State Bank v Sullivan

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12770/94 - STATE BANK OF NEW SOUTH WALES LIMITED v SULLIVAN & ORS

JUDGMENT 1 HIS HONOUR: The plaintiff, the State Bank of New South Wales Limited ("the Bank") brought these proceedings, claiming judgment for an amount alleged to be due under a mortgage dated 16 November 1990 from the defendant, Donald Charles Sullivan ("Mr Sullivan") to the Bank ("the mortgage") of land situated in Queensland known as 23 Foxhill Court, Carrara, and being the land comprised in Queensland Certificate of Title Vol.7176 Folio 175 ("the land") and for judgment for possession of the land. In his defence and cross-claim, as originally filed, Mr Sullivan alleged that the contract consisting of the mortgage was unjust in the circumstances relating to it at the time it was made within the meaning of the Contracts Review Act 1980 (NSW) ("the Contracts Review Act"). No reply or defence to Mr Sullivan's cross-claim was filed by the Bank at any time before the commencement of the hearing of the proceedings. On the first day of the hearing, or only shortly before, the Bank's legal advisers raised for the first time with Mr Sullivan's legal advisers the possibility that the Contracts Review Act did not apply to the mortgage, it being a mortgage of land situated in Queensland which had been registered in Queensland. I decided that the Bank should be permitted to contend that the Contracts Review Act did not apply to the mortgage but indicated that the pleadings should be amended. 2 Subsequently, Mr Sullivan's defence and cross-claim were amended so as to include:- 3 (i) A defence that it was a term of the mortgage or of the arrangement leading to the execution of the mortgage that there would be a collateral equitable mortgage from a company named Nobsa Holdings Pty Limited ("Nobsa") in favour of the Bank but that no such equitable mortgage from Nobsa had been executed and that consequently Mr Sullivan was relieved of all liability to the Bank. 4 (ii) A cross-claim that the mortgage was entered into in circumstances that were unconscionable under the general law or s51AB (formerly s52A) of the Trade Practices Act (Commonwealth). 5 A reply and a defence to the amended cross-claim were filed by the Bank, in which the Bank alleged that the Contracts Review Act did not apply to the mortgage and in which the Bank disputed the defences and claims made by Mr Sullivan. A reply to the defence to the amended cross-claim was filed on behalf of Mr Sullivan, in which it was alleged that the Bank was estopped from alleging that the Contracts Review Act did not apply to the mortgage. 6 Apart from the pleadings between the Bank and Mr Sullivan, each of the Bank and Mr Sullivan brought a cross-claim against Mr Peter Urquhart McKenzie Williams ("Mr Williams"), on the basis that Mr Williams had been Mr Sullivan's solicitor when Mr Sullivan entered into the mortgage. In its cross-claim the Bank alleged that Mr Williams had owed a duty to his client Mr Sullivan, that Mr Williams knew or ought to have known that the Bank would be relying upon him to properly carry out his duty to Mr Sullivan and that accordingly Mr Williams owed a duty to the Bank to act carefully in carrying out his duty as Mr Sullivan's solicitor and that if the allegations made by Mr Sullivan in his cross-claim against the Bank were true, Mr Williams had breached that duty. A defence to this cross claim was filed on behalf of Mr Williams, in which Mr Williams disputed most of the allegations made in the cross-claim and alleged that the Bank had been guilty of contributory negligence. 7 In his cross-claim Mr Sullivan alleged that Mr Williams had owed him a duty of care, which had been breached. A defence to this cross-claim was filed on behalf of Mr Williams, in which Mr Williams disputed most of the allegations made in Mr Sullivan's cross-claim and alleged that Mr Sullivan had been guilty of contributory negligence. 8 The actual course of the pleadings between the various parties was somewhat more complicated than I have indicated but the above summary substantially reflects what happened. 9 The following facts, taken mainly from Mr Sullivan's principal affidavit of 11 August 1997, are uncontroversial. 10 Mr Sullivan was born on 28 January 1923 at Lambton near Newcastle. He left school at the age of fourteen years. After leaving school he worked for a number of years as a sheet metal worker. In the mid 1950's he became employed by the Australian Labor Party as a State organiser and remained in this employment until 1977. He worked for the New South Wales Department of Industrial Relations between 1977 and January 1989, when he retired. Since then he has been a pensioner. 11 At some time in the 1970's Mr Sullivan formed a relationship with a woman named Marjory Kelly. Mr Sullivan and Mrs Kelly never married, although while they were in a relationship Mrs Kelly used the name "Sullivan". When she gave evidence at the hearing, Mrs Kelly used her maiden name, Marjory Craig. It will be convenient to refer to her as either "Mrs Kelly" or "Marjory Craig". The relationship between Mr Sullivan and Mrs Kelly ended at some time after Mr Sullivan had entered into the mortgage and no later than some time in 1991. 12 Mrs Kelly had a son, Craig Kelly, who was born in about 1957. In about 1985 Craig Kelly became the part-owner of a restaurant at Gymea known as "The Cascades Restaurant" ("the restaurant"). The other part-owner was a Mr Ahmet. The business of the restaurant was actually carried on by the company Nobsa, in which Craig Kelly and Mr Ahmet held shares. From about 1987 Nobsa conducted its banking with the Bank. 13 At some time in the 1980's Mr Sullivan, at the request of Craig Kelly, gave a guarantee to the Bank of a loan made by the Bank. Mr Sullivan's liability under the guarantee was limited to a fixed amount. The guarantee was in force for only a limited time and was then released by the Bank. 14 In 1988 Mr Sullivan and Mrs Kelly bought the land in Foxhill Court, Carrara as tenants in common. A house was built on the land. During the building of the house Mr Sullivan purchased Mrs Kelly's share in the land. Mrs Kelly lent the purchase money she received to her son Craig Kelly. From October 1989 Mr Sullivan and Mrs Kelly lived in the house which had been built on the land. After the breakdown of the relationship between Mr Sullivan and Mrs Kelly, Mr Sullivan continued to live in the house and he has continued living in the house up until the present. 15 After they commenced living in Queensland Mr Sullivan and Mrs Kelly from time to time visited Craig Kelly, staying at Craig Kelly's house at Gymea. While they were in Sydney, Mr Sullivan and Mrs Kelly helped out at the restaurant. The work done by Mr Sullivan consisted of general kitchen duties, delivering advertising leaflets and doing some banking for Nobsa. While he was at the restaurant, Mr Sullivan met the cross-defendant Mr Williams of Messrs Gray & Perkins, who was the solicitor for Craig Kelly and Nobsa and also met Mr Weidenhofer of Messrs Rost & Kitchener, who was the accountant for Craig Kelly and Nobsa. 16 Nobsa had a current account with the Bank which was overdrawn and a leasing account. The indebtedness of Nobsa to the Bank was secured by a mortgage over Craig Kelly's property at Gymea and a mortgage over Mr Ahmet's property at Kirrawee. 17 At some time in the second half of 1990 Mr Sullivan was informed by Craig Kelly that Mr Ahmet wished to leave the business of the restaurant and that Craig Kelly wished to acquire Mr Ahmet's interest in the business and that if Mr Ahmet was to leave the business on the basis that the mortgage over his property to the Bank was discharged, the Bank would require some other security to be substituted for the mortgage of Mr Ahmet's property. Craig Kelly suggested to Mr Sullivan that he should give a mortgage over the land in Queensland, to take the place of the mortgage over Mr Ahmet's property. Later in this judgment I will examine in more detail some of the evidence about the conversations between Mr Sullivan and Craig Kelly. Some of this evidence is contentious. Mr Sullivan did agree to give a mortgage over the land and the Bank consented to releasing the security from Mr Ahmet, on the basis that a mortgage of the land from Mr Sullivan would be substituted for the security from Mr Ahmet. 18 On 14 November 1990 Mr Sullivan, Craig Kelly and Mrs Kelly went to Mr Williams' office, where they had a meeting with Mr Williams. At the meeting Mr Sullivan signed the mortgage on which the Bank is suing, together with a number of other documents. What was said at the meeting is contentious and I will examine evidence about the meeting in more detail later in this judgment. 19 On 16 November 1990 Mr Ahmet transferred his shares in Nobsa to Mrs Kelly. The mortgage which had been signed by Mr Sullivan on 14 November 1990 was dated as of 16 November 1990. On 19 March 1991 the mortgage was registered at the Queensland Land Titles Office. 20 By notice dated 20 March 1991 the Bank gave notice to Mr Sullivan that default had occurred under the mortgage and unless the amount of $312,633.99 due under the mortgage was paid, the Bank would exercise its powers under the mortgage. 21 In 1991 it was proposed by Craig Kelly that the indebtedness of Nobsa to the Bank be re-financed by a loan from another financier but Mr Sullivan, after taking advice from his present solicitor Mr Dobson, declined to sign the re-financing documents. 22 Nobsa defaulted under both the overdraft account and the leasing account. On 19 October 1993 an order was made for the winding up of Nobsa. On 22 November 1993 Craig Kelly was made bankrupt. The present proceedings were commenced by the Bank against Mr Sullivan in 1994. 23 In Mr Sullivan's principal affidavit he gave further evidence, which is controversial, even though most of it was not directly contradicted by any affidavit evidence from either the Bank or Mr Williams. 24 In par15 of his affidavit Mr Sullivan said that when Craig Kelly approached him about giving a security over the land in Queensland, Craig Kelly said, "my house will be sold by January or February and I will not need your property's security any longer. It will be like the other one, you will be released after a couple of months". Mr Sullivan asserted that he agreed to put up his property as security, on the basis that it would be released within three months. 25 Mr Sullivan's account of what happened at the meeting in Mr Williams' office is set out in par19 of his affidavit, which was in the following terms:- "I recollect being ushered into Williams' office by his secretary with Craig Kelly and Marjorie. We all took a seat and then Craig Kelly said to Peter Williams words to the effect: 'Well you know my parents' to which Peter Williams replied 'Yes'. Peter Williams then said words to the effect: 'You have agreed to mortgage your house at Carrara so as to release Jimmy Ahmet's house at Kirrawee. You understand what this is all about'. I said 'I think so. Why doesn't Craig give me something to protect my interest?' Marjorie said 'Well it is all in the family'. I said 'Alright'. Peter Williams then proceeded to have me sign a number of documents. The documents were in a bundle. Williams removed the documents one at a time, the documents that I was to sign. He placed his finger on the portion of the particular document where I was to sign and I signed or initialled the relevant parts. After I had signed and initialled all the documents I saw Craig and Marjorie sign and initial a number of documents. A stamp was then put on some of the documents. Williams then said words to the effect 'Thank you'. A number of pleasantries were exchanged and we all left." 26 Paragraph 20 of Mr Sullivan's affidavit was in the following terms. "At the meeting referred to in paragraph 19 I was not provided with copies of any of the documents I signed either before or after the meeting. I understood that my property was to be used as security for only three months. Mr Williams did not explain to me, at any stage, that I was guaranteeing a debt owed by the company Nobsa Holdings Pty Limited nor any of the financial difficulties that that company was experiencing. I was not asked by Peter Williams whether I understood the nature and effect of the documents. I was not asked by Peter Williams whether I had compared my obligations and responsibilities to the bank with those of any other person named in the document and as to whether I had considered the consequences to me should there be any default in those obligations and responsibilities. I was not asked whether I was signing the documents voluntarily". 27 Mr Sullivan said that in 1991 he received a letter from solicitors acting for the Bank, demanding payment of a substantial sum of money. About a week later there was a meeting between Mr Sullivan, Craig Kelly, Mrs Kelly, Mr Williams and Mr Weidenhofer. Mr Sullivan alleged that Mr Williams said, "I doubt if they can do anything about this. They should have sent you to another solicitor as they knew I was Craig's solicitor and not yours". 28 In his affidavit Mr Sullivan said that he had not been aware that the restaurant business was in financial difficulties, until he had received the letter of demand from the Bank's solicitors in March 1991. He asserted that if he had been informed that Nobsa owed the Bank the sum of $270,000, then he would not have entered into a mortgage. 29 An affidavit was filed on behalf of the Bank by Mr Gilbert Thomas Lyons, a former officer of the Bank. 30 In his affidavit Mr Lyons said that in 1990 he was the relieving manager at the Sutherland Branch of the Bank for approximately one month. Mr Lyons annexed to his affidavit a copy of a Bank document headed "Application for Advance/Review", which was a communication from the Sutherland Branch to the Regional Manager, Metropolitan South Region, seeking approval of the proposal in the application and a copy of a further Bank document headed "Supplement to Application for Advance/Review". The application was prepared and signed by Mr Lyons and was dated 14 September 1990. The purpose of the application was stated to be "a review of accounts and substitution of security (for Cascades Restaurant)". The application included a statement of the financial position of Nobsa, showing a deficiency in shareholders' funds of $158,081. 31 Paragraph 19 of the application included the following:- "It is now realised that business cannot support both Ahmet and Kelly. The proposal is that Ahmet withdraws as director of Nobsa Holdings Pty Limited to be replaced by Kelly's mother, Mrs MM Sullivan. Ahmet's security property would be released and replaced by an unencumbered property at Carrara (Gold Coast) QLD owned by Kelly's step-father, DC Kelly who has been fully appraised of situation if default should occur. * * *

SUBMISSION:- for approval to 1. Substitute existing registered 1st 3rd party mortgage over land & dwelling 394 President Avenue, KIRRAWEE by registered 1st 3rd party mortgage over land and dwelling 23 Fox Hill Court CARRARA (Gold Coast) QLD (deeds to be lodged) and registered Equitable Mortgage and Floating Charge over assets and Undertakings of Nobsa Holdings Pty Limited… 2. Carry current account debt to $250,000 subject to:- * * *

(e) Further review once result of auction due 13/10/90 is known. Branch to closely follow up.

(f) Current account debt not to exceed $250,000". 32 Mr Lyons said in his affidavit, and it is clear, that "DC Kelly" is an error for DC Sullivan. 33 In the supplement to the application "the existing security" is stated to be a mortgage over the property at Kirrawee and the mortgage over Craig Kelly's property at Gymea and "the proposed security" is stated to be a mortgage over the land (Mr Sullivan's property in Queensland), the existing mortgage over Craig Kelly's property at Gymea and a registered equitable mortgage and floating charge over the assets and undertaking of Nobsa. 34 In the supplement to the application the position of the accounts of "Cascades Restaurant", Nobsa and Craig Kelly are shown. The overdraft account of Nobsa was overdrawn $251,973, as against stated overdraft limit of $190,000. Craig Kelly on his personal accounts with the Bank owed approximately $310,000. 35 The supplement contains comments on "repayment capacity", including the following:- "Cash flow has been prepared on basis of sale proceeds, after repayment of Kelly's debits, of $150,000. This would be the result of the sale price of $490,000 (after allowing $20,000 for agent's commission and stamp duty). Property is to go to auction on 13/10/90 with a reserve of $550,000. * * * Mrs Sullivan is providing $40,000 capital to assist her son. * * * However, if business is to able to trade out of its present difficulties the present debt level must be reduced drastically. This can only be achieved by successful sale of Kelly's property. * * * Position will need to be reviewed once results of auction are known". 36 Mr Lyons said in his affidavit that he had prepared the application from documents in the Bank's files and from a meeting with Craig Kelly, Mr Sullivan and Mrs Kelly, which was held a day or so before the date of the application, that is 14 September 1990. Mr Lyons said in his affidavit that he could recall giving an explanation of a third party mortgage at the meeting and that he said to Mr Sullivan words to the effect of "the property at Carrara, Queensland could be sold up by the Bank if the company defaults". 37 An affidavit by Mr Sullivan in reply to Mr Lyons' affidavit was filed. In his affidavit Mr Sullivan said that he could recall having a meeting with a representative of the Bank, before he entered into the mortgage. However, he said that this meeting had taken place within two weeks of Mr Sullivan signing the mortgage and had not taken place on or about 14 September 1990. He said that the meeting had been with the manager of the Sutherland Branch, who was not Mr Lyons, that Craig Kelly and Mrs Kelly were not present, that the meeting lasted only a few minutes and that at the meeting no explanation of a third party mortgage had been given. 38 A number of affidavits were filed on behalf of Mr Williams, the cross-defendant to the cross-claims by the Bank and Mr Sullivan. 39 In his own affidavit of 3 July 1997 Mr Williams said that he had received instructions on 31 August 1990 from Craig Kelly, in relation to a proposal that Mr Ahmet sell his shares in Nobsa to Mrs Kelly. Mr Williams said that those instructions included that Mr Ahmet was to pay Craig Kelly $50,000 and that Mr Sullivan was prepared to provide security to guarantee Nobsa's indebtedness to the Bank by mortgaging a property owned by him in Queensland. 40 At the time of making his affidavit Mr Williams had a time sheet, showing that on 14 November 1990 he had conferred at his office with Craig Kelly, Mrs Kelly and Mr Sullivan for fifty-five minutes. Mr Williams had no file note of the conference and had no recollection of the conference. 41 In his affidavit Mr Williams noted that on 14 November 1990 a number of documents were executed, including:- 42 (i) The mortgage, that is the mortgage by Mr Sullivan to the Bank of the land in Queensland. 43 (ii) A document described as an equitable mortgage from Craig Kelly to the Bank. 44 (iii) A notice to mortgagor regarding execution of documents, which was signed by Mr Sullivan. 45 (iv) A notice to mortgagor regarding execution of documents, which was signed by Craig Kelly. 46 (v) An acknowledgment and consent of third party guarantor, which was signed by Mr Sullivan. 47 (vi) A notice which was in similar terms to document (iii), except that it also included a certificate of witness signed by Mr Williams, concerning the mortgage from Mr Sullivan to the Bank. 48 (vii) A notice similar to document (vi), except that it concerned an equitable mortgage from Nobsa. 49 In a further affidavit of 10 February 1999 Mr Williams gave evidence about what his usual practices were in November 1990. Paragraph 2 of this affidavit was in the following terms:- "It would be my usual practice prior to asking someone to sign a guarantee to say words to the effect of:-

(a) (i) 'The guarantee is limited or limited to the amount of ($ ) plus costs and interest for a period of (. ) months' or

(b) You should realise that it is as if you are borrowing the money yourself and you are liable as much as the borrower.

(c) You could be liable even if the borrower is able to set aside the debt due by the borrower to the lender for any reason.

(d) (If the guarantee is unlimited), the guarantee secures future advances and you should remain aware of the circumstances giving rise to the advance and likely events in the future affecting the advance.

(e) You will be liable to the extent of the full amount owed to the bank (if the guarantee is unlimited) even if all securities are realised and there is a shortfall.

(f) You accept the bank's calculations as the amount owing.

(g) This is a primary security and can be called upon before the borrower or the securities offered by the borrower.

(j) Do you have any questions?" 50 Paragraph 3 of this affidavit was in the following terms:- "3. It was my usual practice prior to asking someone to sign a third party mortgage at my office to say words to the effect of:-

(a) 'The consequences of default are that the guarantee may be called upon; the securities will be realised including the security for the guarantee; real property security could be tenanted and sold later; you will be required to vacate the property so it can be sold; money could be spent on the property to make it saleable.

(b) If the security was realised and there was a shortfall then you remain liable for that shortfall.

(c) Generally, if the terms and conditions of the loan are complied with, then your commitment would not be called upon.

(d) This is a (ranking) mortgage and the mortgagor has the obligation to comply with the terms of the mortgage which include payment of rates and taxes, keeping the security habitable, not further encumbering the property, repayment of the loan if the property is to be sold, no additions to the improvements on the property without approval of the lender, 'all monies' mortgage (if applicable).

(e) I would always either have the guarantor read the certificate of understanding or I would read out the clauses contained in the certificate of understanding.

(f) At the very least I would read out the essence of those clauses in the certificate of understanding.

(g) If possible I would always have the guarantor sign the certificate of understanding as confirmation of having understood the clauses in that certificate'". 51 It is convenient at this stage to refer in more detail to some of the documents which were signed in Mr Williams' office on 14 November 1990 and to some of the steps leading up to the signing of the documents. 52 By a letter of 2 October 1990 signed by Mr Thurecht, the manager of the Sutherland Branch of the Bank, the Bank advised Craig Kelly that approval had been given by the Bank to the substitution of a mortgage over the land at 23 Foxhill Court, Carrara, Queensland for the existing mortgage over the land at Kirrawee. In this letter the Bank said "also an equitable mortgage and floating charge will be taken over Nobsa Holdings Pty Limited's assets and undertaking". The Bank said that it would be instructing its solicitors Watkins Tapsell and Nolan to prepare the new documentation. 53 On 18 October 1990 Mr Williams wrote a letter to Watkins Tapsell and Nolan. In this letter he referred to telephone discussions earlier that day and said "we…confirm that we act on behalf of Messrs Kelly and Sullivan as well as Nobsa Holdings, in relation to the above matters (which were stated to be - Nobsa Holdings Pty Limited, Kelly purchase from Ahmet, Ahmet discharge of mortgage to State Bank, Sullivan mortgage to State Bank 23 Foxhill Court, Surfers Paradise). In this letter Mr Williams said "We would appreciate your assistance in treating the above matters as urgent". 54 On 26 October 1990 Watkins Tapsell and Nolan wrote to Mr Williams, enclosing a number of documents for execution. The documents forwarded for execution included a document described in the letter as an equitable mortgage. However, quite inexplicably, this document was not an equitable mortgage to be given by Nobsa over its assets and undertaking but an equitable mortgage from the individual Craig Kelly. Furthermore, according to its terms, it was to operate (when executed) as a fixed charge over certain securities and it did not purport to create any kind of floating charge. 55 On 30 and 31 October 1990 Gray and Perkins communicated by telephone and letter with a firm of Queensland solicitors, asking them to act as agents in obtaining information about the land and identifying their client as Mr Sullivan. 56 The mortgage executed by Mr Sullivan on 14 November 1990 stated that the mortgagor covenanted with the mortgagee in the terms of the schedule to the mortgage and memorandum No J939223F filed in the office of the Queensland Registrar of Titles ("the memorandum"). 57 In the schedule to the mortgage the mortgagor Mr Sullivan acknowledged that for the purposes of the memorandum the "customer" was Nobsa. The schedule also provided "this mortgage is collateral to equitable mortgage of even date from Nobsa Holdings Pty Limited". 58 The memorandum is a very lengthy document, to some of the provisions of which it will be necessary to refer later in this judgment. I can say at this stage that I am satisfied that there was no copy of the memorandum at the conference at Mr Williams' office on 14 November 1990. 59 The notice to customer/mortgagor/guarantor regarding execution of documents signed by Mr Sullivan was in the following terms:- "PLEASE READ THIS NOTICE BEFORE SIGNING THE DOCUMENT(S) ATTACHED TO The Bank strongly recommends that you take the attached document(s) to a Solicitor and request that its/their nature and effect be explained to you.

