Verduci & Anor v Golotta

CATCHWORDS : EQUITY - equitable remedies - 1988 loan and mortgage transaction - interest rate 20% - no enforcement action until 2009 - mortgage registered in 2008 - borrower claims action on loan and mortgage barred by Limitation Act - alternatively borrower seeks Contracts Review Act and other equitable relief - claims undue influence - unconscionable conduct - REAL PROPERTY - Torrens Title - lender seeks to exercise the power of sale as registered mortgagee under the Real Property Act - HELD - action on loan statute barred - but lender may exercise powers conferred on registered mortgagee under Real Property Act - loan and mortgage transaction "unjust" and varied under Contracts Review Act - equitable relief granted setting aside on terms as to repayment of principal and reasonable interest

Contracts Review Act 1980 (NSW) ss 7, 9 LEGISLATION CITED : Limitation Act 1969 (NSW) ss 27, 40, 42, 43 Real Property Act 1900 (NSW) ss 58, 60, 61

Automobile and General Finance Co Ltd v Hoskins Investments Ltd (1934) 34 SR (NSW) 375 Bainbrigge v Browne (1881) 18 Ch D 188 Baltic Shipping Co v Dillon ("the Mikhail Lermontov") (1991) 22 NSWLR 1 Bank of New South Wales v Rogers (1941) 65 CLR 42 Barron v Willis [1902] AC 271 Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Breskvar v Wall (1971) 126 CLR 376 Bullock v Lloyds Bank Ltd [1955] Ch 317 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth of Australia v Mewett (1997) 191 CLR 471 Cunliffe Brooks & Co v Blackburn & District Benefit Building Society (1884) 9 App Cas 857 Dilosa v Latec Finance Pty Ltd (1966) 84 WN(Pt 1)(NSW) 557 Dowsett v Reid (1912) 15 CLR 695 Frazer v Walker [1967] 1 AC 569 Gleeson v Gleeson [2002] NSWSC 418 CASES CITED : Haywood v Roadknight [1927] VLR 512 Hraiki v Beljon [2008] NSWSC 775 Johnson v Buttress (1936) 56 CLR 113 Khan v Khan (2004) 62 NSWLR 229 Kowalczuk v Accom Finance (2008) 252 ALR 55 Langman v Handover (1929) 43 CLR 334 Lloyds Bank Ltd v Bundy [1975] QB 326 North & South Trust Co v Berkeley [1971] 1 WLR 470 Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745 Princess Ann of Hesse v Field [1963] NSWR 998 Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153 S H Lock (Australia) Ltd v Kennedy (1998) 12 NSWLR 482 Small v Tomassetti [2001] NSWSC 1112 SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 Willis v Barron [1902] AC 271 Wilkinson v Sterne (1774) 88 ER 551

First Plaintiff: Peter (Pasquale) Verduci PARTIES : Second Plaintiff: Annuziatta Verduci Defendant: Graziano Golotta

COUNSEL : Plaintiffs: Dr E Peden Defendant: Mr D Warren

SOLICITORS : Plaintiffs: Legal Aid Commission of NSW Defendant: Golotta's Solicitors Barristers & Conveyancers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2009/3353 PETER (PASQUALE) VERDUCI & ANNUZIATTA VERDUCI v GRAZIANO GOLOTTA JUDGMENT 1 HIS HONOUR: Pasquale ("Peter") Verduci is a retired market gardener. He and his wife Annuziatta, the plaintiffs in these proceedings, seek to set aside a loan agreement and mortgage taken over their family home in Fairfield in 1988. The defendant, Graziano Golotta, resists their claim for relief from the loan and now seeks to enforce the mortgage. Introduction 2 Mr Ross Golotta, the son of Mr Graziano Golotta, is a solicitor. He acted for Mr and Mrs Verduci in the late 1970s, when Mr Verduci was injured in a car accident. Mr Ross Golotta assisted Mr Verduci to recover damages for his personal injures. Then in 1980 Mr and Mrs Verduci purchased their home in Fairfield. Mr Ross Golotta again acted for them on this purchase.

