant's written submissions attribute untenable categorical propositions to the respondents and sometimes (tentatively) to the primary judge. Thus, for example, it is submitted that to the extent Dunford J's reasons imply there was an obligation on the appellant to communicate directly with the respondents or to ensure the respondents had independent legal advice, his Honour erred at law (Ground P: Orange 43). Similarly, it is submitted that the effect of his Honour's reasoning must mean that a lender should ensure that borrowers know that they are substituting one liability for an equivalent liability, or alternatively that a lender re-financing an existing liability should ensure that the borrower had fully understood the obligations they had incurred in the original transaction to which the lender was not a party (Orange 46). These submissions do not do justice to the primary judge's reasons. Those reasons properly focussed upon the issues raised in relation to the impugned transaction (with St George) and, to the extent that it was relevant, to its predecessors. 78 It is of course open to the appellant to point to the precedential effect of a particular finding to the extent that it can legitimately be said to illustrate a point of principle. Some of the written submissions went beyond this. 79 The reasoning of Dunford J did not state, in words or effect, that it is universally incumbent on a lender to ensure that a borrower obtains independent legal or financial advice. Since however, the circumstance whether or not and when independent legal or other expert advice was obtained by the party seeking relief is expressly mentioned in the Act (s9(2)(h)) the primary judge can hardly be faulted for addressing this issue and giving it appropriate weight (see West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 627). 80 The appeal should be dismissed with costs. 81 SHELLER JA: I agree with Mason P. 82 CRIPPS AJA: I agree with Mason P.

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