The Bank seeks to be fair and reasonable in its dealing with you and would like to be assured that:-

(c) you have:- (i) compared your obligations and responsibilities to the Bank with those of any other person named in the document(s); and (ii) considered the consequences to you should there be any default in those obligations and responsibilities.

Accordingly, the attached document(s) must be signed before an officer of the Bank or a Solicitor. That person must complete the certificate enclosed with the documents." 60 An acknowledgment and consent of third party guarantor signed by Mr Sullivan contained a consent by Mr Sullivan to the Bank releasing the security it held over the land at Kirrawee. It also contained a declaration by Mr Sullivan "that I am not relying on any statement or representation made by either the Bank and/or the other party to the transaction".

The certificate of witness by Mr Williams stated, with respect to the mortgage from Mr Sullivan, that Mr Williams certified:-

(b) I identified the parties before the document was signed

(c) I asked the parties whether the document was being signed voluntarily and the answer was "yes"

(d) I asked the parties whether he understood the nature and effect of the document and the answer was "yes"

(i) Compared his obligations and responsibilities to the Bank with those of any other person named in the document; and

(ii) Considered the consequences to him should there be any default in those obligations and responsibilities; and the answer was "yes". 61 Signed documents were forwarded by Mr Williams to Watkins, Tapsell & Nolan on 14 November 1990. 62 Affidavits by Marjory Craig (Mrs Kelly) and Craig Kelly were also filed on behalf of Mr Williams. 63 In his affidavit Craig Kelly said that when the Bank told Craig Kelly and Mr Ahmet that additional (or substituted) security would have to be put up, before the Bank would release the security given by Mr Ahmet, he asked his mother whether she would give security over the half share Craig Kelly thought she owned in the land in Queensland. He was told by his mother that she had transferred her half interest in the land to Mr Sullivan. Mr Sullivan was then approached and asked if he would provide a security over the land. 64 Craig Kelly recalled the meeting at Mr Williams' office on 14 November 1990 as lasting "for quite a period of time 2-2½ hours". He said that at the meeting Mr Williams "went through and explained each and every document to Sullivan". This evidence was admitted on the basis that it was evidence that Mr Williams had offered some explanation, but not necessarily an adequate explanation, of every document. Craig Kelly said that Mr Williams said to Mr Sullivan words to the effect, "you realise that by signing this you could lose your house" and that Mr Sullivan replied that he did understand that. 65 In an affidavit in reply Mr Sullivan said that he had no recollection of any such words having been said at the meeting with Mr Williams. He said that he recalled the meeting as lasting only between 20 and 30 minutes. 66 In her affidavit Marjory Craig said that she and Mr Sullivan had lived together between 1975 and 1991. She said that during their relationship Mr Sullivan in partnership with a builder had built and sold eleven home units and two houses, obtaining finance from the Bank and engaging a firm of solicitors and an accountant. 67 Marjory Craig said that she, her son Craig and Mr Sullivan had a number of discussions about "whether Sullivan would be prepared to put up his house at Carrara in place of Ahmet's house" and that "Sullivan in these discussions expressed reluctance to put up his house as security but eventually agreed to do so". 68 Marjory Craig said in her affidavit that "in about October or November 1990 Sullivan, Craig and I attended a meeting with the then manager of the Bank at Sutherland. The purpose of the meeting was to see whether or not the Bank would accept Sullivan's property at Carrara as security for the company's indebtedness to the Bank in lieu of Ahmet's house". At the meeting the bank manager asked Mr Sullivan how much the land at Carrara was worth. The bank manager "told Sullivan the amount of the indebtedness then owed by the company to the Bank, although I cannot recall the figure that he mentioned" and that Mr Sullivan said "I hope this is going to be OK. I don't want to lose my house". 69 In her affidavit Marjory Craig gave evidence about the meeting at Mr Williams' office on 14 November 1990. She said that the meeting lasted for about an hour. Much of the meeting was spent in Mr Williams explaining the effect of the documents. The conversation between Mr Williams and Mr Sullivan included the following:- "Williams: If the company can't pay back its debt to the Bank, you will be liable and they will be able to take your property. Do you understand that your property is at stake? Sullivan: Yes I do, I understand.

Sullivan: No. They are a pair of mighty workers, so I am trusting them. * * *

Williams: Do you understand the nature and effect of these document?

Williams: Do you understand the consequences if the company defaults?

Williams: Have you got any questions or do you need anything else to be explained?

Sullivan: No." 70 Marjory Craig said in her affidavit that on the evening of 14 November 1990 she and Mr Sullivan had an argument. In the course of the argument Mr Sullivan said, "I shouldn't have signed the mortgage… I could lose my house. My life's savings are in that place. You've got me into this". 71 Marjory Craig said that after she and Mr Sullivan had separated she had a conversation with Mr Sullivan in the following terms:- "Sullivan: I thought I was only signing for six months.

I: That's not true. That's a lie. It was for as long as we were in the business

Sullivan: I signed because I didn't want to lose you". 72 In an affidavit in reply Mr Sullivan said that he and Marjory Craig had lived together from 1979 to 1990. He agreed that he had been involved in the development of approximately eleven villas but said that he had had only a "minimal" involvement on the financial side. Financed for the projects had been arranged through a Mr Back, the manager of the Bank's Oxford Street Branch. Mr Sullivan had no recollection of the words which Marjory Craig alleged had been spoken at the meeting at the Bank. In particular, he denied that he had been told the amount of Nobsa's indebtedness to the Bank. Mr Sullivan denied that the meeting in Mr Williams' office it had been explained to him that his house was at stake, that he was asked whether he would like to get other legal advice or that he was asked whether he understood the consequences of Nobsa defaulting. He denied the alleged argument on the evening of 14 November 1990 and the alleged conversation after he and Marjory Craig had separated. 73 I will now refer to some of the oral evidence which was given at the hearing. I have taken into account all of the oral evidence (as I have, all of the affidavit and documentary evidence), whether or not I refer to it expressly in this judgment. 74 Mr Joiner gave oral evidence that in 1990 the Bank's practice was that it would not accept a mortgage, unless it received a certificate from the person who had witnessed the execution of the mortgage by the mortgagor. 75 In oral evidence in chief Mr Lyons confirmed that he had signed the application for advance/review on 14 September 1990. The information in the application about the financial position of Nobsa had been taken from draft accounts for the year ended 30 June 1990 prepared by Mr Weidenhofer. The person by whom Mr Sullivan had been "fully appraised" of the situation if default should occur was Mr Lyons himself. 76 That Nobsa had an actual debit balance greater than its overdraft limit indicated that Nobsa had cash flow difficulties. Mr Lyons was asked whether in such circumstances he had a practice, when speaking to third parties proposing to give a mortgage to secure the indebtedness of the customer. He said "my practice would have been, where its a third party involved, after getting the permission of the principals, I would have pointed out the fact that the account was currently over its limit". He was asked whether he would have provided further information to the proposed third party mortgagor and he replied "I would get permission from the principal and I would answer whatever questions were asked of (by) the third person". 77 In cross-examination Mr Lyons said that he had deduced from the words in the application "DC Kelly who has been fully appraised of situation if default should occur" that he had had a meeting with Mr Sullivan, in which he himself had appraised Mr Sullivan of the situation if default should occur. He would have made notes of the meeting but those notes had not been kept. Mr Lyons said that he did have an actual recollection of the meeting "because it was an unusual matter with a third party mortgagor". He had no direct recollection of how many people were at the meeting. The words in the application about Mr Sullivan having been appraised summed up what he had told Mr Sullivan at the meeting. He told Mr Sullivan that if there was default the Bank might be forced to sell Mr Sullivan's property. 78 Mr Lyons had no recollection of telling Mr Sullivan at the meeting that Nobsa's overdrawn account was over its limit and nowhere in the application was it stated that Mr Sullivan had been so informed. Mr Lyons confirmed that it was his practice in 1990 to inform a proposed third party mortgagor that the customer's account was over its limit, only after obtaining permission from the customer. There was no note in the Bank's files that he had obtained Nobsa's permission or that he had told Mr Sullivan that Nobsa's account was over its limit. 79 Mr Lyons was cross-examined about the draft accounts for Nobsa prepared by Mr Weidenhofer, on which Mr Lyons had based the statement of the financial position of Nobsa in the application for advance/review, the statement of the financial position of Nobsa in the application for advance/review and the final accounts for Nobsa prepared by Mr Weidenhofer, which was forwarded Mr Ahmet's solicitors and Mr Williams with a letter of 17 October 1990. Mr Lyons did not have these final accounts, when he prepared the application of 14 September 1990. The draft accounts showed a positive figure for total shareholders equity but a deficiency in working capital of more than $100,000. However, in preparing the statement of financial position in the application, Mr Lyons eliminated as an asset "loans to directors or persons/entities associated with directors $290,350", eliminated as an asset "intangibles $42,500" and eliminated as a liability "loans from directors or persons/entities associated with directors $21,708". In the statement of financial position in the application the deficiency in the working capital of Nobsa was more than $300,000 and the deficiency in shareholders' funds was more than $150,000. The final accounts prepared by Mr Weidenhofer showed a worse position than the draft accounts, with a deficiency of more than $200,000 in working capital and a small deficiency in shareholders' funds. In these final accounts Mr Weidenhofer did not make the adjustments which Mr Lyons had made. 80 Mr Lyons confirmed that, at the time he prepared the application, the mortgage over Craig Kelly's house secured Craig Kelly's indebtedness to the Bank then amounting to about $310,000 and Nobsa's indebtedness to the Bank amounting to about $400,000. Accordingly, if Craig Kelly's house was sold and the gross proceeds of sale were, as projected, $490,000, then Craig Kelly's indebtedness could be repaid in full but only about $150,000 of Nobsa's indebtedness could be repaid. 81 Mr Lyons could not recall whether at the meeting he had asked Mr Sullivan whether he was living in the house at Carrara but said that it was his practice to ascertain if a property being offered as a security by a third party mortgagor was that person's home. 82 Mr Lyons was cross-examined about a letter from Mr Weidenhofer's firm to the Bank dated 5 September 1990, which stated that a cash flow analysis for Nobsa was enclosed. The letter itself had been discovered by the Bank but the enclosed cash flow analysis had not. I am satisfied that a document shown to Mr Lyons in cross-examination was a copy of the cash flow analysis enclosed with the letter of 5 September 1990. This document showed a projected cash injection of $150,000 in November 1990. 83 Mr Lyons was cross-examined about the proposed sale of Craig Kelly's house. At the auction held on 13 October 1990 Craig Kelly's house was passed in. By this time Mr Lyons was no longer employed by the Bank. If he had still been employed by the Bank, it would have been a matter of very considerable concern to him that Craig Kelly's house had not been sold. 84 Mr Lyons was cross-examined about a branch watch list and classified account report relating to the Cascades Restaurant prepared on 28 June 1990 by an officer of the Bank, Mr Kevin Ray. On p2 of this report Mr Ray wrote "we are now over loanability", that is the amount the Bank had advanced was greater than the amount the Bank should have been lending on the basis of its own guidelines. Mr Ray wrote "business is not performing and servicing capacity quite evidently non-existent. Kelly's accounts are not being serviced and $50,000 time loan naturally cannot be repaid…. We should keep debt aligned to real estate security" (that is the Bank should at least keep the debt from exceeding the value of the real estate over which it had a security). 85 Mr Lyons was asked about the increase in the indebtedness of Nobsa between the time of Mr Ray's report and the time of Mr Lyons preparing his application. He said, "it would have been with the knowledge of regional office, as all accounts are scrutinised weekly". He did not regard the increase in indebtedness as a serious matter, because the payment of cheques having the effect of increasing the indebtedness of Nobsa would have been approved by the Bank's regional office. In his report Mr Ray recommended:-

2. "Notice customers of defaults for all accounts and call for financials and review of all accounts for resolve by 31/8/90".

3. "Obtain third party consents". (that is third party mortgagors should give express consent to the Bank's increased exposure)".

3.(sic) "Any decisions to 2 to be based on either (A) evidence of and satisfactory arrangements servicing of repayment (with no increase in debt). (B) repayment from sale security (with no increase in debt) or by re-finance".

4. "If above unsatisfactory, recovery action to be commenced". 86 By the time Mr Lyons prepared his application the course of action which he considered should be adopted was the sale of security, that is the sale of Craig Kelly's property. At the time of preparing the application Mr Lyons was sure that Craig Kelly's property would be sold and he did not turn his mind to the contingency of the property not being sold at the auction to be held on 13 October 1990. 87 On 1 August 1990 the manager of the Sutherland Branch of the Bank sent a proposal to the regional lending manager from the accountant (I infer Mr Weidenhofer) concerning the Cascades Restaurant, Craig Kelly and C Ahmet that the Bank provide accommodation totalling $2.5m, to enable the purchase of the Goochy's Restaurant and reception lounge and the re-financing of the existing debts of the Cascades Restaurant. The Cascades Restaurant "was to be sold about Christmas. It has been on the market already, without any offers". This proposal was not recommended by the manager and was ultimately not proceeded with. The manager stated in the memorandum:- "My faith in the accountant was reduced when on the first meeting he stated that if both restaurants continue till Cascades was sold this would not be a problem because 'Cascades can meet its own financial re-payments on its own'. I pointed out that this didn't appear so when since the account was obtained from CTB in 1988… the debt has continually increased… ". 88 In a memorandum the manager also noted:- "Kelly stated also off the record that following a recent tax audit it appears they may be liable for $50,000 back tax". 89 On p1 of the memorandum the following words and figures appeared:- "ODL $263,000 ODL1 $190,000 (updated valuation of security allowed for, debt to be carried to $250,000)" 90 Mr Lyons explained this part of the memorandum, as meaning that there had been an updated valuation of Craig Kelly's property increasing the value of the property, and even though the formal overdraft limit had not been increased, approval had been given by the Bank's regional office to the amount of Nobsa's indebtedness increasing to $250,000 and that as at 1 August 1990 the actual debit balance was $263,000. 91 Mr Lyons was shown a report dated 20 September 1990, which had been signed by Mr Thurecht and not himself, and concluded that he had ceased acting as relieving manager at the Sutherland Branch at some time before 20 September 1990. 92 On 19 October 1990 the manager of the Sutherland Branch sent a memorandum to the regional manager, referring to an application by Craig Kelly for leasing finance. The balance of Nobsa's overdraft account was stated to be $261,193. The manager recommended that the application for leasing finance be refused. The manager noted in the memorandum:- "Mr Kelly's home did not sell at auction. Asking price $550,000. Bids reached $440,000. Agent is negotiating with bidders. Mr Kelly does not want to reduce price". 93 On 22 October 1990 the regional lending manager refused the application for leasing finance, adding:- "If debt not reduced to $250,00 by 15/11/90 submit for call-up. (Please advise clients' accordingly of our intentions)". 94 In a memorandum dated 22 November 1990 the manager of the Sutherland Branch noted that the balance of the overdraft account had been reduced to $237,570 "by the deposit of $40,000 on settlement of the change of directors". It was noted that negotiations for the sale of Craig Kelly's house at a price of $465,000 had fallen through. 95 On 22 January 1991 the Bank directed "the proprietors, Cascades Restaurant" to arrange outside finance or sell Craig Kelly's property at Gymea, within two months. 96 In re-examination Mr Lyons said that he had no direct recollection of anyone apart from Mr Sullivan having been present at the meeting at the Bank. He was shown a letter dated 22 August 1990 from Mr Thurecht to the proprietors of the restaurant, confirming that the "agreed limit" of the overdraft account was $250,000 and he was also shown consents by Mr and Mrs Ahmet and by Craig Kelly to the granting of a further advance of $60,000 to Nobsa. 97 Mr Sullivan was cross-examined at some length. Mr Sullivan agreed that he had over several years in partnership with a builder carried out a number of real estate developments, most of which had been financed by the Bank on the security of mortgages. However, he claimed that he was financially illiterate and could not read a balance sheet. He said that he was helped by Mr Back, a personal friend, who was the manager of the branch of the bank in the same building Mr Sullivan worked in. Each time he borrowed money from the Bank he had to go to the Bank and sign documents. The following questions and answers occurred:- "Q. What did you understand you were signing?

Q. What did you understand the bank might do if you didn't pay the money back on any of these occasions?

A. I was always so confident. I never thought that much about it, but I thought at least they would take my land".

Later the following questions and answers occurred:-

"Q. When you went in to sign paper work from time to time, did you understand that the reason for that was so that the bank could make sure if anything went wrong with the development, the bank would have rights against the land?

Q. And one of those rights, and an important right, was that the bank could take possession of the land and sell it to recoup its loan?

Q. And that was a standard aspect of all of these transactions, wasn't it?

A. I would say so, yes." 98 Mr Sullivan was shown copies of a number of registered mortgages which he had signed between 1979 and 1985. 99 Mr Sullivan said that when he gave the guarantee in 1985 and when the guarantee was released the following year, it appeared to him that the restaurant was doing well. He said "I had a lot of confidence in Craig Kelly. He had a lot of experience… very hard worker". Mr Sullivan did not regularly go to the restaurant, until after he retired in 1989 and came down from Queensland from time to time to assist in the restaurant. When he was in the restaurant, it appeared to him to be doing good business. 100 Mr Sullivan was asked "you understood the effect (of the guarantee entered into in 1985) was that if Craig was unable or unwilling to repay the loan from the State Bank, you could be called upon to do that?" and he replied "yes". 101 The following questions and answers occurred in cross-examination:- "Q. And some time in late - the latter part of 1990 you were approached by Craig who said to you that Mr Ahmet wanted to be bought out of the business?

Q. And he said to you - this is Craig said to you, 'The only way I can buy Jimmy Ahmet out is if I allow his house to be released from security and replace it with your house at Carrara, do you remember that?

Q. When Craig said that to you, you understood from that didn't you that when he said Jimmy wanted his house to be released from security, that was a security for the businesses's borrowings?

Q. And he went on to tell you that - this is Craig told you that his own house would be sold by January or February and after that he wouldn't need your security any longer, is that right?

Q. And you understood that what that would involve would be going to the bank and providing the bank with a mortgage over your house, is that right?

A. For a period of four months I understood". * * *

"Q. All right. He said to you, 'It will be like the other one you will be released after a couple of months' - that is what you say?

A. Yes, as soon as my house is sold". * * *

"Q. But you understood that until Craig sold his house your house could be on the line for the debts of the restaurant?

A. Because Craig was such a good worker, everybody assured me the business was going well, I had every confidence in him, he was a hard worker, a lot of experience in the industry and the real estate agent Ray White said, 'We are asking 590,000 for the house; we must get 500 - this is November, it's going on the market after Christmas". * * *

Witness: The point is this, I found out afterwards that he paid the 400,000 he got for the house and there was still 250 owing. If I knew that I would never ever have signed it". 102 Mr Sullivan said that he had no idea how much the business owed the Bank but thought it was less than the amount the agent had mentioned as a likely sale price for Craig Kelly's house. He did not ask anyone how much the business owed the Bank. 103 Mr Sullivan understood that, unlike the guarantee given by him in 1985, there would be limit on his liability under the mortgage and that the mortgage would secure all borrowings by the business from the Bank. 104 Mr Sullivan said that he spoke to Mr Weidenhofer, who he knew to be the accountant for the restaurant and in whom he had confidence, within two weeks before signing the mortgage. Mr Sullivan was "a bit nervy". He asked Mr Weidenhofer about the proposed mortgage and Mr Weidenhofer said, "you've got no problems, no worries. You're right, Don". Mr Sullivan had a second conversation with Mr Weidenhofer shortly before he signed the mortgage, in which he said "we are going to sign next week. Is it all right?" and Mr Weidenhofer replied, "yes". Mr Weidenhofer did not provide any figures to Mr Sullivan. Mr Sullivan said to Mr Weidenhofer, "we will be released when the house is sold" and Mr Weidenhofer did not express any disagreement. 105 When Craig Kelly had first raised the matter of the mortgage, Mr Sullivan's response had been that he wanted to think about it. He was reluctant to agree straight away, because he knew that he was putting his house at risk, although "I didn't think there was any risk". He had every confidence in Craig Kelly's competence. 106 Mr Sullivan was cross-examined about the meeting at the Bank. He agreed that there had been a meeting. He remembered Mr Thurecht contacting him. He did not remember a meeting with Mr Lyons. He did not recall Mrs Kelly having been present at the meeting but she could have been. The only thing he could remember about the meeting at the Bank was that a bank officer took a photocopy of a photograph Mr Sullivan had of the house at Carrara, to be used in identifying the house for making a valuation. Mr Sullivan understood that the Bank wished to be satisfied as to how much Mr Sullivan's property could be sold for. The bank officer made it clear to Mr Sullivan that his property could be sold up by the Bank, if the restaurant could not pay its debits. Mr Sullivan denied that the bank officer said that the restaurant was having cash flow difficulties or told him how much the restaurant owed the Bank. "If I would have known how much they owed, I wouldn't have signed". His only understanding was that the restaurant's debt was less than the anticipated sale price of Craig Kelly's house. 107 Mr Sullivan was cross-examined about the meeting at Mr Williams' office. He knew that he was going to Mr Williams' office to sign a mortgage in favour of the Bank. Mr Sullivan said, "I think I just signed everything automatically. I trusted Peter Williams, he was acting on my behalf too, I thought". Mr Sullivan understood that the documents he was being asked to sign would go back to the Bank and that the Bank would be relying on his having signed the documents in releasing Mr Ahmet's mortgage. 108 Mr Sullivan said that at one stage of the meeting at Mr Williams' office he asked, "have I got any protection in this?" and Mr Williams said, "It's all in the family". Mr Williams did not suggest to him that he obtain any other advice before signing any of the documents. Mr Sullivan said he was "satisfied that there were no risks, as soon as the house was sold at Gymea Bay I would get the money back. I had every confidence with Craig Kelly and the way the business was running. I was very naive, I appreciate". Mrs Kelly too was "over confident" about the business. He had been told by both Craig Kelly and Mrs Kelly that the business would do better, without any participation in it by members of the Ahmet family. 109 After Craig Kelly's house was ultimately sold, Mr Sullivan was told by Craig Kelly that there was not enough money from the sale for Mr Sullivan's mortgage to be discharged. 110 Mr Sullivan was also cross-examined by counsel for Mr Williams. Mr Sullivan was asked, "do you agree that the amount of risk that there was for you in this deal would depend upon the amount of money that Craig Kelly owed the Bank?" and he replied, "I was very naive on that point, yes". Later Mr Sullivan said, "he (Craig Kelly) owed some money, yes; I didn't know how much". 111 With regard to his speaking to Mr Weidenhofer, Mr Sullivan said "I had already practically made up my mind but I just wanted more assurances. I think that (what Mr Weidenhofer said) clinched it". 112 Mr Sullivan was cross-examined about evidence he had given that he suggested to Craig Kelly that he, Craig Kelly, should get some payment from Mr Ahmet. It was put to Mr Sullivan that he had thought that Mr Ahmet's share in the business was not worth anything but Mr Sullivan said that he had never thought about it in those terms. "I thought Mr Ahmet wanted to get out and he wanted his house released". 113 With regard to the signing of the mortgage by Mr Sullivan, the following questions and answers occurred:- "Q. In that regard you knew that you were in fact guaranteeing the debts of Craig Kelly's business?