3 In 1985 Mr and Mrs Verduci needed to borrow $6,500 to repair and improve the Fairfield property. They came back to Mr Ross Golotta for help. He organised a loan for them from some of his other clients, Mr and Mrs Pizzuto. The Pizzutos advanced the sum of $6,500 to Mr and Mrs Verduci secured by mortgage over the Fairfield property. The Verducis expended the advance on repairs and improvements to the property.

4 In January 1986 Mr Verduci needed a further $2,500 to complete repairs at the Fairfield property. Mr Ross Golotta arranged Mr and Mrs Pizzuto to advance this further sum on the existing mortgage security over the Fairfield property. But more money was needed a few years later.

5 In February 1988 Mr and Mrs Verduci again approached Mr Ross Golotta for a further advance of $5000 from Mr and Mrs Pizzuto. This time Mr and Mrs Verduci needed the money to pay for their daughter's glory-box upon her forthcoming wedding. Mr and Mrs Pizzuto decided that they did not want to make any more advances. Instead Mr Ross Golotta arranged for his father, Mr Graziano Golotta, who already knew Mr Verduci, to advance part of the further sum they wanted secured by mortgage.

6 A memorandum of mortgage dated 20 February 1988 records that Mr Graziano Golotta advanced $13,000 to Mr and Mrs Verduci on that date. Of that sum the Verducis applied $10,225.92 to the discharge of the loan from Mr and Mrs Pizzuto. The remainder funded Mr and Mrs Verduci's purchase of their daughter's glory-box. The interest rate on the mortgage was 20% per annum reducing to 18% per annum if interest were paid on time. The mid 1980s was a time of high prevailing interest rates. At the time the interest-rate on judgments of this Court was 18% per annum.

7 The mortgage was to be for one year with the principal and any outstanding interest to be repaid on 20 February 1989. The mortgage contained a covenant allowing unpaid interest to be added to the principal sum and to attract further interest liability monthly.

8 Mr Ross Golotta acted as the solicitor for Mr and Mrs Verduci upon their entry into the mortgage. He says that he acted for his father, Mr Graziano Golotta in the transaction. One of the issues in the proceedings is whether indeed the true counterparty to the Verducis in the transaction was actually Mr Ross Golotta himself rather than his father.

9 Mr Ross Golotta gave some explanation of the terms of the mortgage to the Verducis before they signed it. The extent and adequacy of this explanation is also one of the issues in the proceedings. Mr Ross Golotta also witnessed Mr and Mrs Verduci's signatures on the mortgage.

10 Mr and Mrs Verduci did not pay the monies secured by the mortgage by the due date. Mr Verduci explained to Mr Ross Golotta that his pension had not come through from Italy. In consequence Mr Verduci said that he would need to extend the loan for another twelve months. Mr Ross Golotta said that Mr Graziano Golotta would only agree to extend the loan for six months. Mr and Mrs Verduci obtained a de facto extension of the loan for twelve months by not paying any principal or interest during that time and without Mr Graziano Golotta making any attempt to enforce the loan.

11 Two years after the loan was made Mr Ross Golotta wrote to Mr and Mrs Verduci in February 1990 requesting their advice as to what they proposed to do to discharge the loan. This request produced a response from Mr and Mrs Verduci. On 26 April 1990 Mr and Mrs Verduci paid $3000. Mr Ross Golotta made further attempts to recover the loan during the early 1990s on behalf of his father and corresponded with Mr and Mrs Verduci. The detail of this correspondence is set out later in these reasons. This produced the payment of some small amounts of money. Just how much was repaid is in issue in the proceedings as is the adequacy of Mr Ross Golotta's record keeping when managing the loan.