Q. And you knew that you were in fact giving a mortgage over your house at Carrara as security for those debts?

Q. And you knew that if the moneys that were secured under that guarantee and mortgage were not paid back, that the bank would be entitled to, amongst other things, take the house and sell it?

Q. That's because you trusted Craig Kelly and what he told you?

A. Yes, that's right". 114 Mr Sullivan conceded that Mr Williams may have asked him whether he was signing the documents voluntarily. 115 Mr Sullivan denied that at the meeting Mr Williams had asked him whether he wanted to get other legal advice or that he had replied "no, they are a pair of mighty workers, so I am trusting them". 116 The following question and answer occurred:- "Q. The position is this, though, that even if Mr Williams had invited you to go and take other legal advice on that occasion you wouldn't have thought it necessary because you had made up your mind to go ahead, that's correct, isn't it?

A It's very difficult to say at this stage; I haven't thought much about it. I thought he was acting on my behalf as well as Craig Kelly's". 117 Mr Sullivan agreed that Mr Dobson had advised against Mr Sullivan agreeing to the re-financing proposal, on the grounds that it might prejudice whatever rights Mr Sullivan had against the Bank. He did not recall Mr Dobson mentioning to him the Contracts Review Act. 118 Mr Williams was cross-examined by counsel for the Bank. 119 Mr Williams said that he had an actual recollection of meeting Mr Sullivan in November 1990 but he could not remember exactly what was said at the meeting. He said "we discussed the documents that he was to sign, we discussed the certificate that I was to sign". 120 Mr Williams was "not familiar with the financial business" of Nobsa. He could not recall if he had made any inquiries about how much Nobsa owed the Bank. 121 Mr Williams could not recall whether he had advised Mr Sullivan to obtain independent financial advice. So far as he could recall, he had not had a practice of suggesting to proposed third party mortgagors that they obtain independent financial advice. He did not recall whether before the meeting he had had any discussion with Mr Weidenhofer about the financial circumstances of Nobsa. 122 Mr Williams did not recall whether, before the meeting, he had been provided with copies of Nobsa's financial statements or whether he suggested to Mr Sullivan that he should talk to Mr Weidenhofer or whether he discussed with Mr Sullivan the proposed sale of Craig Kelly's house. 123 Mr Williams agreed that in the letter he wrote to Watkins, Tapsell & Nolan he endeavoured to convey to the solicitors for the Bank that he was acting as solicitor for Mr Sullivan and that he understood that the Bank would be relying on his certificate in going forward with the transaction. 124 Mr Williams did not have any recollection of saying anything to Mr Sullivan about the contents of the schedule to the mortgage. His practice would have been to explain that the mortgage from the third party mortgagor and the equitable mortgage were each primary documents capable of being enforced separately and that each document secured the total indebtedness to the Bank. Mr Williams did not recall if at the meeting he had a copy of the memorandum referred to in the mortgage. 125 Mr Williams was cross-examined about the "equitable mortgage" from Craig Kelly to the Bank. To the best of his recollection, that was the only document he had on 14 November 1990 which could be described as an equitable mortgage. His attention was directed to the clause in the schedule to the mortgage to the effect that the mortgage was to be collateral to an equitable mortgage of the same date from Nobsa. Mr Williams said, "I appreciated that the advance was from the Bank to Nobsa Holdings and the equitable mortgage was secured by charge over Nobsa Holdings". 126 During the cross-examination counsel for the Bank produced the certificate of witness signed by Mr Williams relating to an equitable mortgage from Nobsa to the Bank. Counsel for Mr Sullivan made a call on both the other parties for production of any equitable mortgage executed in November 1990 by Nobsa. No such document was produced, then or subsequently. 127 Mr Williams said that it was possible that he had explained the equitable mortgage to Mr Sullivan, on the basis of its being an equitable mortgage from Nobsa. He accepted that he could not have explained to Mr Sullivan the contents of an equitable mortgage from Nobsa, unless he had had such an equitable mortgage in front of him. 128 It was suggested to Mr Williams that, on the face of the mortgage and without resort to the memorandum, the impression could be gained that Mr Sullivan was giving only a security and was not giving a personal covenant and that he could not have explained the memorandum without having had it in front of him. However, Mr Williams responded that he would have advised Mr Sullivan of some of the contents of the memorandum, without having seen the memorandum. Cl 31 of the memorandum, which contained a personal covenant by the mortgagor not limited to the value of the security, was "a very common clause in a memorandum". 129 Mr Williams accepted that it was likely that part of the period of fifty-five minutes, which according to his time sheet he had spent on 14 November 1990, had been spent in perusing the documents received from Watkins, Tapsell & Nolan before he saw Mr Sullivan. Perusing the documents could have taken a quarter of an hour to half an hour. There was no separate entry in Mr Williams' time sheets for the perusing of documents. Preparing the letter of 14 November dispatching the executed documents to Watkins, Tapsell & Nolan could have taken ten minutes. There was no separate entry in the time sheets for this item of work. However, when it was put to Mr Williams that the period of fifty-five minutes included some time for perusing the documents and some time for preparing the letter of 14 November 1990, Mr Williams did not agree. 130 Mr Williams was asked about the correlation between the certificate of witness he had signed and his evidence about his usual practice. He conceded that it was no part of his ordinary practice to ask a proposed third party mortgagor a question in accordance with par(e) of the certificate, whether the person had compared his obligations and responsibilities to the Bank with those of any other person named in the documents. He said it was unlikely that he had said to Mr Sullivan words to the effect, "what do you understand your obligations are, compared to the obligations of Craig Kelly and Nobsa?". 131 Mr Williams did not recall whether he had advised Mr Sullivan to take independent legal advice. It would not have been in accordance with his usual practice to give such advice. 132 Mr Williams had known Craig Kelly for some years and had done legal work for Craig Kelly and Nobsa on a number of prior occasions. All the instructions he had received in the present matter came from Craig Kelly and Mr Weidenhofer. He had received instructions from them "that they wanted the substitution of the security to go through urgently". If on 14 November 1990 Mr Williams had advised Mr Sullivan to get independent legal advice, then it was possible that would have caused a significant delay in the transaction going through. If on 14 November 1990 Mr Williams had advised Mr Sullivan to get independent financial advice, then it was likely that that would have caused a significant delay in the transaction going through. Any delay in the transaction going through would not have been in the interests of his other clients, Craig Kelly, Marjory Craig and Nobsa. 133 Mr Williams said that it was not in accordance with his usual practice to advise a proposed third party mortgagor to get independent legal advice or independent financial advice. It was not in accordance with his usual practice to see a proposed third party mortgagor separately from his other clients and on this occasion he had not seen Mr Sullivan separately from his other clients. 134 Mr Williams had said previously in his evidence that as at 14 November 1990 he was not aware of Nobsa's financial situation and did not recall whether before the meeting on 14 November 1990 he had been provided with copies of Nobsa's financial statements. However, he accepted that he would have received a copy of the letter of 17 October 1990 from Mr Weidenhofer to Mr Ahmet's solicitors, enclosing the final accounts of Nobsa for the year ended 30 June 1990, which showed a deficiency in shareholders' equity and current liabilities exceeding current assets and it was likely that he would have perused these accounts, so that as at 14 November he would have been aware of Nobsa's financial situation to the extent to which it was disclosed in these accounts. 135 Mr Williams did not know, as at 14 November 1990, the extent to which the securities held by the Bank to secure Nobsa's indebtedness also secured Craig Kelly's indebtedness to the Bank. 136 Mr Williams had received a fax from Ray White Real Estate, enclosing a notice to Ray White Real Estate from the Australian Taxation Office requiring Ray White Real Estate to pay money it held to the Australian Taxation Office, because Craig Kelly owed the Commissioner of Taxation more than $18,000 in back tax. Service of this notice had suggested to Mr Williams that Craig Kelly was under financial pressure. A large balance sheet asset of Nobsa consisted of loans to directors, including Craig Kelly. 137 Mr Williams knew that Mr Sullivan was getting nothing out of the transaction and that the property was Mr Sullivan's home and his only significant asset. It was not in accordance with Mr Williams' practice to advise proposed third party mortgagors how their interests could be better protected, if they decided to go ahead with the transaction. 138 Mr Williams agreed in hindsight that there had been a likelihood of a conflict of interest between Mr Sullivan's interests and the interests of his other clients. He agreed that in 1990 he had appreciated that if there was a likelihood of a real conflict of interest, then he should not act for both parties. 139 In re-examination Mr Williams said that when he spoke to Mr Sullivan on 14 November 1990 he would have made certain assumptions about the contents of the mortgage to the Bank (including the memorandum), including that the mortgagor would be liable to repay the Bank if the borrower did not, that the mortgage was "an all monies mortgage" and that if there was a shortfall on the realisation of securities the mortgagor would be liable for the shortfall. 140 Craig Kelly was cross-examined at the hearing. 141 Craig Kelly did not recall any meeting with Mr Lyons and did not remember Mr Lyons. He remembered dealing with Mr Thurecht or the Regional Manager of the Bank. He could not recall any meeting at the Bank at which Mr Sullivan was present. 142 Craig Kelly claimed that "everything would have been discussed for me to bring my parents (that is Mrs Kelly and Mr Sullivan) into the business; the accountancy figures, everything would have been discussed in detail". He said that he showed Mr Sullivan the financial documents for the business. Mr Sullivan had met Mr Weidenhofer before "and I introduced him again to Mr Weidenhofer". There were "numerous meetings" between Mr Sullivan and Mr Weidenhofer and "I was present on some". Mr Weidenhofer mentioned a figure to Mr Sullivan as being the amount of the indebtedness of Nobsa. 143 Craig Kelly said "this discussion over the company and him coming into the business went over for months… I explained fully how the business was operating… I explained how much the debt was and I thought that we could.. with him coming in… we could achieve it and bring the company back into line… he was cautious. But after everything was explained to him by myself, by Mr Weidenhofer, he was contented with it and went ahead with it". 144 According to Craig Kelly, the meeting at Mr Williams' office lasted two hours. "We (Mr Sullivan and himself) both knew we could lose our homes". Craig Kelly could not recall whether the financial position of the business had been discussed. "Mr Williams is not employed to discuss that". The only thing that would have been brought up on the financial side would have been rent. 145 Craig Kelly's house was put up for action on three occasions. The house was sold in about August 1991 for $415,000 or $420,000. At the first auction, which was held before 14 November 1990, the reserve price was not reached and Craig Kelly rejected the highest offer. He discussed with his "parents" that the house had not been sold at auction. 146 When Mr Sullivan declined to re-finance the loan, Craig Kelly was "annoyed" but "again I thought I could struggle and still make the business succeed". The business was "destroyed". Craig Kelly said that "I don't hold anything against Mr Sullivan - it's past, we have got over it, we have got on with our lives". 147 After Mr Sullivan and Mrs Kelly separated, Craig Kelly assisted his mother with respect to a proposed claim by her under the De Facto Relationships Act. 148 Craig Kelly said that he had told the Bank that the property at Carrara was Mr Sullivan's home and his only asset. 149 Craig Kelly said that Nobsa's "financials" had been shown to Mr Sullivan by himself and that he had also arranged for someone else, apparently Mr Weidenhofer, to do it. He said that he had given Mr Sullivan copies of the "financials". When asked what the "financials" were, he said they were the income tax returns of Nobsa for the last two or three years. Mr Sullivan "wasn't happy with them". Craig Kelly discussed the "financials" with Mr Sullivan on half a dozen occasions over a couple of months. 150 Craig Kelly's attention was directed to paragraph 6 of his affidavit (which had not been read) where he had said "Sullivan asked to see the financial accounts, which I made available to him via my accountant Mr Weidenhofer". Craig Kelly had said nothing in his affidavit about himself showing financial documents to Mr Sullivan. In his oral evidence Craig Kelly said that Mr Sullivan had got "paper work" from him and that he and Mr Weidenhofer had explained the "paper work" to Mr Sullivan. "Mr Weidenhofer was given full directions to explain everything clearly to Mr Sullivan". 151 Craig Kelly could not recall specifically what was discussed at the meeting at Mr Williams' office. Mr Williams was "our company solicitor" and had acted on many occasions for Nobsa and for Craig Kelly personally. All three of Mr Sullivan, Craig Kelly and Mrs Kelly were present during the entire meeting. 152 Marjory Craig (Mrs Kelly) was cross-examined at the hearing. She thought that there had been discussions over four to five weeks at Craig Kelly's home, before the meeting at Mr Williams' office. Craig Kelly had suggested to Mr Sullivan that he put up his house as an alternative security to Mr Ahmet's house. To her knowledge, Mr Sullivan did not ask how much Nobsa owed the Bank and there was no discussion about the financial situation of Nobsa. 153 The name "Lyons" "rang a bell" with Marjory Craig. There was only one meeting at the Bank which Marjory Craig attended. 154 Marjory Craig said "I never got involved with the financial part of it". Craig Kelly "kept a lot from me rather than have me worried". 155 Marjory Craig said "Craig tried to sell his house, before he approached Mr Sullivan to go guarantor". 156 Marjory Craig had gone with Mr Sullivan to an auction of Craig Kelly's house late in 1990, close to the time of the meeting at Mr Williams' office. 157 Marjory Craig denied that her separation from Mr Sullivan had occurred "as a result of him not being prepared to give a mortgage over his home to a new financier". However, later she said Mr Sullivan "rang me at Hornsby and told me he was finished with me and he was signing no papers". She maintained that "Mr Sullivan and I were never compatible". In 1993 she had wished to make a claim under the De Facto Relationships Act concerning the property at Carrara but no claim was actually brought. She denied that she had been angry with Mr Sullivan ever since but said "I've been very, very upset about all the matter". 158 After this summary of some of the evidence, affidavit and oral, of the principal witnesses, Mr Sullivan, Mr Lyons, Mr Williams, Craig Kelly and Marjory Craig, it is appropriate that I make some general assessment of the credibility of the witnesses. 159 I accept that Mr Sullivan was an honest witness. However, I do not consider that his recollection of events was always reliable. He was endeavouring to give evidence of events which had happened several years earlier, without the assistance of any contemporaneous notes. I will need to deal separately with his evidence about a number of matters, including his personal background, his conversations with Craig Kelly, his conversations with Mr Weidenhofer, the meeting at the Bank, Mr Sullivan's understanding of the transaction he was entering into and the meeting at Mr Williams' office. 160 I accept all of Mr Lyons' evidence, subject to the qualification that I will have to consider specifically his evidence about the meeting he said he had at the Bank with Mr Sullivan. 161 I accept Mr Williams' evidence, including his evidence about what he said was his usual practice in 1990, subject to the qualification that I will have to consider specifically what happened at the meeting at his office on 14 November 1990. I note that Mr Williams qualified his original evidence, that as at 14 November 1990 he was not aware of Nobsa's financial situation, by agreeing that he would have received and that it was likely he would have perused, a copy of Nobsa's final accounts for the year ended 30 June 1990. 162 In cross-examination Craig Kelly showed a marked tendency to give answers which were not responsive to the questions asked and to say what he obviously wanted to say, even if it was unresponsive. I consider that his answers were often dogmatic, categorical and exaggerated. I also consider that in 1990 he was unduly optimistic about the position and prospects of the restaurant business and the price at which, and the ease with which, his house could be sold and that this excessive optimism would have coloured what he said to Mr Sullivan about the business and about the sale of his house. 163 I am also satisfied that, notwithstanding his disclaimer in his evidence, Craig Kelly blamed, and has continued to blame, Mr Sullivan for "destroying" his business (by Mr Sullivan not agreeing to the re-financing proposal). He also took his mother's side in her dispute with Mr Sullivan. I am satisfied that these factors coloured the evidence he gave and adversely affected its reliability. 164 I also consider that Marjory Craig had a sense of grievance against Mr Sullivan, for having parted with her interest in the land to Mr Sullivan and for being unable to reclaim this interest after her relationship with Mr Sullivan had ended and that this sense of grievance coloured her evidence and affected its reliability. 165 Where there is a conflict between the evidence of Mr Sullivan on the one hand and the evidence of Craig Kelly or Marjory Craig on the other and there is no evidence corroborating the evidence of Craig Kelly or Marjory Craig, I would prefer the evidence of Mr Sullivan. In particular, I do not accept Craig Kelly's evidence that "everything would have been discussed" with Mr Sullivan, that Craig Kelly showed financial documents to Mr Sullivan, that there were numerous meetings with Mr Weidenhofer or that Craig Kelly told Mr Sullivan the amount of Nobsa's indebtedness to the Bank. 166 I will now make some findings about the matters which in assessing Mr Sullivan's evidence, I said I would have to deal with separately.

Mr Sullivan's personal background 167 I have already summarised Mr Sullivan's evidence and Marjory Craig's evidence on this subject. At the time Mr Sullivan entered into the mortgage he was sixty-seven years old and retired. However, when he gave evidence before me more than eight years later, there was no indication that his faculties were impaired (apart, possibly, from a slight deafness) and I am satisfied that at the time he entered into the mortgage Mr Sullivan was not suffering from any disability by reason of his age. 168 Mr Sullivan had little formal education but he worked for many years as an organiser for the Australian Labor Party and in the Department of Industrial Relations and he is clearly a person of at least average mental acumen and shrewdness. 169 In the course of his business as a real estate developer, Mr Sullivan entered into a number of mortgages with the Bank, standard features of which were, as he knew, a personal covenant to repay the money borrowed and a right in the Bank, in the event of default, to take possession of the land mortgaged and to sell it.

Mr Sullivan's conversations with Craig Kelly 170 It was common ground that Craig Kelly suggested to Mr Sullivan that he should give a mortgage over the land in Queensland to take the place of the mortgage over Mr Ahmet's property. It is probable that Mr Sullivan did not agree to give a mortgage the first time the subject was raised and that there were a number of conversations on the subject and that the first conversation between Craig Kelly and Mr Sullivan occurred earlier than Mr Sullivan said it did. It is unlikely that some of the Bank documents, for example the application of 14 September 1990, would have been brought into existence, unless Mr Sullivan had by the time the documents were brought into existence indicated his willingness to enter into the proposed transaction. It is unlikely that Mr Williams would have received the instructions he did on 31 August 1990, unless by then Mr Sullivan had indicated his willingness to enter into the proposed transaction. 171 I accept that Craig Kelly said to Mr Sullivan words to the effect that the mortgage over Mr Sullivan's land would be required for only a short time, until Craig Kelly's house at Gymea had been sold. 172 As already stated, I do not accept Craig Kelly's evidence that he told Mr Sullivan the amount of Nobsa's indebtedness to the Bank. Nor do I accept Craig Kelly's oral evidence that he showed financial documents of the business to Mr Sullivan or discussed these financial documents with Mr Sullivan, especially when he had not made such assertions in his affidavit. Even if Craig Kelly did show "financials", being income tax returns of Nobsa for the last two or three years, it is unlikely that these income tax returns would have revealed the true current position of Nobsa. To the extent to which Craig Kelly did speak to Mr Sullivan about the restaurant's financial position, it is likely that what he said was excessively optimistic.

Mr Sullivan's conversations with Mr Weidenhofer 173 I have already summarised Mr Sullivan's evidence on this subject. Mr Weidenhofer did not give evidence. I do not consider that I should give myself a Jones v Dunkel direction against either the Bank or Mr Williams, on the basis that neither of them called Mr Weidenhofer, but the fact remains that there is no evidence from Mr Weidenhofer. 174 I accept Mr Sullivan's evidence that he spoke to Mr Weidenhofer a couple of times before he signed the mortgage, on occasions when Mr Weidenhofer happened to be at the restaurant and that Mr Weidenhofer reassured him that there would be no problems or worries for Mr Sullivan, if he entered into the mortgage. That Mr Weidenhofer gave such reassuring answers to Mr Sullivan, would be consistent with Mr Weidenhofer having on or about 1 August 1990 put the ambitious proposal to the Bank that the business should acquire another restaurant at a cost of $2m and his assertion to the Bank's Branch Manager, not accepted by the Manager and contradicted by Nobsa's actual past performance, that "Cascades can meet its own financial repayments on its own". 175 I do not accept that Mr Weidenhofer made financial documents of Nobsa available to Mr Sullivan.

Meeting at the Bank 176 It was not disputed by Mr Sullivan that there had been a meeting at the Bank's Sutherland Branch, at some time before he signed the mortgage. However, there were issues about when the meeting had taken place, who had been present at the meeting on behalf of the Bank, who else had been present and what had been said at the meeting. 177 Mr Lyons said that he had been present at a meeting with Mr Sullivan and that the meeting had taken place a day or two before the date of the application of 14 September 1990 which he had himself prepared. In giving this evidence, Mr Lyons relied heavily on inferences he drew from the inclusion in the application he had prepared of the words "Ahmet's security property would be released and replaced by an unencumbered property at Carrara (Gold Coast) QLD owned by Kelly's stepfather, DC Kelly who has been fully appraised of situation if default should occur". 178 Mr Sullivan did not remember Mr Lyons being at the meeting, thought that the meeting had been within two weeks of his signing the mortgage and generally had little recollection of the meeting, apart from the bank officer making a copy of the photograph of the house at Carrara. 179 Marjory Craig said that the meeting had been in October or November 1990, that the meeting had been with the then manager of the Sutherland Branch of the Bank (who would not have been Mr Lyons) and that she, Craig Kelly and Mr Sullivan had attended the meeting. 180 Craig Kelly did not remember any meeting at the Bank, at which he and Mr Sullivan had been present. 181 I consider that I should accept Mr Lyons' evidence about the meeting. There is no doubt that the application was prepared and signed by Mr Lyons and dated 14 September 1990 and that it contains an assertion that Mr Sullivan had been fully appraised of the situation, if default should occur. It is unlikely that the application would have been prepared and dispatched by the Branch of the Bank or that such an assertion would have appeared in the application, unless a bank officer had spoken to Mr Sullivan about the proposed mortgage and "appraised" him of the situation. 182 It is not unusual for witnesses such as Mr Sullivan and Marjory Craig, endeavouring without notes to recall a series of events occurring several years before, to telescope the period of time during which these events occurred. 183 I accordingly accept that the meeting took place a short time before 14 September 1990 and that Mr Lyons attended on behalf of the Bank. If Mr Sullivan was present, then it is highly probable that both Craig Kelly and Marjory Craig were also present. I also accept, as was conceded by Mr Sullivan, that at the meeting he was told that his property could be sold by the Bank, if the restaurant could not pay its debts. 184 Marjory Craig said in her affidavit that at the meeting the bank officer told Mr Sullivan the amount of Nobsa's indebtedness. Mr Sullivan denied this. Mr Lyons said he would have provided such information, only if he had obtained the permission of his principal (Nobsa). It emerged in cross-examination of Marjory Craig that she had little recollection of the meeting. I find that Mr Sullivan was not told the amount of Nobsa's indebtedness.

Mr Sullivan's state of knowledge immediately prior to going to Mr Williams' office on 14 November 1990. 185 Mr Sullivan knew that he was going to sign a mortgage to the Bank of the land at Carrara and that he was guaranteeing the indebtedness of Nobsa to the Bank, that the money which Nobsa owed to the Bank would have to be paid to the Bank, that, unlike the guarantee he had entered into in 1985, there was no limit on his liability and that if there was default the Bank would have rights against the land. 186 However, Mr Sullivan believed that the mortgage would only be in force for a short time and that the mortgage would be "released", when Craig Kelly's house was sold in a couple of months or a few months time. 187 Mr Sullivan knew that Nobsa owed money to the Bank but he did not know how much and he did not know that Nobsa was in serious financial difficulties. Mr Sullivan knew that Craig Kelly owed money to the Bank but he did not know how much. If Mr Sullivan had known that, even if Craig Kelly's house was sold, the proceeds of sale, after first being applied to satisfy Craig Kelly's indebtedness to the Bank, would not have been nearly sufficient to meet Nobsa's indebtedness to the Bank, with the consequence that the mortgage from him would remain in force notwithstanding the sale of Craig Kelly's house, then Mr Sullivan would not have entered into the mortgage. Mr Sullivan had no knowledge of any intended security from Nobsa by way of an equitable mortgage

Meeting at Mr Williams' office 188 There is no doubt that a meeting took place at Mr Williams' office on 14 November, at which the mortgage and various other documents were signed. Mr Sullivan, Craig Kelly and Marjory Craig all in effect claimed to have a fairly good recollection of the meeting. Mr Williams said in his affidavit that he had no actual recollection of the meeting and that he had no file note and that he had only a time sheet, indicating that he had conferred with Craig Kelly, Mrs Kelly and Mr Sullivan for fifty-five minutes. In his oral evidence he said that he did have some actual recollection of the meeting but could not recall exactly what was said. 189 There was a dispute about how long the meeting had lasted. Mr Williams' time sheet showed fifty-five minutes but as there was no separate recording of time spent in perusing the documents received from the Bank's solicitors or in preparing the letter dispatched with the executed documents, it is possible that some of the fifty-five minutes were devoted to these purposes. Mr Sullivan said that the meeting lasted twenty to thirty minutes. Marjory Craig said that the meeting lasted about an hour. Craig Kelly said that the meeting lasted two hours. I consider that this evidence, like much of his evidence, was exaggerated. I consider that Mr Sullivan's evidence is likely to be an underestimate and that the meeting, as distinct from any time spent by Mr Williams on other tasks such as perusing the documents, lasted somewhere between half an hour and fifty-five minutes. 190 All of Craig Kelly, Marjory Craig and Mr Sullivan were present throughout the meeting and Mr Williams did not give any advice to Mr Sullivan that he should see Mr Sullivan separately. Mr Williams knew that Mr Sullivan was getting nothing personally out of the transaction and that the land was Mr Sullivan's home and his only significant asset. 191 I accept Mr Williams' evidence about what he said was his usual practice when asking someone to sign a guarantee or a third party mortgage. 192 I also consider it probable that Mr Williams followed his usual practice on this occasion, although Mr Sullivan in effect denied that this had happened. At one stage in his evidence Mr Sullivan did concede that Mr Williams may have asked him whether he was signing the documents voluntarily. That Mr Williams entered upon some explanation of the various documents is supported by the evidence of Marjory Craig and Craig Kelly. It is inherently likely that some explanation would be given by a solicitor, who knew that he had to sign a certificate which would be sent to the mortgagee's solicitors. Mr Williams said that it was part of his usual practice to have the proposed guarantor sign the "certificate of understanding," by which he seems to have meant the document which I have described as "the notice to customer/mortgagor/guarantor regarding execution of documents" and Mr Sullivan's signature appears on this document I have found in the case of the meeting at the Bank that Mr Sullivan's recollection was unreliable. It is true that, as I have found, Mr Williams did not have any copy of the memorandum at the meeting. However, I accept that he would have made assumptions about the contents of the mortgage including the memorandum, which would be true of the vast majority of mortgages, including in the case of a third party mortgage that the mortgagor would be liable to repay the mortgagee and that, if there was a shortfall on realisation of the security, the mortgagor would be liable for the shortfall. 193 If Mr Williams followed his usual practice, the certificate he gave would be incorrect, inasmuch as he did not, as stated in paragraph (e) of the certificate, ask Mr Sullivan in terms whether he had compared his obligations and responsibilities to the Bank with those of any other person named in the document, that is Nobsa, and had considered the consequences to him, should there be any default in those obligations or responsibilities. 194 Marjory Craig gave evidence in her affidavit that at the meeting Mr Williams asked Mr Sullivan whether he wanted to get other legal advice. Mr Sullivan denied that Mr Williams had asked him whether he wanted to get other legal advice or had advised him that he should obtain other legal advice before signing the mortgage. 195 Mr Williams did not recall whether he had advised Mr Sullivan to obtain other legal advice but it would not have been in accordance with his usual practice to give such advice. Mr Williams knew that, so far as Craig Kelly, his client of a number of years standing, was concerned, the execution of the mortgage by Mr Sullivan was a matter of urgency and this factor would have militated against Mr Williams running the risk of delaying the execution of the mortgage by advising Mr Sullivan to seek independent legal advice. 196 I am satisfied that Mr Williams did not ask Mr Sullivan whether he wanted to obtain other legal advice or advise Mr Sullivan that he should obtain other legal advice. 197 Mr Williams could not recall whether at the meeting he had advised Mr Sullivan to obtain independent financial advice but he had not had a practice of suggesting to proposed third party mortgagors that they obtain independent financial advice and I am satisfied that he did not advise Mr Sullivan to obtain independent financial advice or say anything to Mr Sullivan about what was the financial position of Nobsa. At the time of the meeting Mr Williams was aware, from having received a copy of Nobsa's final accounts for the year ended 30 June 1990, that in those accounts there was a deficiency in shareholders' funds and in working capital. 198 A question to which I will return later in this judgment is whether, if Mr Sullivan had been advised by Mr Williams to obtain independent legal advice or independent financial advice, he would have taken such advice. 199 I am satisfied that Mr Williams said nothing to Mr Sullivan about the provision in the schedule to the mortgage that the mortgage was collateral to an equitable mortgage of even date from Nobsa. 200 I accept that at the meeting Mr Sullivan said to Mr Williams words to the effect, "why doesn't Craig give me something to protect my interest?" and that Marjory Craig then said, "it's all in the family" and that nothing further was said on the subject. 201 I will now proceed to consider the various issues which arose between the Bank as the plaintiff and Mr Sullivan, as the defendant and first cross-claimant. 202 The Bank's case in chief was very simple. Default had been made under the mortgage granted by Mr Sullivan to the Bank and the Bank was seeking to exercise its remedies under the mortgage of obtaining possession of the mortgaged property and obtaining a judgment for the amount due under the mortgage. 203 As I stated near the beginning of this judgment, Mr Sullivan's defence case was originally pleaded as being based on the Contracts Review Act. However, when I ruled that the Bank would be permitted to contend that the Contracts Review Act did not apply to the mortgage, counsel for Mr Sullivan sought to rely, and was permitted to rely, on a number of grounds outside the Contracts Review Act, on which, it was submitted, the Bank should be refused the relief it was claiming. However, counsel for Mr Sullivan did not abandon reliance on the Contracts Review Act and it is convenient to begin this examination of the issues between the Bank and Mr Sullivan with the issue of whether the Contracts Review Act applies to the mortgage.

Does the Contracts Review Act apply to the mortgage 204 Section 17(3) of the Contracts Review Act provides:- "(3) This Act applies to and in relation to a contract only if

(a) the law of the State is the proper law of the contract:

(b) the proper law of the contract would, but for a term that it should be the law of some other place or a term to the like effect, be the law of the State; or

(c) the proper law of the contract would, but for a term that purports to substitute, or has the effect of substituting, provisions of the law of some other place for all or any of the provisions of this Act, be the law of the State." 205 Clause 32 of the Memorandum headed "Governing Law" provided that the terms of the mortgage should be governed by, and construed in accordance with, the laws of the Commonwealth of Australia and the State of Queensland and that the mortgagor agreed to submit to the non-exclusive jurisdiction of the Federal Courts of the Commonwealth of Australia and the Courts of the State of Queensland. 206 Having regard to the express choice in cl 32 of the laws of the State of Queensland, the submissions made on behalf of Mr Sullivan focused on par(b) of s17(30. It was submitted that, but for cl 32 of the Memorandum, the proper law of the mortgage would have been the law of New South Wales. 207 In support of this submission, counsel for Mr Sullivan sought to rely on the decision of the majority of the New South Wales Court of Appeal in Oceanic Sunline Special Shipping Co Inc v Fay (1987) 8 NSWLR 242. In that case a majority of the Court of Appeal, consisting of McHugh JA and Glass JA, held that a contract made for a cruise in the Greek Islands between a passenger in Australia and a shipping line had been made in New South Wales and incorporated terms on a ticket, including a term limiting liability and a term giving exclusive jurisdiction to the courts of Greece over any claim against the shipping line. The plaintiff was injured while on board the cruise vessel and brought proceedings against the shipping line in the Supreme Court of New South Wales. The shipping line applied for a stay of the proceedings, which was refused by the judge of first instance. 208 In Oceanic Sunline McHugh JA held that the judge of first instance had been correct to refuse a stay, because the contract between the passenger and the shipping line had been made in New South Wales and if the proceedings were heard in New South Wales the plaintiff would be able to invoke the Contracts Review Act, whereas it was probable, if the action was heard in Greece, that the plaintiff would not be able to invoke the Contracts Review Act and accordingly, if the proceedings in New South Wales were stayed, the plaintiff would be deprived of a legitimate personal or juridical advantage. Glass JA agreed with McHugh JA. Kirby P dissented. 209 It was submitted by counsel for Mr Sullivan that McHugh JA's judgment was authority for the proposition "that the Contracts Review Act is a mandatory law of the forum, which applied to give the Supreme Court jurisdiction, where the effect of the foreign law would be to deprive a party of rights set out in the Contracts Review Act". An alternative, modified submission was also made that his Honour's judgment was authority for the proposition that, if a contract is made in New South Wales, the Contracts Review Act is to be applied by a New South Wales court. 210 I do not consider that either of these submissions should be upheld. 211 It is not the case that the Contracts Review Act is "a mandatory law of the forum" to be applied in any proceedings brought in a New South Wales court, whatever the connection or lack of connection between the contract in question and the State of New South Wales and I do not understand McHugh JA in Oceanic Sunline to have asserted the contrary. 212 Nor do I consider that it is a sufficient condition for the application of the Contracts Review Act to a contract, that the contract was made in the State of New South Wales. The statutory test for the application of the Contracts Review Act is whether the proper law of the contract is the law of the State (or would, but for a choice of law provision in the contract, be the law of the State) and where the contract was made, although relevant, is not necessarily determinative of what the proper law of the contract is. McHugh JA in his judgment in Oceanic Sunline made no reference to s17(3) of the Contracts Review Act but would appear to have treated the question of where the contract was made, to which his Honour devoted considerable attention, as being determinative, in the circumstances of the particular case, of what was the proper law of the contract. 213 Kirby P in his dissenting judgment in Oceanic Sunline pointed out (at 258) that the judge at first instance had not made any explicit finding as to what was the proper law of the contract. Kirby P proceeded to say that, even if the contract was made in New South Wales, that would not necessarily determine the proper law of the contract, because the proper law of the contract remained the law of the place with which the contract had its closest and most real connection. Bonython v Commonwealth of Australia (1951) AC 201 at 219. 214 An appeal was brought to the High Court from the decision of the Court of Appeal in Oceanic Sunline and the decision of the High Court is reported Oceanic Sunline Special Shipping Co Inc v Fay (1988) 165 CLR 197. 215 On the appeal all member of the High Court held that the contract of carriage had been made in New South Wales and that the terms on the ticket did not form part of the contract. Accordingly, the exclusive jurisdiction clause in one of the terms on the ticket, not having become part of the contract, did not present any obstacle to the plaintiff's proceedings being brought in the Supreme Court of New South Wales and it was unnecessary for the judges of the High Court to deal with the application of the Contracts Review Act to the contract. 216 The only member of the High Court to refer to the Contracts Review Act was Brennan J who said at 231:- 217 "Moreover, if the exclusive foreign jurisdiction clause had been part of the contract of carriage, Greek law would probably have been held to be the proper law of the contract and the contract would thus have been outside the reach of the Contracts Review Act; see s17(3)(a)". 218 It seems to me, with respect, that Brennan J in the High Court was clearly correct in saying that, if Greek law was the proper law of the contract, the Contracts Review Act would not apply. 219 An alternative submission was made by counsel for Mr Sullivan that, but for cl32 of the Memorandum, the proper law of the mortgage would have been the law of the State of New South Wales, as being the system of law of the place with which the contract consisting of the mortgage had its closest and most real connection. Counsel pointed to various factors connecting the contract with New South Wales, including that the mortgage was executed in New South Wales, the Bank carried on business principally in New South Wales, the principal debtor Nobsa was a New South Wales company, the mortgage contained personal covenants by Mr Sullivan to pay money and the place for payment, in the absence of any contrary direction by the Bank, was in New South Wales and the mortgage was expressed to be collateral to an equitable mortgage from Nobsa, the proper law of which, if the equitable mortgage was independently considered, would be the law of New South Wales. 220 I do not consider that this submission made by counsel for Mr Sullivan should be accepted. In my opinion, the crucial factors in determining with which system of law the contract had its closest and most real connection are that the contract was a mortgage of land in Queensland subject to the Queensland Real Property Act, that the mortgage was registered at the Queensland Land Titles Office and that it contained references to Queensland Statute law. I note in passing that Mr Sullivan, the mortgagor, was a resident of Queensland. 221 The decision of the High Court in McClelland v Trustees Executors and Agency Company Limited (1936) 55 CLR 483 is directly, or virtually directly, in point. In that case all four members of the High Court held that the proper law of a mortgage of land in New South Wales under the New South Wales Real Property Act, which was registered in New South Wales and which incorporated some provisions of New South Wales Statute law and excluded others was the law of New South Wales, even though the mortgagor was a resident of Victoria, the mortgagee was a company incorporated in Victoria and the mortgage had been executed in Victoria. 222 The only was in which counsel for Mr Sullivan attempted to distinguish McClelland was to say that in McClelland the mortgage had not been expressed to be collateral to another contract, the proper law of which, if determined independently of the mortgage, would have been the law of a place, other than the place where the land was situated. In my opinion, this circumstance is quite insufficient to distinguish McClelland. 223 Counsel also sought to distinguish an earlier High Court decision Merwin Pastoral Company Proprietary Limited v Moolpa Pastoral Proprietary Company Limited (1933) 48 CLR 565 and I would accept that this decision, which was concerned with the proper law of a contract for the sale of immovable property, is not as close to the present case as McClelland is. 224 Both on general principle and on the authority of the decision of the High Court in McClelland, I find that the place with which the mortgage had its closest and most real connection was Queensland. Accordingly, even if cl 32 of the Memorandum is disregarded, the proper law of the mortgage would be the law of Queensland and the New South Wales Contracts Review Act would not apply.

Is the Bank estopped from asserting that the Contracts Review Act does not apply to the mortgage. 225 It was submitted on behalf of Mr Sullivan that, even if, apart from any estoppel, the Contract Review Act does not apply to the mortgage, nevertheless the Bank was estopped from asserting that the Contracts Review Act does not apply to the mortgage. 226 This submission was based on evidence by Mr Sullivan's solicitor, Mr Dobson, and particularly on evidence of conversations and correspondence in 1994 between himself and the solicitors acting for the Bank. This evidence, which I accept, can be briefly summarised as follows:- 227 On 28 March 1994 the Bank's solicitors wrote a letter to Mr Sullivan, demanding that he give up possession of the land to the Bank. This letter was referred by Mr Sullivan to his solicitors. On 7 April 1994 Mr Dobson had a telephone conversation with a solicitor acting for the Bank, in which he said that Mr Sullivan would not be giving up possession, for reasons based on the Contracts Review Act. On the same day Mr Dobson wrote a letter to the Bank's solicitors, in which it was contended that the contract consisting of the mortgage was unjust and that Mr Sullivan was entitled to relief under the Contracts Review Act. Mr Dobson suggested that the Bank should commence legal proceedings and that the appropriate forum for such proceedings would be New South Wales. 228 On 12 May 1994 the Bank's solicitors wrote a letter to Mr Dobson, in which they said that the Bank would not agree to the proceedings being brought in New South Wales, unless Mr Sullivan gave an undertaking that, if the proceedings were brought in New South Wales and judgment for possession was obtained by the Bank, Mr Sullivan would vacate the land, without the need to register the New South Wales judgment in Queensland. After some delay Mr Sullivan gave an undertaking in writing, in which he undertook to give vacant possession of the land immediately, if a judgment for possession was obtained against him in proceedings brought in New South Wales. Subsequently, the Bank commenced the present proceedings. In these proceedings a cross-claim was filed on behalf of Mr Sullivan in which the Contracts Review Act was pleaded and a defence to the cross-claim was filed on behalf of the Bank, in which it was alleged that the contract was not unjust. 229 Mr Dobson stated in his affidavit that at no time had the Bank's solicitors said to him that the Bank contended that the Contracts Review Act did not apply and that he, Mr Dobson, had assumed, right up until 10 February 1999, that there was no issue but that the Contracts Review Act did apply to the mortgage. 230 It was submitted, largely on the basis of the evidence which I have just summarised, that the doctrine of estoppel as discussed by the High Court in Commonwealth v Verwayen (1990) 170 CLR 394 was applicable, with the consequence that the Bank was estopped from asserting that the Contracts Review Act did not apply to the mortgage. 231 I do not consider that this submission should be upheld. 232 In the first place, s17(3) of the Contracts Review Act provides that the Act applies to a contract, "only if" one or other of the conditions in pars(a), (b) or (c) is satisfied and, having regard to the conclusion I have already stated to the effect that none of the conditions in s17(3) were satisfied, any application of the Contracts Review Act to the mortgage would be directly contrary to s17(3). I note, however, that it was said in Verwayen, for example by Deane J at 445, that an assumption of law may give rise to an estoppel. 233 In the second place, I do not consider that the elements of an estoppel, as stated in Verwayen (for example by Deane J at 444-446) have been established. 234 Mr Sullivan himself admitted in evidence that he could not recall the Contracts Review Act ever having been mentioned to him by Mr Dobson. Mr Sullivan himself clearly made no assumption that the Contracts Review Act applied. 235 I accept that Mr Dobson assumed, at least up until 10 February 1999, that the Contracts Review Act applied to the mortgage but this was an assumption which he had himself made, before he first communicated with the Bank's solicitors and the Bank's solicitors played no part in inducing this assumption. Furthermore, the Bank's solicitors did not in any conversation or letter make any positive representation that the Contracts Review Act applied to the mortgage. 236 I accept evidence by Mr Joiner, a bank officer, that up until 9 February 1999 the Bank had never been advised that the Contracts Review Act might not apply to the mortgage, by reason of s17(3) of the Contracts Review Act. The Bank, accordingly, did not know up until 9 February 1999 that the Contracts Review Act might not apply to the mortgage and there was, consequently, no deliberate decision by the Bank not to avail itself of a defence (to Mr Sullivan's claim under the Contracts Review Act), which the Bank knew was available. The position in the present case is in stark contrast with the facts in Verwayen itself, where the Commonwealth sought at a late stage in the proceedings to put in issue an allegation of negligence and to rely on a defence under the Limitation Act, in circumstances where the Commonwealth had earlier, in full knowledge of its legal rights, expressly and deliberately disavowed any intention of doing so. 237 In the circumstances I have outlined, it was not unconscionable or unconscientious for the Bank to depart from an assumption that Mr Dobson had formed that the Contacts Review Act applied to the mortgage. The present case is an example of the common kind of case, where a party to litigation at a late stage of the proceedings applies to amend a pleading, because a claim or defence has, for the first time, occurred to its legal advisers. In such a case leave to amend may or may not be granted. However, a party seeking leave to amend is not prevented from raising the claim or defence by the doctrine of estoppel, even thought the opposite party may have been proceeding on an assumption that the claim or defence will not be raised. 238 I conclude that the Bank is not estopped from asserting that the Contracts Review Act does not apply to the mortgage.