12 The evidence does suggest that during the 1990s Mr and Mrs Verduci treated the loan relationship as active and sourced a number of further small advances from Mr Graziano Golotta. Mr Ross Golotta claims that on his father's behalf he made further advances to the Verducis of $200 on 6 February 1995, $500 on 3 July 1995 and $400 on 16 November 1996. They dispute receipt of all of these sums.

13 Over a period of years at least $12,900 appears to have been paid back under the mortgage. There are no financial statements in evidence from which it could be confidently inferred that these sums were paid on capital or interest account. Mr and Mrs Verduci lost track of the payments they made. This was not surprising. Mr Ross Golotta did not send them regular current statements of their position on their loan account. Mr Ross Golotta maintained a ledger recording the Verducis' payments. He claims that in their conversations with him the Verducis nominated that they were repaying interest. He says that no principal has ever been repaid. Another issue in the proceedings is on what account, capital or interest, the Verducis' payments were made.

14 At the time the mortgage was taken out Mr and Mrs Verduci were respectively 66 and 58 years old. Mr Verduci is now 89. Mrs Verduci is being cared for in a nursing home. Mr Verduci acts as her tutor in the proceedings. Mr and Mrs Verduci speak Italian as their first language. Mr Verduci understands a few English words, sufficient to assist him in managing undemanding conversations in English but no more. The Proceedings and the Issues

15 Mr and Mrs Verduci have now commenced proceedings by summons to redeem the mortgage or to have it set aside or cancelled on various grounds. They say that they were under a special disability at the time the mortgage was entered into. They also say that because the loan debt was not enforced for such a long time that further enforcement of the loan and the mortgage is now barred under the Limitation Act 1969 (NSW). By his cross claim Mr Graziano Golotta seeks possession of the Fairfield property and to enforce the mortgage through the sale of the property.

16 These facts and the parties' pleadings raise the following issues for trial: a. whether the mortgage should be set aside on the grounds that, i. the contract is an unjust contract within the meaning of s 7 of the Contracts Review Act 1980 (NSW); ii. Mr Graziano Golotta exercised undue influence over Mr and Mrs Verduci through his son Mr Ross Golotta; iii. Mr Graziano Golotta engaged in unconscionable conduct at the time when the loan contract was entered into or because it is unconscionable for him now to maintain the contract;

b. whether any claim for possession of the Fairfield property secured by the mortgage is extinguished by reason of the provisions of the Limitation Act ;

c. whether the mortgage debt has been discharged by payment or, if not, what amount now remains outstanding; and

d. in the event that the Court does not make orders discharging the mortgage and setting aside the loan should the Court grant judgment for possession to enable the mortgagee to sell the property? 17 The court has a policy of reducing the risk of identity theft through the court's published judgments. In conformity with this policy this judgment does not publish the precise address of the Fairfield property. Nor does it publish details of any bank account or other similar personal information about any party or witness. More precise information can be obtained from the Court file if it is required. 18 Ms Peden of counsel appeared for the Verducis in these proceedings and Mr Warren of counsel on behalf of Mr Graziano Golotta. 19 Before determining these issues for trial it is useful to examine a little more closely one remarkable feature of this case, the lengthy period of time that the loan monies have been outstanding. In the 22 years since the loan was first made there have been only irregular communications between the parties. The account in the next section analyses these communications. The Period 1988 to 2010 Some Early Reminders 20 Mr Ross Golotta sent the Verducis only sporadic written reminders of their loan obligations after February 1988. These reminders communicated in English rather than Italian that significant interest was accumulating on their borrowings from Mr Graziano Golotta and that they should do something about it. 21 These letters start in March 1989. They are all headed with the subject "Your Loans". On 1 March 1989 Mr Golotta wrote to Mr Verduci only saying: "We refer to the above and note that the amount outstanding on the loan as at 20 February 1989 is $15,852.09. We note that you wish to extend the loan and accordingly advise that we are prepared to grant an extension for a period of six (6) months. We do not propose to arrange any new documentation so as to avoid the incurring of extra costs by you. The current mortgage will suffice to continue the loan together with this letter." 22 The period early 1990 to late 1994 represents the period of the most frequent lender initiated correspondence after 1988. It is a period during which accumulated interest began rapidly to escalate beyond the original principal. It is probably the period that accumulated interest and principal began to get beyond the capacity of Mr and Mrs Verduci to repay. The letters Mr Ross Golotta sent during that period sought the following amounts on the following dates and in the following terms.