Does s52A (now s51AB) of the Trade Practices Act apply to the mortgage 239 At the time the mortgage was entered into, s52A of the Trade Practices Act provided in part as follows:- "(1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable. * * * (5) A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption". 240 Section 52A of the Trade Practices Act has since been re-enacted as s51AB of the Act. 241 Under s4 of the Act "services" are defined so as to include any right, benefits, privileges or facilities provided, granted or conferred under…. "(d) any contract for or in relation to the lending of monies". Accordingly, the Bank in taking a mortgage from Mr Sullivan to secure the indebtedness of Nobsa to the Bank for money lent by the Bank to Nobsa was engaging in conduct in connection with the supply of services. 242 However, the question remains whether under ss(5) of s52A the services the Bank was supplying were services "of a kind ordinarily acquired for personal, domestic or household use or consumption". 243 It was submitted on behalf of Mr Sullivan that, although the monies had been advanced to Nobsa for use in carrying on its business, the lending of money is a service of a kind ordinarily acquired for personal, domestic or household use and that consequently ss(5) was satisfied. It was conceded by counsel for Mr Sullivan that the decision of Drummond J of the Federal Court of Australia in Begbie v State Bank of New South Wales (1994) ATPR 41-288 was opposed to this submission. In Begbie the applicant, Mrs Begbie, who had fallen under the influence of a man named Cheers, executed a mortgage over her property in favour of the Bank, as security for overdraft accommodation provided by the Bank to Cheers, which Cheers used for business purposes. Drummond J held that Mrs Begbie was entitled to succeed against the Bank on other grounds but that she was not entitled to succeed against the Bank under s52A of the Trade Practices Act. Whether s52A applied depended on whether ss(5) was satisfied. In his judgment Drummond J said at 41,898:- "The borrowing of funds, even substantial in amount, e.g., the borrowing of funds by a person sufficient to enable that person to buy a private residence, can be a service of such a kind. In order to determine whether the service in question in a particular case in which s52A (now s51AB) is relied on is one within s52A(5) (now s51AB(5)), it is in my view necessary to have regard not just to the activity, here the provision of loan funds, but also to the purpose that activity is intended, in the particular case, to serve. Only then can the true nature of the services in connection with which it is said the respondent has acted unconscionably be identified and a proper answer given to the question posed by s52A(5). The provision of such a large sum as $250,000.00 by way of overdraft accommodation for the purpose of assisting a corporation to buy a business, to enable it to assist a director to pay off his own personal indebtedness to another and to assist it to undertake the commercial development of real estate is not a service of the kind referred to in the sub-section". 244 It was submitted by counsel for Mr Sullivan that I should not follow Begbie v State Bank, because interpreting ss(5) in such a way as to have regard to the purpose for which, in the particular case, the monies lent were to be used, was inconsistent with the language of ss(5), "services of a kind ordinarily acquired". 245 It was further submitted that I could obtain guidance on the proper interpretation of s52A(5) from the judgment of Lehane J of the Federal Court in Crago & Anor v Multiquip Pty Limited (unreported 21 September 1998). The issue in Crago was whether claims arising from the supply of incubators for incubating ostrich eggs came within s74B and s74D of the Trade Practices Act. The claims would come within those sections, if the person to whom the goods were supplied was "a consumer" and this question in turn would depend on whether the goods supplied "were of a kind ordinarily acquired for personal, domestic or household use or consumption". Lehane J disposed of the claims by holding that the applicants had not established that the incubators were goods of a kind ordinarily acquired for personal, domestic or household use. Counsel for Mr Sullivan fastened on some dicta by Lehane J and particularly a remark at 28:- "Goods may be of a kind ordinarily acquired for personal use, even if goods of the same kind are in many cases acquired for business use". 246 It was submitted that the proper enquiry was whether the goods (or services) were of a kind ordinarily acquired for personal, domestic or household use, not whether in a particular case they would, after having been supplied, be used for such purposes. 247 I consider that I should follow the decision of Drummond J in Begbie v State Bank, which is a decision of a judge of the Federal Court directly in point on s52A itself. If the construction advocated by counsel for Mr Sullivan is adopted and no regard is had to the use to which the particular borrower puts the borrowed money, then a consequence, as counsel for Mr Sullivan acknowledged, would be that any loan of money, even to a large industrial or commercial enterprise to be used for the purposes of the enterprise, would fall within s52A (s51AB). If the test stated by Drummond J is applied, then the services supplied by the Bank would not fall within s52A. 248 I conclude that s52A of the Trade Practices Act does not apply to the mortgage.

Did Mr Lyons at the meeting at the Bank make a misrepresentation on which Mr Sullivan relied. 249 A submission by counsel for Mr Sullivan that Mr Lyons had made a misrepresentation to Mr Sullivan was sought to be based on Mr Lyons' evidence that he had a practice, when there was a proposed third party mortgagor, to "point out the fact, if there was a default, the Bank, after taking due recourse, might be forced to sell up the security property". 250 It was submitted that if, as should be inferred, Mr Lyons had followed what he said was his practice when he was speaking to Mr Sullivan, then what Mr Lyons would have said would have been incorrect in two respects, in that Mr Lyons would have represented that Mr Sullivan's liability would be limited to a sale of his house and would not extend to the giving of an unlimited personal covenant and Mr Lyons would have represented that, in the event of default, recourse would be had, in the first instance, against the principal debtor, and not Mr Sullivan. 251 I do not consider that this submission should be accepted. 252 I do not consider, as a matter of language, that what Mr Lyons said (if he followed his practice) would have been open to either of the constructions sought to be placed on it. In saying that the Bank, if there was default, might be forced to sell the mortgaged property, Mr Lyons was merely drawing attention, in a non-exclusive way, to one of the principal possible consequences of a default. I do not consider that a meaning that, in the event of default, the Bank would first have to exercise what rights it had against the principal debtor can be spelt out of the words "after taking due recourse" can be spelt out of the words "after taking due recourse", which might merely mean the taking of preliminary steps against Mr Sullivan, such as making a demand and obtaining possession of the land. 253 Nor do I consider that Mr Sullivan would have understood what was said in the ways contended for or that, even if he did, what Mr Lyons said played any part in Mr Sullivan's decision to enter into the mortgage. 254 Mr Sullivan did not give any evidence that Mr Lyons had said to him what it was submitted Mr Lyons had said or that he had placed any reliance on what Mr Lyons had said. As I have already found, the meeting at the Bank took place, not shortly before Mr Sullivan entered into the mortgage, but more than two months before he entered into the mortgage and it is unlikely that what Mr Lyons said was continuing to operate on Mr Sullivan's mind at the time he entered into the mortgage. Mr Sullivan had entered into many mortgages and understood that a standard feature of a mortgage was a personal obligation on the mortgagor to repay the monies lent. As I have already found, Mr Sullivan knew, immediately prior to going to Mr Williams' office on 14 November 1990, that he was going to sign a mortgage, that he was guaranteeing the indebtedness of Nobsa to the Bank, that the money which Nobsa owed to the Bank would have to be paid to the Bank, that there was no limit on Mr Sullivan's liability and that if there was a default the Bank would have rights against the land. I have also found that at the meeting at Mr Williams' office Mr Williams followed what he said was his usual practice when asking someone to sign a guarantee or a third party mortgage. 255 I conclude that Mr Lyons did not at the meeting at the Bank make any misrepresentation on which Mr Sullivan relied in deciding to enter into the mortgage.

Is Mr Sullivan relieved of liability because no equitable mortgage was executed by Nobsa 256 It was submitted on behalf of Mr Sullivan that it was a term and condition of the mortgage or of the arrangements leading up to the execution of the mortgage that there would be an equitable mortgage of the same date from Nobsa, that no equitable mortgage had been given by Nobsa and that in those circumstances Mr Sullivan was relieved of all liability under the mortgage and, indeed, had never assumed any liability under the mortgage. Alternatively, it was submitted that Mr Sullivan was entitled to relief on equitable grounds, because no equitable mortgage had been given by Nobsa, but ultimately this alternative submission was virtually abandoned. 257 These submissions relied heavily on the inclusion in the mortgage of cl 2 in the Schedule to the mortgage, which provided:- "2. This mortgage is collateral to equitable mortgage of even date from Nobsa Holdings Pty Limited". 258 It is necessary to make some findings of fact on the subject of the giving of an equitable mortgage by Nobsa. 259 It is clear that both the Bank and Craig Kelly, both in his own right and as the person who was controlling Nobsa, intended that Nobsa should give an equitable mortgage. For example, in both the application and the supplement to the application prepared by Mr Lyons, the security proposed to be substituted for the mortgage over Mr Ahmet's property is described as the mortgage to be given by Mr Sullivan and "a registered equitable mortgage and floating charge over assets and undertaking of Nobsa Holdings Pty Limited". By its letter of 2 October 1990 in which it advised that approval had been given to the proposal for the substitution of securities, the Bank advised Craig Kelly that an equitable mortgage and floating charge would be taken over Nobsa's assets and undertaking. 260 On the other hand, I am satisfied that the giving of an equitable mortgage by Nobsa was never mentioned to Mr Sullivan in any of the discussions before 14 November 1990 or at the meeting at Mr Williams' office on 14 November 1990 and was a matter to which he had never given any thought at all. I am satisfied that on 14 November 1990 Mr Williams did not draw Mr Sullivan's attention to cl2 in the Schedule to the mortgage and that Mr Sullivan was quite unconscious of the inclusion of cl2 in the mortgage. 261 The Bank did not concede that Nobsa did not execute an equitable mortgage. However, I consider that I should find that Nobsa did not execute an equitable mortgage. If Nobsa had executed an equitable mortgage, then one would have expected the mortgage not yet executed to have been enclosed with the Banks solicitor's letter to Mr Williams of 26 October 1990 but no such document was enclosed. A document described as an "equitable mortgage" was enclosed with the letter of 26 October 1990 but this document was an equitable mortgage from the individual Craig Kelly. It would appear, quite inexplicably so far as the evidence before me goes, that the Bank's solicitors prepared and forwarded to Mr Williams an equitable mortgage, not from the company Nobsa, but from the individual Craig Kelly. 262 In par6 of his affidavit of 3 July 1997 Mr Williams said that a number of documents were executed in his presence on 14 November 1990, which he proceeded to list. In his list of documents Mr Williams included an equitable mortgage between Craig Kelly and the Bank but made no reference to any equitable mortgage from Nobsa to the Bank. 263 Most significantly of all, notwithstanding calls made at the hearing of these proceedings by counsel for Mr Sullivan that the Bank should produce any equitable mortgage from Nobsa to the Bank, and the obvious forensic advantage the Bank would derive if it could produce such a document, no such document was produced. 264 The conclusion that Nobsa did not execute a documentary equitable mortgage on 14 November 1990 does not entail the conclusion that there was no "equitable mortgage of even date from Nobsa Holdings Pty Limited". The security which Nobsa, as a principal debtor, was to give was an equitable mortgage, not a fixed mortgage. I am satisfied that Nobsa, by its controller Craig Kelly, had agreed to give an equitable mortgage over its assets and undertaking and I am further satisfied that that agreement by itself gave rise to a security in favour of the Bank and that as at 14 November 1990 that agreement would have been specifically enforceable by the Bank so as to require the execution by Nobsa of a documentary equitable mortgage. An equitable mortgage by a company over its assets and undertaking is a very common, standard document and I do not consider that the agreement was prevented from being specifically enforceable by the Bank, by the circumstance that the terms of such an equitable mortgage had not been settled between the parties. 265 I can now return to a consideration of the submissions made by counsel for Mr Sullivan. 266 It is clear that it was not a term of any arrangements leading up to the execution of the mortgage, to which Mr Sullivan was a party, that there should be an equitable mortgage from Nobsa. As I have already found, the giving of an equitable mortgage by Nobsa was not a matter which had ever been mentioned to Mr Sullivan or to which he had given any thought. 267 The question arises whether cl2 in the Schedule to the mortgage, on its proper interpretation, constituted a condition, such that Mr Sullivan would not be subject to any liability under the mortgage, unless Nobsa gave an equitable mortgage. 268 Clause 2 in the Schedule does not explicitly so provide and I do not consider, when it is interpreted in the context of the whole of the mortgage document, that it should be held to have this interpretation. I particularly have regard to the provisions of cl 512 of the Memorandum (applying where the mortgagor is a surety), cl 513, cl 29 and cl 36. 269 To the extent to which it is permissible to have regard to extrinsic circumstances in interpreting cl2, the interpretation I favour is confirmed. The real security the Bank was taking, in substitution for the mortgage over Mr Ahmet's land, was a mortgage over Mr Sullivan's land, and not an equitable mortgage by a company which was in a serious financial plight. 270 In my opinion cl2 in the Memorandum should be interpreted as simply evincing an intention that another party, Nobsa, should also give a security. For reasons which I have already given, I am not satisfied that there was actually any non-fulfilment of such a provision. Even if there was a non-fulfilment of this provision, then, assuming (as I was urged to do) that the principles enunciated by Powell J in Marston v Charles H Griffith & Co Pty Limited (1985) 3 NSWLR 294 in the case of intending co-guarantors, should be applied, with necessary adjustments, to the present case, then, adapting the second principle enunciated by Powell J, any presumption that the giving of an equitable mortgage by Nobsa was a condition precedent to Mr Sullivan becoming liable under the mortgage can be rebutted. In the present circumstances such a presumption would be rebutted by the terms of the mortgage considered as a whole and the surrounding circumstances, including Nobsa's financial state and Mr Sullivan's complete lack of knowledge of any proposed equitable mortgage or of the provisions of cl 2 in the Schedule. 271 I conclude that Mr Sullivan is not relieved of liability because no equitable mortgage was executed by Nobsa.

Did the Bank fail to perform its duty of disclosure to Mr Sullivan as an intending guarantor 272 It was submitted on behalf of Mr Sullivan that the Bank had failed to perform its duty of disclosure to Mr Sullivan as an intending guarantor, as referred to in Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447 per Gibbs CJ at 454-458 and Mason J at 463. 273 In Amadio Gibbs CJ at 454-458 said inter alia:- "A contract of guarantee is not uberrimae fidei". * * *

.. "a bank which takes a guarantee 'is only bound to disclose to the intending surety anything which has taken place between the bank and the principal debtor 'which was not naturally to be expected'. * * *

"The reason why a creditor is bound to reveal to an intending surety anything in the transaction between himself and the debtor which the surety would expect not to exist is that a failure to make disclosure in those circumstances would amount to an implied representation that the thing does not exist". * * *

"A surety who guarantees a customer's account with a bank will not expect that the account has not been overdrawn or that the bank is satisfied with the customer's credit, for the probable reason why the bank requires the guarantee is that the customer has been overdrawing his account, and wishes to do so again, and that the bank is not satisfied with his credit…. The general rule therefore is that a bank is not obliged to disclose to the surety matters affecting the credit of the customer". * * * 274 "…at least in the case of banker and customer the duty of disclosure arises only where there is a special arrangement between the bank and the customer of a kind which the surety would not expect". 275 Gibbs CJ then turned to the particular facts in Amadio. His Honour said inter alia:- "The facts that the company was in grave financial difficulties, and was consistently exceeding its overdraft limit, and that its cheques were being dishonoured, in themselves did no more than throw light on the credit of the company. It there were no more to the case than that, in my opinion the bank would not have been bound to make disclosure of those facts". 276 However, Gibbs CJ went on to hold that there were other circumstances besides those to which he had already referred, that an arrangement had been made between the bank and its customer (the principal debtor) that, within a short time, the customer's overdraft limit was to be reduced below the existing debit balance and then the overdraft was to be entirely cleared and that the bank had made itself a party to a selective dishonouring of cheques drawn by the company, in an endeavour to maintain a facade of prosperity for the company. Gibbs CJ concluded that the failure by the bank to disclose these circumstances amounted to a misrepresentation of a material part of the transaction between the bank and the company and that therefore the guarantee and the security given by the guarantor were not binding. 277 At p463 Mason J said:- "To say this involves no contradiction of the well-entrenched proposition that a guarantee is not a contract uberrimae fidei, that is, a contract which of itself calls for full disclosure. However, it is accepted that the principal creditor is under a duty '… to disclose to the intending surety anything which has taken place between the bank and the principal debtor 'which was not naturally to be expected', or as it was put by Pollock M.R., in Lloyds Bank Ltd v Harrison (1925) unreported cited in Paget's Law of Banking, 7th ed. (1966) p583 'the necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to the particular account which is to be guaranteed' 278 (Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 at p175, per Barwick CJ). It has been said that this duty to disclose does not require a bank to give information as to matters affecting the credit of the debtor or of any circumstances connected with the transaction in which he is about to engage which will render his position more hazardous (Wythes v Labouchere ( 1859) 3 De G & J 593 at p609 [44 ER 1397 at p1404], per Lord Chelmsford LC). No surety is entitled to assume that the debtor has not been overdrawing, the proper presumption being in most instances that he has been doing so and wishes to do so again ( London General Omnibus Co Ltd v Holloway ([1912] 2 KB 72, at pp 83-84, 87 279 Reference was also made by counsel to the judgment of Clarke JA (with whose judgment Handley JA agreed) in Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668 at 688-690. Clarke JA observed that the duty owed to an intending guarantor is to disclose circumstances not naturally to be expected in the transaction, where a non-disclosure of the circumstances would amount to a misrepresentation that the circumstances did not exist. 280 It was conceded by counsel for Mr Sullivan that the remarks of Gibbs CJ in Amadio are express authority that a bank is not obliged to disclose to an intending guarantor that the bank's customer, the principal debtor, is in grave financial difficulty or that the debit balance on its account with the bank exceeds the overdraft limit. 281 It was, however, submitted that there were a number of circumstances not naturally to be expected, which ought to have been disclosed by the Bank, but had not. The principal circumstances relied on were:- 282 1. As recorded in the proposal of 1 August 1990, Nobsa's accountant had said to the manager of the Bank's Sutherland Branch that "Cascades can meet its own financial repayments on its own". 283 2. As recorded in the branch watch and classified account report of 28 June 1990, the Bank's officer Mr Ray considered that the business (carried on by Nobsa) was not performing and the capacity to service its loans was non-existent and that recovery action should be commenced, unless satisfactory arrangements were made for repayment of the loan or repayment was obtained from a sale of security or from a re-financing of the indebtedness. 284 3. As recorded in the supplement to the application, Mr Lyons considered that if the business was to trade out of its difficulties, its debt level would have to be reduced drastically and this could only be achieved by a successful sale of Craig Kelly's property. 285 4. On 19 October 1990, after the manager of the Sutherland Branch had reported that Craig Kelly's house had not been sold at the auction on 13 October, the Bank's regional lending manager had decided "if debt not reduced to $250,000 by 15/11/90, submit for call-up (please advise clients accordingly of our intentions)". 286 5. The security to be given by the intending guarantor, Mr Sullivan, and not the proposed equitable mortgage from the principal debtor, was to be, and was regarded by the Bank as being, the primary security for Nobsa's indebtedness, so that if the Bank took recovery action Mr Sullivan would be "the real funder of the company's losses". 287 6. If Craig Kelly's property was sold, part of the proceeds of sale would be applied, not in payment of the indebtedness of Nobsa, but in payment of Craig Kelly's personal indebtedness to the Bank. 288 As to all of these circumstances, I make the general comment that none of them, with the possible exception of 4, to which I will return, was an arrangement between the Bank and Nobsa, so that if the duty of disclosure arises, as Gibbs CJ said in Amadio, "only where there is a special arrangement between the bank and the customer of a kind which the surety would not expect", then none of these circumstances had to be disclosed by the Bank. 289 I make the following specific comments, on the basis that it is sufficient to give rise to an obligation to disclose that a circumstance is not naturally to be expected, even though it does not take the form of a special arrangement between the bank and its customer. 290 As to circumstance 1:- 291 I do not consider that it is a circumstance not naturally to be expected that the customer's accountant had at one time in a conversation with an officer of the Bank expressed what the officer considered to be an over-optimistic view of the capacity of the customer to meet its commitments. 292 As to circumstance 2:- 293 Mr Ray's opinion that the business was not performing and that the business had no capacity to serve its loans was an opinion about matters affecting the credit of Nobsa and did not need to be disclosed. 294 A statement in a bank internal document that recovery action would have to be commenced against a customer whose account is overdrawn, unless satisfactory arrangements are made for repayment or repayment is obtained from the sale of security or from re-financing, is a kind of statement naturally to be expected in a bank record. If a bank is not obliged to disclose that a customer's account is overdrawn, because that is a circumstance naturally to be expected by an intending guarantor, then consideration by the bank of means whereby the customer's indebtedness can be cleared and of contingency plans for bringing recovery action is also to be expected. 295 As to circumstance 3:- 296 For much the same reasons as apply to circumstance 2, I consider that this circumstance was not a circumstance not naturally to be expected, such that non-disclosure of it would amount to a misrepresentation that it did not exist. I do not consider that in making the remark that Nobsa's debt level could only be reduced drastically by a successful sale of Craig Kelly's property, Mr Lyons was confining a "successful sale" of Craig Kelly's property to a sale precisely in accordance with the kind of sale assumed in the cash flow. 297 As to circumstance 5:- 298 It is true that the security to be given by Mr Sullivan, and not the proposed equitable mortgage from Nobsa, was, and was regarded by the Bank as being, the primary security for Nobsa's indebtedness. However, Mr Sullivan knew that the mortgage over Craig Kelly's property and the security to be given by him would be the primary securities for Nobsa's indebtedness to the Bank. Mr Sullivan was quite unaware of any security to be given by Nobsa. 299 As to circumstance 6:- 300 Mr Sullivan was aware that Craig Kelly owed money to the Bank and it was not a circumstance not naturally to be expected that part of the proceeds of any sale of Craig Kelly's property would be applied in payment of his personal indebtedness to the Bank. 301 I return to circumstance 4. It was submitted that it was a circumstance not naturally to be expected by an intending surety that the Bank's branch manager had been instructed that, if the principal debtor's indebtedness was not reduced to a certain figure by the day after the intending surety entered into the guarantee, the manager should submit the matter for "call-up", that is the taking of recovery action. 302 I do not, however, consider that in the circumstances this particular circumstance needed to be disclosed. The agreed limit of the overdraft account had been increased to $250,000. As set out in the application of 14 September 1990, it was part of the arrangement between the Bank and Nobsa that Marjory Craig was to provide $40,000. I find that as at 19 October 1990 (and at other material times) it was anticipated by the Bank, and the Bank had good grounds for anticipating, that Marjory Craig would comply with this part of the arrangement and that, if by no other means, the funds contributed by her would bring the indebtedness of Nobsa down to or below $250,000. In the event, Marjory Craig did provide $40,000 and the balance of the overdraft account was reduced to less than $250,000. No recovery action was in fact taken by the Bank on or shortly after 15 November 1990. 303 In my opinion, the Bank did not fail to perform the duty of disclosure to Mr Sullivan as an intending guarantor under the principles referred to in the judgment of Gibbs CJ in Amadio..

Whether the mortgage should be set aside as an unconscionable bargain 304 It was submitted on behalf of Mr Sullivan that the mortgage should be set aside under the principle of unconscionability discussed by the High Court in Amadio. It was also submitted that the mortgage should be set aside under the principles stated by Lord Browne-Wilkinson, with the concurrence of the other law Lords, in Barclays Bank PLC v O'Brien (1994) 1 AC 180 or under the principles stated by Kirby J in Garcia v National Australia Bank (1998) 72 ALJR 1243 at par73 and described by his Honour as a "re-formulation" of the principles stated by Lord Browne-Wilkinson in O'Brien. It is convenient first to consider O'Brien and the judgment of Kirby J in Garcia. 305 In O'Brien a husband and wife had executed a mortgage in favour of a bank to secure advances to a company in which the husband, but not the wife, had an interest. The wife signed the mortgage without reading it, in reliance on false representations by her husband that her liability under the mortgage was limited in amount and would last only three weeks. It was held by the House of Lords that there was no basis for providing special protection in equity to wives in relation to surety transactions. However, it was held by the House of Lords that the wife was entitled as against the bank to set aside the mortgage, on the grounds that the wife had been induced to sign the mortgage by her husband's misrepresentations, that she therefore had an equity against her husband to set aside the transaction, that that equity would be enforceable against a third party who had actual or constructive notice of the circumstances giving rise to the equity and that the bank had had such constructive notice. The bank was put on enquiry, because the wife was offering to be a surety in a transaction which was not to her financial advantage and which carried a substantial risk of the husband committing a legal or equitable wrong entitling the wife to set aside the transaction. Having been put on enquiry, the bank would be fixed with constructive notice, unless it took reasonable steps to ensure that the wife's agreement to become a surety had been properly obtained. 306 O'Brien was a case involving a husband and a wife. However, Lord Browne-Wilkinson said that the same principles were applicable to all other cases, where there is an emotional relationship between co-habitees. His Lordship then said that the decision of the Court of Appeal in Avon Finance Co Limited v Bridger (1985) 2 All ER 281 showed that other relationships could give rise to a similar result. 307 The status of O'Brien in Australia is uncertain. 308 O'Brien was applied by Santow J in Burke v State Bank of New South Wales (1995) 37 NSWLR 53 especially at 76-78. In Burke a husband and a wife had mortgaged their home to the bank as security for a loan by the bank to their son. Several years later, at the request of their son, they had signed documents, the contents of which they were not shown, in the belief that the documents were a roll-over of the original loan. In fact, the son was close to bankruptcy and the documents increased the amount of the loan. 309 An appeal from Santow J's decision in Burke was dismissed. State Bank of New South Wales v Burke (unreported Court of Appeal 4 April 1997). The leading judgment in the Court of Appeal was delivered by Priestley JA, with whom the other members of the Court agreed. 310 In his judgment in Burke Priestley JA considered an argument by the appellant bank that the facts found by the trial judge "did not support a finding of unconscionability as explained in the leading case of Commercial Bank of Australia Limited v Amadio". At one stage in his judgment Priestley JA said:- "The bank obtained what was, in fact, an unfair advantage. The only aspect reasonably open to argument is whether the bank should be regarded as having had sufficient knowledge of that unfair advantage to make it a party to the unconscionability.

On this point Santow J analysed the relevant case law in some detail and came to the conclusion that 'the principle of constructive notice should apply to any situation where the surety reposes trust and ,confidence in the principal debtor in relation to his financial affairs ( Barclays Bank Pty Limited v O'Brien (1994) 1 AC 180 at 198 so long as the likelihood of that is or should be known to the creditor, in circumstances where the transaction of guarantee was not to the guarantor's advantage.

I agree with this. The cases justify a doctrine at least as wide as this (see amongst many other places Mason J in Amadio at 467) and possibly wider, although it is not necessary to consider the wider possibility in the present case". 311 Barclays Bank v O'Brien, insofar as it decided that there was no basis for providing special protection in equity to wives in relation to surety transactions, was expressly not followed by the High Court in Garcia v National Australia Bank. In Garcia the High Court, overruling the New South Wales Court of Appeal (National Australia Bank v Garcia (1996) 39 NSWLR 577), held that a married woman who became a surety for her husband's debt could still rely on the special protection afforded to married women by the decision of the High Court in Yerkey v Jones (1939) 63 CLR 649, which did not depend upon the creditor having notice, at the time the guarantee was taken, of some unconscionable dealing between the husband as borrower and the wife as surety. 312 As regards Barclays Bank v O'Brien generally, Gaudron, McHugh, Gummow and Hayne JJ in their joint judgment said at par15:- "Sheller JA, who gave the leading judgment in the Court of Appeal, considered the decision of the House of Lords in Barclays Bank PLC v O'Brien and, in several respects, found difficulty in accepting the reasoning therein. The New Zealand Court of Appeal has said that 'the jurisprudential basis of O'Brien remains uncertain' ( Wilkinson v ASP Bank Limited (1998) 1 NZLR 674 at 689). After referring to the English authorities decided after O'Brien , Sir Anthony Mason has suggested that 'the plethora of cases may suggest that all is not well with the O'Brien principle'. It is unnecessary for us to enter upon the matter, beyond noting that in O'Brien the House of Lords discounted what it understood was the 'special equity theory' supported by Dixon J in Yerkey v Jones". 313 In the Court of Appeal Sheller JA had said at 597:- "I have some difficulty with the propositions Lord Browne-Wilkinson advanced… which led him… to identify a number of other special relationships, including that of a son to his elderly parents, which would put a creditor accepting security from the party assumed to be the weaker, on enquiry". 314 As I have already indicated, Kirby J in his judgment in Garcia offered a "re-formulation" of the principles stated by Lord Browne-Wilkinson in O'Brien, suggesting that Kirby J was not satisfied with the principles as originally formulated. 315 In his judgment in the High Court in Garcia Callinan J said at par109:- "I would not, with respect, adopt the principles settled by the House of Lords in Barclays Bank PLC v O'Brien , that any exceptional rules formally applicable to guarantees by wives of husbands' obligations should be extended to co-habitees in cases in which the creditor is aware of an emotional relationship between the co-habitees". 316 I have concluded that I should not apply the principles stated by Lord Browne-Wilkinson in Barclays Bank v O'Brien, except to the extent to which they may be in accordance with the principles stated by the High Court in Amadio. 317 Nor do I consider that I should apply Kirby J's "re-formulation" in his judgment in Garcia of the principles stated by Lord Browne-Wilkinson in O'Brien. At par73 Kirby J said:- "I favour a re-formulation of the principle expressed by Lord Browne-Wilkinson in O'Brien .. It is my view that the principle should be stated thus: Where a person has entered into an obligation to stand as surety for the debts of another and the credit provider knows, or ought ot know, that there is a relationship involving emotional dependence on the part of the surety towards the debtor: (1) the surety obligation will be valid and enforceable by the credit provider unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor; (2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the credit provider has taken reasonable steps to satisfy itself that the surety entered into the obligation freely and in knowledge of the true facts, the credit provider will be unable to enforce the surety obligation because it will be fixed with notice of the surety's right to set aside the transaction; (3) unless there are special exceptional circumstances or the risks are large, a credit provider will have taken such reasonable steps to avoid being fixed with constructive notice if it warns the surety (at a meeting not attended by the principal debtor) of the amount of the surety's potential liability, of the risks involved to the surety's own interests and advises the surety to take independent legal advice. Out of respect for economic freedom, the duty of the credit provider will be limited to taking reasonable steps only". 318 What Kirby J said in this paragraph is explicitly a departure from what was said by Lord Browne-Wilkinson in Barclays Bank v O'Brien and advanced by Kirby J for the first time and is not adverted to by any of the other members of the High Court. 319 I will now turn to the decision of the High Court in Amadio. The leading judgments in Amadio on the subject of unconscionability were given by Mason J and Deane J. Wilson J agreed with Deane J. Dawson J dissented and Gibbs CJ , on this point, also dissented. 320 At p474 Deane J said concerning the jurisdiction of courts of equity to relieve against an unconscionable dealing:- "The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable". 321 At p462 Mason J said:- "…an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis--vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party". 322 Mason J was at pains to point out that this principle allowing equitable relief on the ground of unconscionable conduct is quite distinct from the limited duty of disclosure owed by a creditor to an intending surety, which I have dealt with earlier in this judgment. His Honour observed:- "But the fact that a bank's duty to make disclosure to its intending surety, arising from the mere relationship between principal creditor and surety, is so limited has no bearing on the availability of equitable relief on the ground of unconscionable conduct. A bank, though not guilty of any breach of its limited duty to make disclosure to the intending surety, may nonetheless be considered to have engaged in unconscionable conduct in procuring the surety's entry into the contract of guarantee". 323 As to whether the stronger party knows or ought to know of the existence of the special disability to which the other party is subject, Mason J said at 467:- "As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same". 324 The first question to determine is whether Mr Sullivan was subject to a special disability or disadvantage in his dealing with the Bank. 325 Mr Sullivan was not subject to any disability of the types often encountered in cases in which unconscionability is invoked. He was not subject to any disability by reason of lack of intelligence, lack of knowledge of the English language, illiteracy, sickness or lack of any business experience. I have also found that, although he was sixty-seven years old at the time he entered into the mortgage, he was not subject to any disability by reason of his age. Although Mr Sullivan had not had much formal education, this lack of formal education did not disadvantage him. Moreover, as I have found, Mr Sullivan had previously entered into numerous mortgages, understood the nature of a mortgage and understood the standard features of a mortgage, including that money secured by the mortgage must be paid to the lender and that in the event of default the mortgagee can take possession of, and sell, the mortgaged land. 326 However, as Deane J said in Amadio the circumstances which may constitute a special disability may take a wide variety of forms and are not susceptible to being comprehensively catalogued. In his judgment in Amadio Deane J referred to some examples of a special disability given by Fullagar J in Blomley v Ryan (1956) 99 CLR 362 at 405, which included "lack of assistance or explanation, where assistance or explanation is necessary". Lack of information about a transaction and misinformation about a transaction can place a party to the transaction in a position of special disadvantage. 327 In the present case, I find that Mr Sullivan, by reason of lack of information and misinformation about the transaction, was in a position of special disability or special disadvantage in his dealing with the Bank. 328 Nobsa, the company whose indebtedness to the Bank Mr Sullivan was to guarantee and secure, was in serious financial difficulties, as was well known to the Bank but was unknown to Mr Sullivan. So far as Mr Sullivan was aware, Nobsa appeared to be doing good business and to be prospering. Mr Sullivan was not told by anyone how much Nobsa owed the Bank. Mr Sullivan was not shown financial documents of Nobsa by either Craig Kelly or by Nobsa's accountant, Mr Weidenhofer. Neither Craig Kelly or Mr Weidenhofer explained Nobsa's financial position to Mr Sullivan. Mr Sullivan had been told by Mr Weidenhofer that he would have no problems or worries, if he entered into the mortgage. Nobsa's serious financial difficulties were exacerbated by the failure to sell Craig Kelly's property at the auction on 13 October 1990. 329 Because of Nobsa's serious financial difficulties, the Bank, unknown to Mr Sullivan, was seriously contemplating enforcing securities it held for Nobsa's debt. I do not fully accept a submission made on behalf of Mr Sullivan that the Bank, before Mr Sullivan entered into the mortgage, had already decided that it would commence the process of enforcing securities it held for Nobsa's indebtedness, on the day after Mr Sullivan was to give the mortgage over the land, "if the indebtedness (of Nobsa) to the Bank was not greatly reduced". As I have already indicated, the decision made by the Bank's Regional Lending Manager on 22 October 1990 was that, if Nobsa's debt had not been reduced to $250,000 by 15 November 1990, the Branch Manager should submit the mortgage on Mr Kelly's property for call-up. As at 22 October and as at the time Mr Sullivan entered into the mortgage, Nobsa's indebtedness did not greatly exceed $250,000 and the Bank anticipated, in the event correctly, that Nobsa's indebtedness would be reduced to or below $250,000 by 15 November 1990, by the injection of funds from Marjory Craig. However, although the commencement of recovery procedures as early as 15 November 1990 was unlikely, and did not in fact happen, the Bank knew, and Mr Sullivan did not know, that there was a very real likelihood that the Bank would take steps to enforce whatever securities it held for Nobsa's indebtedness, including the mortgage to be given by Mr Sullivan, soon afterwards. The Bank had concluded that Nobsa's business was "not performing" and that its capacity to service its loan was "non-existent". The only other security the Bank held for Nobsa's indebtedness (apart, possibly, from an equitable security over Nobsa's assets which was of little value) was the mortgage over Craig Kelly's property. The mortgage over Craig Kelly's property also secured Craig Kelly's personal indebtedness to the Bank. Craig Kelly's personal indebtedness was substantial and was not being serviced and difficulties were being experienced in selling Craig Kelly's property. Mr Sullivan knew that Craig Kelly owed money to the Bank but he did not know how much. 330 Mr Sullivan also believed, as a result of what he had been told by Craig Kelly, that as soon as Craig Kelly's house had been sold, which Mr Sullivan was led to believe would happen within a couple of months or at least within a few months, the mortgage over Mr Sullivan's property would be discharged, whereas the true position was that, even after a sale of Craig Kelly's property, the Bank would continue to require a mortgage over Mr Sullivan's land. 331 It was submitted on behalf of the Bank that it had not been shown that what Craig Kelly said to Mr Sullivan, if it was said, was a misrepresentation in the strict sense, in that it consisted of assertions as to the future and the limited circumstances in which assertions as to the future can constitute misrepresentations were not established. I do not consider that Craig Kelly had grounds for believing that a mortgage from Mr Sullivan would be required for only a few months but I would not find that Craig Kelly was knowingly fraudulent. However, even if what Craig Kelly said did not amount to an actionable misrepresentation by him, it nevertheless contributed to Mr Sullivan misapprehending the onerousness to him of the transaction he was entering. 332 Counsel for the Bank also submitted that Mr Sullivan was misinformed about the transaction he was entering into, as a result of what he had been told by Mr Lyons at the meeting at the Bank. However, I have already found that Mr Lyons did not at the meeting at the Bank make any misrepresentation on which Mr Sullivan relied in deciding to enter into the mortgage. 333 The next question to determine is whether the Bank knew or ought to have known of the existence of the matters giving rise to the special disability to which Mr Sullivan was subject, or whether the special disability was "sufficiently evident" to the Bank so as to make it prima facie unconscientious for the Bank to procure or accept Mr Sullivan's assent to the transaction. I will proceed on the basis that these two formulations are substantially equivalent. 334 The Bank did not know, nor ought it to have known, that Craig Kelly had told Mr Sullivan that his mortgage would be required only for a short time until Craig Kelly's property had been sold or that Mr Weidenhofer had told Mr Sullivan that he would have "no worries", if he entered into the mortgage. 335 A key question is whether the Bank knew or ought to have known, or whether it would have been sufficiently evident to the Bank, that Mr Sullivan was not informed or misinformed about the financial position of Nobsa and the gravity of the risk he was incurring by giving a guarantee and a mortgage to secure Nobsa's indebtedness. I consider that this question should be answered in the affirmative. 336 The Bank had actual knowledge that Mr Sullivan was an intending guarantor, who would not be benefiting personally from the proposed transaction, that he was a retired pensioner living in Queensland and that he had not been a shareholder and had not held any position in Nobsa and was not to become a shareholder in Nobsa. It would have been evident to the Bank that, unless Mr Sullivan received reliable information, he would be unlikely to be able to make a judgment as to his own best interests. Possible sources of information for Mr Sullivan were the Bank itself, the continuing principal of Nobsa Mr Sullivan's "step-son" Craig Kelly or a professional adviser, such as a solicitor or accountant. 337 As far as the Bank itself was concerned, I have found that Mr Lyons did not tell Mr Sullivan the amount of Nobsa's indebtedness and I am satisfied that Mr Lyons did not supply information about Nobsa's financial position to Mr Sullivan. The Bank is to be regarded as knowing that it itself had not supplied information about the financial position of Nobsa to Mr Sullivan 338 As regards Craig Kelly, I consider that it would have been evident to the Bank that Mr Sullivan trusted Craig Kelly, that Craig Kelly was not taking a realistic view of Nobsa's finances or his own personal finances and, to the extent to which he supplied information to Mr Sullivan, that information would be likely to be unduly optimistic. On 1 August 1990 a proposal had been made by Nobsa that the Bank provide Nobsa with accommodation totalling $2.5m to enable the purchase of another restaurant and reception lounge and the re-financing of the existing debts of Nobsa. The Bank obviously regarded this proposal as quite unrealistic, given Nobsa's financial state. On 13 October 1990 Mr Kelly's property had not been sold at auction. As the Bank knew, Mr Kelly was unwilling to reduce the asking price, even though the highest bid at the auction had been more than $100,000 less than the asking price. 339 The Bank knew that the only solicitor acting (apart from the Bank's own solicitors) was Mr Williams, that Mr Williams was also acting for Nobsa and Craig Kelly and that Mr Williams had acted for Nobsa and Craig Kelly in the past. It would have been evident to the Bank that Mr Williams would be unlikely to give information or advice to Mr Sullivan, which was not in the interests of his established clients Nobsa and Craig Kelly, for whom it was important that the transaction should proceed. The matters certified to by Mr Williams in his certificate of witness would have given no ground for inferring that Mr Williams had explained the financial position of Nobsa to Mr Sullivan. 340 The Bank knew that Mr Weidenhofer was Nobsa's accountant and Craig Kelly's personal accountant. Mr Weidenhofer had participated in the unrealistic proposal for further accommodation of 1 August 1990. The Bank's Branch Manager's faith in Mr Weidenhofer had been weakened, when Mr Weidenhofer at a first meeting had asserted that Nobsa could meet its own financial repayments on its own, an assertion which the manager regarded as groundless and contradicted by Nobsa's actual past performance. It would have been evident to the Bank that Mr Weidenhofer would be unlikely to have given accurate information about Nobsa to Mr Sullivan. 341 Mr Weidenhofer had prepared the accounts of Nobsa for the year ended 30 June 1990. In their final form these accounts showed a deficiency in both shareholders' funds and working capital and showed a worse position than in the earlier draft accounts. However, the true position of Nobsa was much worse than appeared on the surface of either the draft or the final accounts, because these accounts showed as assets of Nobsa "loans to directors or persons/entities associated with directors" and "intangibles", which would have little realisable value. In preparing a statement of the financial position of Nobsa for the purposes of the application, Mr Lyons eliminated these assets shown in the balance sheet prepared by Mr Weidenhofer. However, it would have been evident to the Bank that a person such as Mr Sullivan, even if he had been shown the accounts, would have been unlikely to have had the accounting knowledge to make these adjustments. 342 The very gravity of the risk Mr Sullivan was incurring, the relationship between him and Craig Kelly's mother and Craig Kelly himself which could have provided a non-commercial reason for Mr Sullivan agreeing to enter into the transaction, and the haste which Mr Williams requested in his letter of 18 October 1990 to the Bank's solicitors were all factors known to the Bank, which would tend to suggest that Mr Sullivan might not be properly informed about the financial state of Nobsa and the risk he was running by entering into the transaction. 343 I have found that the Bank knew or ought to have known (or it would have been evident to the Bank) that Mr Sullivan was not informed about the serious financial state of Nobsa, including the amount of its indebtedness to the Bank and the gravity of the risk he was incurring by giving a guarantee and a mortgage to secure Nobsa's indebtedness. Furthermore, the Bank would have known that Mr Sullivan was unaware of the serious attitude the Bank took to Nobsa's indebtedness and of the real likelihood that the Bank would be seeking to enforce any security Mr Sullivan gave. Mr Sullivan's lack of information on these matters, even without his misapprehension induced by Craig Kelly's misrepresentation that the mortgage would only be a temporary mortgage until Craig Kelly's house was sold, constituted a lack of information about the proposed transaction such as to amount to a special disability or special disadvantage, so as to make it prima facie unconscientious for the Bank to procure or accept Mr Sullivan's assent to the transaction. If Mr Sullivan had known of Nobsa's true financial position including the amount Nobsa owed the Bank and the attitude taken by the Bank to Nobsa's indebtedness and the likelihood that the Bank would be seeking to enforce any mortgage given by Mr Sullivan, then he would not have entered into the mortgage. 344 I consider that the transaction has not been shown to have been fair, just and reasonable. Mr Sullivan did not derive any personal benefit from the transaction. The property mortgaged was his home and his only substantial asset. By entering into the mortgage, he incurred, without his knowledge, the imminent risk of losing his home. 345 Under the principles in Amadio the mortgage is not binding on Mr Sullivan. It was suggested in argument that, if the mortgage was found not to be fully binding, a distinction should be drawn between its enforceability as a security and its enforceabilty as giving rise to a personal debt. However, I do not consider that Mr Sullivan's misapprehension was limited to a misapprehension about the remedies open to the mortgagee under the mortgage and I see no basis for drawing the distinction suggested. There should be judgment for Mr Sullivan on the Bank's claims against him for possession of the land and for judgment for the amount alleged to be due under the mortgage.