a) On 9 February 1990 Mr Golotta wrote to Mr Verduci alone saying "we refer to the above matter and note as at 20 March 1990 the amount outstanding on your loan will be $19,652.04. As interest is increasing monthly we would be pleased to receive your advise (sic) as to when you expect to be in a position to discharge the loans."

b) On 18 August 1992 Mr Golotta wrote to Mr Verduci noting that no payment had been made on the mortgage since 26 April 1990 and said, "the amount presently outstanding to 20 August 1992 is $26,992.87 and this will increase by more than $450 per month." The letter elaborated that having regard to the long period the loan has been outstanding and that no payments have been made since April 1990 "we are instructed to request payment of the loan or arrangements for monthly payments of interest together with an additional amount to reduce the principal". Although this letter sought advice within seven days there is no evidence that any reply to it was received.

c) On 14 April 1993 Mr Golotta wrote to Mr and Mrs Verduci. This was the first time that the correspondence was addressed to Mrs Verduci as well as to Mr Verduci. As with previous correspondence this letter is also headed "Your Loan". The letter stated, "we refer to the above and advise that the loan has now increased to an amount of $30,013.29 outstanding as at 20 April 1993. We advise that under the present situation the amount is increasing by approximately $500 per month." After this warning, Mr Golotta requested Mr and Mrs Verduci to take steps to reduce the outstanding sum.

d) On 6 October 1993 Mr Golotta wrote to Mr and Mrs Verduci saying, "we refer to the above and advise that the amount outstanding on your loan to 20 October 1993 is $32,866.41."

e) On 28 April 1994 Mr Golotta again wrote to Mr and Mrs Verduci saying "we refer to your payment made on 27 April 1994 and advise that the balance now outstanding to 20 May 1994 is $36, 550.65."

f) On 22 August 1994 Mr Golotta wrote to Mr and Mrs Verduci acknowledging receipt of the payment of $250 on 18 August 1994 and saying, "we advise that the outstanding balance as at 20 August 1994 is $38,158.81". Some Further Advances 23 Commencing in early 1995 Mr Verduci returned to Mr Ross Golotta seeking further advances of very small amounts. This was a time when the loan amount outstanding had reached treble the original sum advanced of $13,000. Mr Verduci has no current recollection of receiving these monies. But as these reasons explain later under the heading "The Amount Outstanding" I find that he did receive them. The documentation that he signed records the receipt of several small amounts. There were only a few of these occasions. 24 In February 1995 he first received a small supplementary sum of $200 documented in the following terms: "I PASQUALE VERDUCCI acknowledge receipt of cash of $200-00 by way of loan to be added to my mortgage. 6/2/95 (signed) P Verduci" 25 Five months later Mr Verduci came back for a little more. He received a further advance of $500 and signed a receipt in the following terms: "I PASQUALE VERDUCI acknowledge receipt of a cash cheque for $500.00 being a loan to be added to my mortgage. 3/7/95 (signed) P Verduci"