Cross-claim: Sullivan v Williams 346 I have held that under the principles relating to unconscionable dealings stated in Amadio the mortgage is not binding on Mr Sullivan. It is, accordingly, not strictly necessary for me to consider Mr Sullivan's cross-claim against Mr Williams, which would only need to be considered if Mr Sullivan had suffered loss as a result of the Bank succeeding in its claim against him. It is, however, desirable that I should consider Mr Sullivan's cross-claim against Mr Williams and make findings in relation to this cross-claim, in case I am wrong in finding for Mr Sullivan in the proceedings between him and the Bank and also because some findings will be relevant to the other cross-claim, which I will have to consider, being that brought by the Bank against Mr Williams. It is an essential ingredient of the cross-claim brought by the Bank against Mr Williams that Mr Williams did not act carefully in carrying out the duties he owed to Mr Sullivan. 347 The cross-claim brought by Mr Sullivan against Mr Williams pleaded a cause of action in the tort of negligence. It was alleged in the cross-claim that Mr Williams owed a duty of care to Mr Sullivan, that he committed breaches of that duty of care and that thereby Mr Sullivan was caused loss and damage. In the cross-claim a large number of particulars of negligence were alleged but ultimately many of these were not pressed. In the final written submissions of counsel for Mr Sullivan it was submitted that Mr Williams had committed a number of specific breaches and it will be necessary for me to deal only with these alleged breaches. 348 There is no doubt that Mr Williams was retained to act as solicitor for Mr Sullivan in relation to the mortgage. In his letter of 18 October 1990 to the Bank's solicitors Mr Williams said that he acted for, among others, Mr Sullivan in relation to a mortgage from Mr Sullivan to the Bank of the land in Queensland. Mr Williams' office communicated by telephone and letter with Queensland solicitors, asking them to act as agents for Mr Williams' firm in obtaining information about the land and identifying the client as Mr Sullivan. On 14 November 1990 Mr Sullivan attended at Mr Williams' office and Mr Williams procured Mr Sullivan's execution of the mortgage. However, the fact that Mr Williams was retained to act as solicitor for Mr Sullivan does not determine the important question of the content or extent of the retainer. 349 There is little express evidence about the extent of the retainer of Mr Williams by Mr Sullivan. Mr Sullivan had attended the meeting at the Bank in September 1990 and by this stage had agreed to mortgage the land. By its letter of 2 October 1990 the Bank had notified Craig Kelly that approval had been given by the Bank to the substitution of the mortgage over Mr Sullivan's land for the mortgage over Mr Ahmet's property. Craig Kelly then gave instructions to Mr Williams on behalf of Nobsa, himself, his mother and Mr Sullivan. There was no direct communication between Mr Sullivan and Mr Williams. In his letter of 18 October 1990 to the Bank's solicitors Mr Williams simply said, so far as is relevant, that he was acting for Mr Sullivan in relation to the matter of the mortgage from Mr Sullivan to the Bank. By their letter of 26 October 1990 the solicitors acting for the Bank forwarded the draft documents, including the mortgage, and requested that the documents be executed and returned. 350 On 14 November 1990 Mr Sullivan attended at Mr Williams' office. I have found that at the meeting Mr Williams followed his usual practice in advising Mr Sullivan as a proposed guarantor and a proposed third party mortgagor. At the meeting Mr Sullivan signed the mortgage, the acknowledgment and consent of third party mortgagor and the notice regarding execution of documents. Mr Williams signed the certificate of witness. There is no evidence of anything being said at the meeting about the financial wisdom or prudence of Mr Sullivan giving the mortgage. 351 In my opinion, Mr Williams' retainer, so far as Mr Sullivan was concerned, was to ensure that Mr Sullivan understood the nature and effect of the mortgage as a legal document and the consequences for Mr Sullivan if there was default, to ensure that all things were done which were required to be done in order for Mr Williams properly to complete the certificate of witness and to ensure that the mortgage and all other documents were properly executed so as to give full effect to the proposed transaction. 352 In short, I am of the opinion that the retainer was similar to the retainer in Clark Boyce v Mouat (1994) 1 AC 428, which the Privy Council held (at 437) was a retainer to the solicitor "that he should carry out the necessary conveyancing on her (the client's) behalf and explain to her the legal implications of the transaction". 353 The question of whether a solicitor has any wider obligation to a client than to exercise reasonable care in doing what he has been retained to do was discussed by Sheller JA, with whose judgment the other members of the Court agreed, in Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 412-413. Sheller JA said:- "Bryson J quoted from Hogan v Howard Finance Ltd [1987] ASC55-594 at 57,539, where Hope JA said: 'A solicitor is not responsible for advising a client about his investments except to the extent that he is retained to carry out that task.' In Hawkins v Clayton (1988) 164 CLR 539 at 574, Deane J said that the emergence and development of the modern law of negligence, particularly since the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, inevitably led to a re-appraisal of the isolation of a solicitor from the reach of the ordinary law of negligence in relation to his professional dealings with a client. 'The clear trend of modern authority is to support the approach that the duty of care owed by a solicitor to a client in respect of professional work prima facie transcends that contained in the express or implied terms of the contract between them and includes the ordinary duty of care arising under the common law of negligence'. In Cousins v Cousins (Court of Appeal 18 December 1990, unreported), Priestley JA said (at 12): 'Whether it is yet possible to express in general terms the duty that arises at common law from the relationship, as distinct from the contract, between client and solicitor, is not clear. Deane J in Hawkins stated the position in terms of a general rule, but neither Brennan J nor Gaudron J, the other members of the majority, (Mason CJ and Wilson J having dissented) appear to have fully agreed with him. Brennan J stated the specific duty that arose on the circumstances of that case, without stating the position for solicitors generally.' His Honour referred to Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642, for the proposition that this Court has not yet committed itself to adoption of the views of Deane J. Priestley JA continued (at 130: 'Notwithstanding that the view of Deane J was not in a formal sense part of the ratio decidendi of Hawkins , it seems to me to be very much in accordance with the trend of development in the law of negligence in the High Court in recent years, and I will assume for the purposes of the present case that it accurately states the law of Australia. What Deane J said was: 'The relationship of solicitor and client is … a relationship of proximity which ordinarily involves the combination of those elements with respect to foreseeable loss which may be caused to the client by the performance of professional work. It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor-client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved in the circumstances of the case' (at 579). The sentence particularly relevant here is that stating that there may be proximity 'which may well give rise to a duty of care' requiring the solicitor to do something more beyond what he has been specifically retained to do. Deane J was contemplating both that some cases would and other cases would not require a solicitor to do more than he was specifically retained to do." 354 In Waimond Pty Limited v Byrne (1989) 18 NSWLR 642 the majority of the Court of Appeal held that in the particular circumstances of the case a solicitor was liable to a client for omitting to give advice to the client on a matter which was not within the solicitor's retainer. Kirby P said at 652:- "Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care (as the minority held in Hawkins ) it will not chart exclusively the perimeters of that duty". 355 It seems to me that I should seek to apply what Deane J said in Hawkins. 356 In this case Mr Sullivan's legal advisers obtained a written opinion from Mr Neville Moses, an eminent solicitor with special expertise in conveyancing. The report was admitted into evidence over objection by counsel for Mr Williams and Mr Moses also gave brief oral evidence. Counsel for Mr Williams referred inter alia to Permanent Trustee Australia Limited v Boulter (1994) 33 NSWLR 735 (Young J); O'Brien v Gillespie (1997) 41 NSWLR 549 (Levine J) and Yates Property Corporation v Boland (1998) 157 ALR 30 (Federal Court). 357 The effect of Pt33 of the Evidence Act 1995, and especially s80(a) which provides that evidence is not inadmissible only because it is about a fact in issue or an ultimate issue, has not yet been fully explored. In my opinion, Mr Moses' evidence was admissible as coming within proposition (d) stated by Young J in Permanent Trustee Australia, namely "to admit (into evidence), subject to relevance, evidence as to what is common practice among solicitors of good repute". 358 In his report Mr Moses expressed opinions about what would have been "usual" or "standard" conveyancing practice at the time the mortgage was entered into. 359 Inter alia Mr Moses expressed the opinion that it would have been usual conveyancing practice for a solicitor to have discussed the proposed transaction with Mr Sullivan separately without his other clients being present. Mr Moses considered that in any such discussion with Mr Sullivan it would have become apparent to his solicitor that Mr Sullivan was to give a third party mortgage, that Mr Sullivan had no interest in Nobsa and was not to receive any consideration for giving the mortgage, that (depending on its interpretation) the mortgage could secure further advances by the Bank as well as Nobsa's existing indebtedness and impose a personal liability on Mr Sullivan. Mr Moses also took into account that Mr Williams had received a balance sheet of Nobsa, showing a deficiency in shareholders' equity. Mr Moses then said:- "In all of these circumstances the writer considers that it would have been standard practice for the solicitor to have advised Mr Sullivan firstly that he should obtain independent financial advice as to the viability or otherwise of the company and second to seek to have an independent solicitor act for him, not merely to explain the Mortgage document but also to advise on the ways in which Mr Sullivan's interests could be better protected should he decide to go ahead with the transaction after considering the independent financial advice". 360 A little later in his report Mr Moses said:- "If Mr Sullivan had refused to seek independent advice and had insisted that the Solicitor merely explain the Mortgage document and the consequences of entering into it, the Solicitor would then have had to consider whether he could act merely for this limited purpose". 361 After discussing certain matters Mr Moses said:- "However, the writer does not feel that it was outside the bounds of usual practice for the Solicitor in 1990 to provide a certificate of independent explanation in these circumstances provided:- 1. The earlier advice about seeking independent financial and legal advice had been given and that notwithstanding this the client had insisted that he did not wish to do so and that he wanted to have the documents explained by the Solicitor and no-one else. 2. The Solicitor had pointed out the limited nature of his retainer and the fact that if any future conflict of interest arose between Mr Sullivan and the Kellys or the Company the Solicitor would not be able to represent Mr Sullivan. 3. The Solicitor fully and promptly explained the terms of the Mortgage and the consequences for Mr Sullivan if Nobsa defaulted on its obligations". 362 As to the last matter, Mr Moses expressed the opinion that, if Mr Williams had given an explanation to Mr Sullivan in accordance with what Mr Williams said was his usual practice, "this would generally (although subject to some qualification) be a satisfactory explanation of a third party mortgage or guarantee". However, "if Mr Sullivan's affidavit is accepted, the solicitor's explanation of the mortgage documents fell far short of that which would be expected if the mortgage documents had been properly and fully explained". 363 Counsel for Mr Williams submitted that Mr Moses' evidence should be given little weight. Evidence that a defendant failed to adopt a common practice in his profession or occupation may indicate a want of care "because it suggests at once that the defendant did not do what others considered proper and there is no problem of feasibility" (Fleming The Law of Torts (8th Ed) at 120) Nevertheless, it is for the Court to determine whether a defendant has been negligent and evidence that the defendant did, or did not, comply with what a person qualified to express an opinion says was common practice at the time is only a factor in determining the question. 364 A general question which arose at the hearing was, if I found that Mr Williams had been negligent in omitting to give some advice or to take some other step, how I should proceed in determining whether there was a causal connection between Mr Williams' negligent omission and Mr Sullivan's entering into the mortgage. 365 Mr Sullivan was not asked any question, and did not give any evidence, about whether if he had received advice from Mr Williams on some matter on which he was not advised, he would have acted any differently. Such direct evidence by Mr Sullivan would have been admissible but is not essential to the drawing of an inference of a causal connection between Mr Williams' negligent omission and Mr Sullivan's entering into the mortgage. Dominelli Ford (Hurstville) Pty Limited v Kermot Auto Spares Pty Limited (1992) 38 FCR 471 especially at 481-2. 366 It was submitted on behalf of Mr Sullivan that "it is not relevant to speculate on what course would have been taken, if there had been full disclosure (or full advice)". However, this submission is not supported by the authority cited Clark v Barter (unreported Court of Appeal 23 December 1988 at p14), where Clarke JA (relying on Nocton v Lord Ashburton (1914) AC 632) said:- "In this situation (a breach of fiduciary duty by a solicitor) equity gives a remedy for a loss suffered. Once the court determines that the non-disclosed facts are material, it is not relevant to speculate on what course would have been followed if there had been full disclosure". 367 The present case is a case at common law for alleged negligence and not a case in equity for alleged non-disclosure by a fiduciary. 368 It was also submitted on behalf of Mr Sullivan that a presumption of a causal connection would arise between any proved breach of duty by Mr Williams and Mr Sullivan entering into a mortgage and thereby incurring loss. Counsel referred inter alia to Gould v Vaggelas (1985) 157 CLR 215; Dominelli Ford; Huntsman Chemical Company Australia Limited v International Pools Australia Pty Limited (1995) 36 NSWLR 242 especially at 263-266. 369 In Gould v Vaggelas Wilson J stated at 236:- "1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. 2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. 3. The inference may be rebutted , for example, by showing that the representee, before he entered into a contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. 4. The representation need not be the sole inducement. It is sufficient so long as it plays some part, even if only a minor part, in contributing to the formation of the contract". 370 In Dominelli Ford the Full Court of the Federal Court held that an intention to mislead on the part of the representor was not essential for the operation of the principles stated by Wilson J in Gould v Vaggelas. 371 I would accordingly accept that when a representation is made (whether or not it is fraudulent), the representation is of such a kind as to be likely to induce the representee to enter into a contract and the representee does enter into the contract, then an inference, which is only an inference of fact, arises that the representee was induced to enter into the contract by the false representation. However, I do not accept that the principles stated by Wilson J in Gould v Vaggelas can be applied, or adapted, to the case of negligent omission by a solicitor. In the case of a negligent omission by a solicitor the onus is on the client to prove a causal connection between the solicitor's negligent omission and any loss or damage suffered by the client. The onus is on the client to prove that, if the advice negligently omitted had been given, he would have acted differently. 372 For example, in Citicorp Australia Sheller JA said at 418:- "Moreover, in order to make such a case in negligence, the O'Briens were bound to prove that, if Mr Eliades had advised them for the reasons suggested not to go on with the contract for purchase or finance, they would have acted on that advice. They gave no such evidence and in my opinion it was not open to his Honour to infer in the absence of any such evidence that the O'Briens would have taken some course, other than the course they did in fact take". 373 In Fitzpatrick v Parker (1996) 7 BPR 15,122, where the plaintiff claimed that the defendant, his solicitor, had negligently failed to advise him to take out insurance on a property he had acquired, Priestley JA, who delivered the leading judgment, said at p15124:- "It was necessary for the trial judge to ask what on the probabilities would have happened, had the proper advice been given". 374 Priestley JA concluded, on the evidence in the particular case, "that had the proper advice been given, then insurance would have been obtained and the damage which the plaintiff suffered from the want of insurance would not have occurred". 375 It was submitted by counsel for Mr Sullivan that Mr Williams should not have acted for Mr Sullivan at all. It was pointed out that Mr Williams acted, not only for Mr Sullivan, but also for Nobsa, Craig Kelly and Marjory Craig. Mr Williams took his instructions for all his clients from Craig Kelly (or Mr Weidenhofer). Nobsa and Craig Kelly were clients for whom Mr Williams had acted previously on a number of occasions. There was conflict between the interests of Mr Sullivan and the interests of Mr Williams' other clients. For example, it was in the interests of Nobsa and Craig Kelly that the substitution of securities and the withdrawal of Mr Ahmet from Nobsa take place as a matter of urgency. However, if Mr Williams in the interests of Mr Sullivan had advised Mr Sullivan that he should obtain independent advice, that would have been likely to have delayed the transaction. 376 It was submitted by counsel for Mr Sullivan that in these circumstances Mr Williams should not have acted for Mr Sullivan, at least not without first taking steps which he had omitted to take. 377 In support of this submission, counsel for Mr Sullivan referred to parts of Mr Moses' report which I have already summarised, in which Mr Moses expressed opinions about the conditions which would have to be satisfied before it would have been within the bounds of usual practice for a solicitor to provide "a certificate of independent explanation". 378 In Citicorp Australia Sheller JA said at p412 that certain passages in the judgment of the Privy Council given by Lord Jauncey of Tullichettle in Clark Boyce v Mouat correctly stated the position where a solicitor acts or proposes to act for more than one party in a transaction. In Clark Boyce v Mouat Lord Jauncey said in passages quoted by Sheller JA in Citicorp Australia:- "There is no general rule of law to the effect that a solicitor should never act for both parties in a transaction where their interests may conflict. Rather is the position that he may act provided that he has obtained the informed consent of both to his acting. Informed consent means consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other. If the parties are content to proceed upon this basis the solicitor may properly act". * * * In determining whether a solicitor has obtained informed consent to acting for parties with conflicting interests it is essential to determine precisely what services are required of him by the parties". 379 In my opinion, Mr Moses' evidence about what he said was the standard practice of solicitors, puts that practice at a higher level than is required by Clark Boyce v Mouat and Citicorp Australia and I should follow those authorities. 380 In Clark Boyce v Mouat, as I have already stated, the retainer to the solicitor was "that he should carry out the necessary conveyancing on her (the client's) behalf and explain to her the legal implications of the transaction". 381 In the present case I have found that Mr Williams' retainer, so far as Mr Sullivan was concerned, was to ensure that Mr Sullivan understood the nature and effect of the mortgage as a legal document and the consequences for Mr Sullivan if there was default, to ensure that all things were done which were required to be done in order for Mr Williams properly to complete the certificate of witness and to ensure that the mortgage and all other documents were properly executed so as to give full effect to the proposed transaction. The retainer was similar to the solicitor's retainer in both Clark Boyce v Mouat and Citicorp Australia. 382 Mr Williams' retainer being so limited, there was only a limited area in which there was a possible conflict of interest between Mr Sullivan and Mr Williams' other clients but nevertheless there was a possible conflict of interest. Mr Williams did not obtain the informed consent of Mr Sullivan, as required by Clark Boyce v Mouat, and ought not to have acted for Mr Sullivan, without having first obtained his informed consent. On the other hand, if Mr Williams had advised that there could be a conflict between Mr Sullivan's interests and the interests of Mr Williams' other clients and that Mr Williams might be disabled from disclosing the full knowledge he possessed of the transaction or from giving advice to Mr Sullivan which conflicted with the interests of Mr Williams' other clients, then I do not consider that it has been established that Mr Sullivan would have done anything other than to ask Mr Williams to continue acting for him. I find affirmatively that if Mr Williams had given Mr Sullivan advice of the kind required by Clark Boyce v Mouat and Citicorp Australia Ltd, Mr Sullivan would have instructed Mr Williams to continue acting for him. By the time of the meeting at Mr Williams' office Mr Sullivan had made up his mind to enter into the mortgage. Mr Sullivan trusted Craig Kelly and his mother, both of whom he regarded as being experienced in the restaurant business and "great workers". Mr Sullivan trusted Mr Williams, who he had seen at the restaurant. Mr Sullivan was well aware that Mr Williams was also acting for Craig Kelly, Nobsa and Marjory Craig.

383 It was also submitted by counsel for Mr Sullivan that as Mr Williams was acting for more than one party, he was under an obligation to disclose all material facts known to him and that he had failed to discharge this obligation. It was submitted that he had not disclosed all material facts known to him, because he had not disclosed to Mr Sullivan the final accounts of Nobsa, a copy of which he had received, and information he had received that both Nobsa and Craig Kelly had income tax liabilities. 384 I do not consider that the submission that Mr Williams was under an obligation to disclose all material facts known to him should be accepted. 385 In support of the submission that Mr Williams was under such an obligation counsel for Mr Sullivan cited Clark v Barter and especially parts of the judgment of Clarke JA, which at first sight would appear to support the submission. 386 At p11 Clarke JA said:- "When a solicitor undertakes to act for two or more parties in the one transaction his duty of disclosure is not, in general, limited to the disclosure that he is acting for the other parties. While the extent of his obligation to disclose and advise will depend to a degree on the terms of his retainer, if that is not clearly limited his duty will require disclosure of all those facts within his knowledge which are relevant to the client's consideration of the transaction. So much is, I think, clear from Moody, ( Moody v Cox & Hatt (1917) 2 Ch. 71), which, like the present case, involved a purchase by a client from the solicitor as trustee of trust property." 387 Later in his judgment Clarke JA said:- "This case ( Moody ) stands, in my opinion, as authority for the proposition that the duty to disclose all material facts is not limited to cases in which the solicitor seeks to deal with his client. It extends also to cases in which a solicitor seeks to act for more than one party involved in a transaction". 388 However, in Clark v Barter the claim against the solicitor was based on an alleged breach by the solicitor of his equitable duty as a fiduciary, so that it was appropriate to refer to the solicitor's obligations as a fiduciary, whereas in the present case the claim against the solicitor is based solely in tort. Furthermore, as Clarke JA accepted, the extent of the solicitor's duty to advise and disclose will depend (at least to a degree) on the terms of his retainer. In Clark v Barter the solicitor, in reliance on what he said were the terms of his retainer, denied that he was subject to such a wide duty of disclosure. The solicitor contended that "he was retained simply to prepare the mortgage and have it executed. They (the clients) had already decided to provide the security and it was no part of his duty to advise them on the wisdom of their action." In Clark v Barter this contention was rejected by Clarke JA, because on the particular facts in that case his Honour held that the solicitor's retainer was not limited to the preparation and execution of the mortgage, that an assurance given by the solicitor had "led" the clients into the transaction and the solicitor had undertaken the responsibility of advising the clients about the wisdom of the transaction. In the present case, I have held that Mr Williams' retainer was the limited retainer I have already described. 389 It was then submitted by counsel for Mr Sullivan that at the meeting at his office on 14 November 1990 Mr Williams committed a number of breaches of the duty of care he owed Mr Sullivan. I will deal with each of these alleged breaches, in the order in which they were dealt with in counsel for Mr Sullivan's written submissions.

1. That Mr Williams should have seen Mr Sullivan separately and not in the company of his other clients. 390 I have found that all of Craig Kelly, Marjory Craig and Mr Sullivan were present throughout the meeting at Mr Williams' office on 14 November 1990 and that Mr Williams did not give any advice to Mr Sullivan that he should see Mr Sullivan separately. 391 In Esanda Finance Corporation Limited v Tong (1997) 41 NSWLR 482 at 486 Handley JA, with whose judgment the other members of the Court concurred, said at p486:- 392 "A solicitor seeking to give genuinely independent advice should interview the client in private. The client must be able to ask questions and express opinions free from any influence or constraint created by the presence of others, especially if they have a conflicting interest". 393 I find that Mr Williams was in breach of his duty to Mr Sullivan in not interviewing him privately or at least advising Mr Sullivan that he should interview him privately, without Craig Kelly and Marjory Craig being present.

That Mr Williams did not advise Mr Sullivan to obtain independent financial advice 394 I have already held that Mr Williams' retainer, so far as Mr Sullivan was concerned, was the limited retainer I have already described. It was submitted on behalf of Mr Sullivan that it was implied, if not expressed, in Mr Williams' retainer that he should advise Mr Sullivan to obtain independent financial advice about the financial position of Nobsa, the company whose indebtedness Mr Sullivan was guaranteeing and securing. 395 In support of this submission counsel relied on parts of the judgment of King CJ of the Supreme Court of South Australia in McNamara v Commonwealth Trading Bank (1984) 37 SASR 232 especially at 241. This was a case under a South Australian Act which provided that guarantees of a certain kind would be void, unless they were executed by the guarantor in the presence of a legal practitioner instructed independently of the credit provider. At p241 King CJ said:- "Although it is sufficient for the validity of the guarantee that it be executed by the guarantor in the presence of the legal practitioner and that the legal practitioner certify as required by the section, the duty of a solicitor to a client who consults him for advice prior to signing a guarantee extends much further. The solicitor should raise with the client questions relating to the prudence of entering into the guarantee and should ascertain whether the client wishes to be advised as to such questions. The client may, of course, indicate that he does not wish advice as to those matters and that he is prepared to rely upon his own judgment. But unless the client so instructs the solicitor, the instructions from the client should be regarded as extending to advice on all matters relating to the guarantee, including the wisdom of entering into it from a practical point of view. The state of the financial affairs of the principal debtor should be discussed as well as the extent of the assets of the client. A client whose assets are few and who will be putting the whole of his assets, perhaps including his home, at risk obviously needs careful and perhaps quite forthright advice. The need is even greater where, as so often is the case, the affairs of the principal debtor are precarious". 396 In McNamara Cox J agreed with the Chief Justice's remarks about the nature and extent of a solicitor's duty. Legoe J dissented. King CJ made his remarks in the context of the South Australian Act but his Honour would appear to have intended his remarks to be of general application. His Honour considered that, in the absence of instructions to the contrary, a solicitor's retainer should be regarded as including that the solicitor should himself offer advice on the financial wisdom of the proposed transaction. 397 In the later South Australian case of City Bank Savings Limited v Nicholson (1997) 70 SASR 206 Perry J quoted with approval an extract from the judgment of King CJ in McNamara, which included the passages I have already quoted. Perry J did resile to some extent from what King CJ had said in McNamara by saying that it was not incumbent upon a solicitor to attempt himself to give financial advice, as opposed to suggesting that such advice might be obtained from an accountant or other suitably qualified person. 398 In my opinion, Mr Williams' retainer by Mr Sullivan did not contain an express or implied term that he should himself provide financial advice to Mr Sullivan. This part of King CJ's judgment in McNamara is contrary to New South Wales authority. 399 Mr Sullivan's retainer of Mr Williams was similar to the retainer in Citicorp Australia, where Sheller JA said at p413:- "As a matter of contract, such a retainer would not, by inference or implication, extend to require him to provide financial advice to the O'Briens. Nothing in the surrounding circumstances found by his Honour allowed such a term to be inferred or implied". 400 In Tarzia v National Australia Bank Limited (unreported 12 October 1995) the Full Court of the Federal Court said at p28:- "It is not generally the task of solicitors to explain the financial result or prudence of the transactions involved in documents they are merely instructed to explain. Unless they undertake the task of doing so, or are specifically retained to perform it and supplied with the necessary information and documentation, they will not be negligent for failing to do so". 401 Nor do I consider that Mr Williams' retainer by Mr Sullivan contained any term, express or implied, that he should advise Mr Sullivan to obtain independent financial advice. Mr Williams was retained for the limited purposes I have already described. Nor was there any express assumption by Mr Williams of the responsibility of advising Mr Sullivan about the financial wisdom or prudence of the proposed mortgage or of advising Mr Sullivan to obtain from someone else advice about the financial wisdom or prudence of the proposed mortgage. 402 There remains the question whether Mr Williams was under an obligation to advise Mr Sullivan to obtain independent financial advice, even though it was not within his retainer to give such advice and even though there was no assumption of responsibility by Mr Williams to give such advice. I have already held that I consider that I should apply what Deane J said in Hawkins, that the relationship of solicitor and client may give rise to a duty on the part of the solicitor which requires the taking of affirmative steps beyond the specifically agreed task or function to avoid a real and foreseeable risk of economic loss being sustained by the client. Priestley JA observed in Cousins that Deane J was contemplating that some cases would, and some cases would not, require a solicitor to do more than he was specifically retained to do. 403 In Tarzia the Full Court of the Federal Court after stating in the passage I have already quoted that it is not generally the task of a solicitor to give financial advice to a client about a proposed transaction, added:- "In certain situations it may be negligent of a solicitor not to ensure that his client has good financial advice, particularly when the client is at a disadvantage with respect to the other parties to the transaction, and where the results are potentially disastrous for the client…". 404 I do not, with respect, consider that a solicitor can be obliged to "ensure" that his client has "good" financial advice. However, this passage in the judgment of the Full Court does support the proposition that in some cases a solicitor may be obliged to advise his client to obtain financial advice, although the giving of such advice by the solicitor is not required in order to perform his retainer. 405 In the present case, Mr Williams knew that he was acting for a number of parties, that Mr Sullivan had not been a director or shareholder of Nobsa, and was not to become a director or shareholder of Nobsa, that Mr Sullivan lived interstate, that there was an emotional relationship between Mr Sullivan and the mother of Craig Kelly who had been a controller and was likely to become the sole controller of Nobsa and who was the person from whom Mr Williams had been taking his instructions, that Nobsa was in financial difficulties, that Craig Kelly was under financial pressure, that Mr Sullivan was a proposed third party mortgagor and guarantor, that the land over which the mortgage was to be given was Mr Sullivan's home and his only substantial asset and that Mr Sullivan would not derive any personal benefit from the transaction. In all of these circumstances known to Mr Williams, I consider that Mr Williams did become subject to an obligation to take a step beyond what he had agreed to do, so as to avoid a real and foreseeable risk of economic loss being sustained by Mr Sullivan, namely to advise Mr Sullivan that he should obtain independent financial advice. I note that Mr Moses was of the opinion that in the circumstances listed in his report, which are similar to the circumstances I have just listed, it would have been standard practice for a solicitor to have advised the client that he should obtain independent financial advice about the viability or otherwise of the debtor company. Mr Williams did not advise Mr Sullivan to obtain independent financial advice and in omitting to do so committed a breach of his duty to Mr Sullivan. 406 The question remains whether if such advice had been given by Mr Williams, Mr Sullivan would have acted on the advice and sought independent financial advice or whether, on the contrary, he would have told Mr Williams that he did not wish to obtain independent financial advice. 407 As I have already remarked, no evidence was given by Mr Sullivan that, if he had received advice from Mr Williams to obtain independent financial advice, he would have acted on the advice and sought independent financial advice. Such direct evidence is not essential but the absence of such evidence is a matter to be taken into account. 408 Apart from the absence of direct evidence from Mr Sullivan, there would be other grounds for finding that it has not been established that, if Mr Williams had advised Mr Sullivan to obtain independent financial advice, Mr Sullivan would have acted on the advice. Mr Sullivan thought that the business was doing well. He gave evidence that "everybody assured me the business was doing well". He had been told by Craig Kelly and Marjory Craig that the business would do better, without any participation in it by members of the Ahmet family. He trusted Craig Kelly and his mother, both of whom he regarded as experienced in the restaurant business and "great workers". He had been told by the estate agent that the asking price for Craig Kelly's house was $590,000 and that the house must sell for $500,000. He had spoken twice to Mr Weidenhofer, who was the accountant for the business and who he trusted and had been assured by Mr Weidenhofer that Mr Sullivan would have "no worries" and "no problems", if he entered into the mortgage. Mr Sullivan had practically made up his mind before speaking to Mr Weidenhofer "but I just wanted more assurances. I think that (what Mr Weidenhofer said) clinched it". 409 I have, however, decided that I should conclude that, if Mr Sullivan had been advised by Mr Williams that he should obtain independent financial advice, Mr Sullivan would have taken such advice and would not have entered into the mortgage. Mr Williams should have interviewed Mr Sullivan separately and not in the presence of Craig Kelly or Marjory Craig. The circumstances known to Mr Williams, which I have already summarised, were such as to require the giving of quite forthright advice by Mr Williams. If Mr Williams had seen Mr Sullivan separately and given forthright advice that Mr Sullivan should seek independent financial advice, then it is likely that Mr Sullivan would have disclosed to Mr Williams Mr Sullivan's belief that the mortgage to be given by him would only be required for a short time until Craig Kelly's house was sold. Mr Williams would then have been obliged to advise Mr Sullivan that this belief was ill founded. In these circumstances, I consider that Mr Sullivan would have realised that he needed independent advice on the wisdom or prudence of entering into the mortgage.

That Mr Williams did not advise Mr Sullivan to obtain independent legal advice 410 I have already held that Mr Williams should not have acted for Mr Sullivan, without having first obtained his informed consent. However, I have also held that if Mr Williams had given advice of the kind required, Mr Sullivan would have instructed Mr Williams to continue acting for him. 411 I do not consider that it has been established that, if advice to obtain independent legal advice had been given, Mr Sullivan would have acted on the advice. No direct evidence was given on the issue by Mr Sullivan. Mr Sullivan trusted Craig Kelly and his mother. Mr Sullivan trusted Mr Williams. He had seen Mr Williams at the restaurant. If Mr Williams had advised Mr Sullivan to obtain independent legal advice, then I consider that, more probably than not, Mr Sullivan would have said that there was no need for it and that he wanted Mr Williams to act for him.

That Mr Williams did not advise how Mr Sullivan's position could be improved 412 I have accepted that at the meeting at Mr Williams' office Mr Sullivan said words to the effect of "why doesn't Craig give me something to protect my interest?" Mr Moses in his report suggested that an independent solicitor could have advised on ways in which Mr Sullivan's position could have been improved, for example by the taking by Mr Sullivan of a second mortgage over Mr Kelly's property. However, the taking by Mr Sullivan of a subsequent mortgage over Mr Kelly's property would not have been of any practical assistance to Mr Sullivan, as Mr Kelly's property was already mortgaged to the Bank to secure his own personal indebtedness and Nobsa's indebtedness and the proceeds of sale of Mr Kelly's property were completed consumed in discharging his personal indebtedness to the Bank and part of the indebtedness of Nobsa to the Bank. 413 In any event, there would be no causal connection between the omission to give advice to Mr Sullivan about how his position, on the basis that he entered into the mortgage, could be improved and his entering into the mortgage. 414 It was also suggested by Mr Moses that Mr Sullivan's position could have been improved by limiting his liability under the mortgage. However, I have found that Mr Sullivan knew that his liability was unlimited and that he was prepared to enter into the mortgage on that basis.

That Mr Williams gave a certificate of witness without first advising Mr Sullivan that he should obtain independent financial and legal advice and receiving instructions from Mr Sullivan that he did not wish to obtain independent financial or legal advice, without advising Mr Sullivan that if a conflict arose in the future between Mr Sullivan's interest and the interests of Mr Williams' other clients Mr Williams would not be able to act for Mr Sullivan and without explaining the mortgage to Mr Sullivan 415 I have already dealt with this matter in deciding whether Mr Williams should have acted for Mr Sullivan and in deciding whether Mr Williams should have advised Mr Sullivan to obtain independent financial advice or independent legal advice.

That Mr Williams did not secure the execution of an equitable mortgage by Nobsa and did not explain to Mr Sullivan the equitable mortgage from Nobsa 416 The schedule to the mortgage to be executed by Mr Sullivan provided that the mortgage was collateral to an equitable mortgage of the same date to be given by Nobsa. No form of equitable mortgage by Nobsa was forwarded by the Bank's solicitors to Mr Williams. Mr Williams did not realise that he was supposed to have, and did not have, a document constituting an equitable mortgage to be given by Nobsa. 417 I consider that Mr Williams was negligent in not realising that he did not have any document constituting a security to be given by the principal debtor, which was referred to in the security to be given by his client as guarantor, and in not ensuring that such a document was executed by the principal debtor. 418 However, I am not satisfied that any causal connection has been established between the negligent omission by Mr Williams to secure the execution of an equitable mortgage by Nobsa and the entering by Mr Sullivan into the mortgage. Mr Sullivan was quite unaware that there was to be an equitable mortgage from Nobsa and was prepared to execute the mortgage to be given by him, without there being any such security from Nobsa. If Mr Williams had realised that there should have been an equitable mortgage from Nobsa and had contacted the Bank's solicitors, then it is probable that an equitable mortgage by Nobsa would have been prepared and executed. 419 I am not satisfied that Mr Sullivan incurred any loss or damage through the non-execution of an equitable mortgage by Nobsa. Nobsa had agreed to provide an equitable mortgage and remained bound to execute a documentary equitable mortgage. When Nobsa was wound up, the liquidator in fact proceeded on the basis that there was such an equitable mortgage but in the event the equitable mortgage was worthless. 420 As there was no document constituting an equitable mortgage before him, Mr Williams could not have been expected to provide an explanation of it.

That Mr Williams did not explain the mortgage document to Mr Sullivan 421 On the basis of the findings I have already made, I consider that Mr Williams did sufficiently explain the mortgage document to Mr Sullivan.

That there were errors in the certificate given by Mr Williams 422 The first error alleged was that Mr Williams had incorrectly stated in the certificate that the mortgage had been dated before him. The mortgage bears the date 16 November 1990, and not 14 November 1990, and clearly the date was inserted in the mortgage after the certificate of witness had been given on 14 November. However, this error in the certificate was quite immaterial. The second error alleged was that Mr Williams had not, as required in order that paragraph (e) of the certificate could be correctly completed, asked Mr Sullivan whether he had (i) compared his obligations and responsibilities to the Bank with those of any other person named in the document (ii) considered the consequences to him should there be any default in those obligations and responsibilities and received the answer "yes". 423 I have already found that, if Mr Williams merely followed his usual practice and he did not claim that he had done anything more, he would not have asked Mr Sullivan a question in the terms of the question in paragraph (e) of the certificate. However, he would have read to Mr Sullivan or would have had Mr Sullivan read the "certificate of understanding", that is the notice to customer/mortgagor/guarantor regarding execution of documents, which contained in paragraph (c) a provision similar to paragraph (e) of the certificate of witness. 424 On the basis of the findings I have already made, I consider that Mr Williams sufficiently explained to Mr Sullivan his obligations and responsibilities under the mortgage and the consequences to him if there was any default in those obligations and responsibilities and that Mr Sullivan understood those matters, that Mr Sullivan understood that Nobsa (the only other person named in the mortgage) was the principal debtor and that Mr Sullivan would still have entered into the mortgage, if he had been asked a question in the terms of the question in paragraph (e) of the certificate.

That Mr Williams advised Mr Sullivan, without having obtained a copy of the Memorandum referred to in the mortgage 425 It was submitted on behalf of Mr Sullivan that it was negligent for Mr Williams not to have obtained a copy of the memorandum, because the memorandum was important in that the personal covenant by Mr Sullivan was to be found only in the memorandum and not in the mortgage document and the memorandum contained provisions referring to Queensland legislation. It was submitted that Mr Williams could not have advised about these matters, without having the memorandum in front of him, and it should be inferred that he did not give Mr Sullivan any advice about these matters. 426 It is true, as I have found, that Mr Williams did not have a copy of the memorandum at the meeting. However, I accept that he would have made assumptions about the contents of the entire mortgage including the memorandum, which would be true of the vast majority of mortgages, including in the case of a third party mortgage that the mortgagor would be liable to repay the mortgagee and that if there was a shortfall on realisation of the security the mortgagor would be liable for the shortfall. I am satisfied that Mr Williams made those assumptions in advising Mr Sullivan. In any event, I have found that Mr Sullivan knew that the money which Nobsa owed to the Bank would have to be paid to the Bank and that there was no limit on his own personal liability. 427 It was not shown, or even sought to be shown, that the references in the memorandum to the Queensland Credit Act had any relevance to the mortgage given by Mr Sullivan. 428 I conclude that, if it had been necessary for me to consider the cross-claim brought by Mr Sullivan against Mr Williams, I would have held that Mr Sullivan was entitled to succeed and recover damages for the loss sustained by him as a result of entering into the mortgage, on the basis that Mr Williams negligently failed to interview Mr Sullivan separately from his other clients and negligently failed to advise Mr Sullivan to obtain independent financial advice. I would not have found that there was any contributory negligence by Mr Sullivan.

Cross-claim: Bank v Williams 429 I turn to the cross-claim brought by the Bank against Mr Williams. It is necessary to consider this cross-claim, because I have held that the Bank is not entitled to succeed in its claim against Mr Sullivan. 430 The Bank, unlike Mr Sullivan, was not a client of Mr Williams and hence Mr Williams did not owe the Bank (at any rate directly) the duty of care which a solicitor owes to a client. 431 The nature of the duty which it was alleged Mr Williams owed the Bank, as pleaded in the Bank's cross-claim, was that Mr Williams owed a duty to Mr Sullivan as his solicitor to ensure that Mr Sullivan received independent legal advice and to adequately explain to Mr Sullivan the terms of the mortgage and the risk being undertaken by Mr Sullivan, that Mr Williams knew or ought to have known that the Bank would be relying on Mr Williams to carry out the duties he owed to Mr Sullivan and that consequently Mr Williams owed a duty to the Bank to act carefully in carrying out his duties to Mr Sullivan. Although there was no formal amendment, the Bank relied during the hearing on an allegation that Mr Williams owed a duty to Mr Sullivan to advise him that he should obtain independent financial advice. It was further alleged in the Bank's cross-claim that, if what Mr Sullivan alleged in his cross-claim against the Bank was correct, then Mr Williams had committed breaches of the duties he owed Mr Sullivan which were accordingly also breaches of the duty Mr Williams owed the Bank, and that as a result of those breaches the Bank would suffer damage. 432 The question arises whether the duty owed by Mr Williams to the Bank was as extensive as the duty alleged in the Bank's cross-claim against Mr Williams. 433 It is clear that Mr Williams owed some duty to the Bank. The form of certificate of witness was forwarded to Mr Williams by the solicitors acting for the Bank and Mr Williams signed the certificate of witness and sent the signed certificate to the Bank's solicitors, together with the executed mortgage. Mr Williams said in evidence that he knew that the Bank would be relying on the certificate of witness signed by him in going forward with the transaction. There was, however, no evidence that Mr Williams assumed any greater responsibility to the Bank than in and about giving the certificate of witness or that the Bank relied on Mr Williams having assumed any greater responsibility. 434 It was submitted on behalf of the Bank that the existence of a duty of the width alleged in the Bank's cross-claim was supported by what the Full Court of the Federal Court had said on p28 of the judgment in Tarzia. However, what the Full Court of the Federal Court said on that page of their judgment, although it would support a submission that in certain circumstances a solicitor may be in breach of his duty to his own client if he does not give advice that financial advice be obtained, does not appear to me to lend any support to a submission that a solicitor will be in breach of a duty owed by him to the person providing credit to the client, if he does not take such a step. 435 In my opinion, Mr Williams did not owe any duty to the Bank beyond a duty to exercise reasonable care in and about giving the certificate of witness. 436 It is convenient to repeat at this stage the terms of the certificate of witness

(b) I identified the parties before the document was signed

(c) I asked the parties whether the document was being signed voluntarily and the answer was "yes"

(d) I asked the parties whether he understood the nature and effect of the document and the answer was "yes"

(i) Compared his obligations and responsibilities to the Bank with those of any other person named in the document; and

(ii) Considered the consequences to him should there be any default in those obligations and responsibilities; and the answer was "yes". 437 Paragraph (a) of the certificate of witness is incorrect, in that the mortgage was not dated before Mr Williams. The Bank's solicitors to whom Mr Williams sent the mortgage on 14 November 1990 should have realised that par(a) of Mr Williams' certificate was not strictly correct but they made no complaint. In any event, this respect in which the certificate given by Mr Williams was not strictly correct is quite immaterial. 438 On the findings I have made, there was no negligence by Mr Williams in giving pars(b) and (c) of the certificate. I am also of the opinion that the advice given and the questions asked by Mr Williams in accordance with his usual practice, including the question whether the client understood what he was signing, constituted a substantial compliance with the requirements of par(d) of the certificate. Paragraph (d), in my opinion, is directed to whether the solicitor's client understands the nature and effect of the mortgage as a document and does not require an understanding on the part of the client of what in the particular circumstances of the client's case are the financial risks the client may be running by entering into the mortgage. 439 Paragraph (e) of the certificate is incorrect, in that Mr Williams did not ask Mr Sullivan a question in the terms of par(e). However, as I have already found, Mr Williams gave advice and asked questions which amounted to a substantial compliance with par(e). In any event, as I have held, if a question in the precise terms of par(e) had been asked, Mr Sullivan would have replied in the affirmative, the mortgage would still have been entered into and the mortgage would still have been set aside, but only on the ground on which I consider it should be set aside and not on the ground that Mr Williams had been negligent in and about giving the certificate of witness. 440 I conclude that any breaches by Mr Williams of the duty he owed to the Bank to exercise reasonable care in and about the giving of the certificate of witness did not cause the loss the Bank has suffered through entering into the mortgage with Mr Sullivan which has been set aside. 441 If I am wrong in holding that the duty owed by Mr Williams to the Bank was limited to the duty I have described and if the true position is that the duty owed by Mr Williams to the Bank did extend to a duty to act carefully in carrying out the duties he owed to Mr Sullivan, then, as I have found, there were some breaches by Mr Williams of the duties he owed Mr Sullivan, which, on the assumption I am presently making, would also be breaches by Mr Williams of the duty he owed to the Bank. It has not been as a result of any of those breaches that Mr Sullivan has obtained the relief sought in his cross-claim against the Bank and has succeeded in having the mortgage set aside. Mr Sullivan has obtained that relief, because I have held that the mortgage was an unconscionable dealing between the Bank and Mr Sullivan under the principles in Amadio. However, if Mr Williams had advised Mr Sullivan to obtain independent financial advice, Mr Sullivan, and hence the Bank, would not have entered into the mortgage and consequently the Bank would have retained the mortgage from Mr Ahmet and not suffered any loss or damage. 442 There should be a verdict for Mr Williams on the Bank's cross-claim against Mr Williams. 443 There should be verdicts for Mr Sullivan on the claim, the first cross-claim and the second cross-claim. I will defer the making of formal orders and the making of any orders for costs, until the parties have had an opportunity of considering these reasons for judgment.

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