26 Before the next advance took place, Mr Verduci received another reminder that the balance outstanding as at 20 July 1995 was then $42,443.50. A short while later the most detailed acknowledgement signed by Mr Verduci after the 1988 loan came into existence. This was executed on 16 January 1996 and recorded his receipt of cash of $400. This meant that in just under 12 months, Mr Verduci had borrowed a further $1100 from Mr Graziano Golotta. The 16 January 1996 receipt was expressed in the following terms: "I PASQUALE VERDUCI acknowledge receipt of cash of $400.00 being a further loan to be added to my mortgage. I acknowledge that the total outstanding as at 20/1/1996 together with interest is $42,617.82. I further acknowledge that even though all the term of the loan has expired, agreement has been reached for the loan to continue until such time as I am able to repay it and that interest is to be capitalized if I am unable to meet monthly repayments. Dated 16 January 1996 (signed) P Verduci" 27 This was the last of the further borrowings. Before these proceedings commenced Mr Ross Golotta did send some reminders. Reminders during the Last Decade 28 After the agreement to capitalise interest in January 1996 there was no correspondence from either lender or borrower for over six years. The evidence does not adequately explain the precise reasons for this extended period of lack of communication. 29 During the last decade though, the reminders returned. But by the time they did the sums of money outstanding had become much larger. 30 On 20 August 2002 a reminder was sent showing a balance owing at 20 January 1996 of $42,617.82 together with interest from 20 January 1996 to 20 September 2002 of a further $53,982.57 making a total owing to 20 September 2002 of $96,600.39. After this reminders seem to have gone out almost annually. A reminder was sent on 1 March 2004 showing principal and interest owed to date of $108,794.43. On 17 February 2006 Mr Ross Golotta wrote claiming an accumulated debt to 20 March 2006 of $131,641.26. A further reminder on 25 January 2007 showing interest and principal accumulated to 20 March 2007 would be $144,805.39. 31 The last reminder ended, given the lengthy history with a rather curious request for an urgent response: "We refer to the above and advise that the balance outstanding on your loan as at 20 March 2008 is $159,285.93. We will be pleased if you would arrange to see our Mr Ross Golotta to discuss the matter as soon as possible." 32 Throughout this history Mr Ross Golotta made no attempt to enforce the mortgage. Then Mr and Mrs Verduci commenced these proceedings. Mr Graziano Golotta's cross claim in these proceedings is his first attempt to take Court action to enforce his mortgage rights.

The Witnesses and Parties Pasquale Verduci 33 Mr Verduci had worked as a market gardener all his life in an agricultural and basic market environment. He migrated to Australia in 1961 and his family in 1962. He showed no commercial sophistication in the witness box. His account of his own limited capacity to speak English was undoubtedly correct. He cannot read English. I judged that he had been educated only to a fairly basic level. 34 When Mr Verduci gave evidence it became obvious that he was highly suspicious of any attempt to have him answer questions. He was suspicious of the entire Court process. Without any justification at one point he showed a surprising suspicion of his own lawyers. 35 Mr Verduci was spontaneously prepared not to answer questions when it suited him and especially when he feared that the answers might be harmful to his interests. At one point in cross-examination he was shown his own affidavit and asked to identify the signature. This was done with a view to him being asked whether he could recollect the occasion on which that affidavit was sworn. Notwithstanding the fact that the affidavit was witnessed by his own solicitor in a regular way and had been read over to him in Italian, he denied any recollection of this occasion. There is no doubt that his solicitor had organised for the affidavit to be explained to him in Italian and that had sworn it on that occasion. He seemed to think he was being tricked.

36 Mr Verduci was suspicious of many people and many things. He was particularly suspicious of Mr Ross Golotta. Mr Verduci's evidence about Mr Ross Golotta was affected by a strongly felt distaste for having any dealings with him. 37 Mr Verduci was a most frail man who bore many signs of his advancing age. He managed to get to and from the witness box only with great difficulty. His memory appeared to be failing him from natural causes. Given his age and declining mental powers it is difficult to conclude that the lack of recollection that he showed was deliberate. His fears about answering questions were not contrived. His fears were real to him. 38 However, the quality of his affidavit evidence was diminished by his performance in the witness box. It is difficult to understand how anyone was able to draw an affidavit based upon his instructions from him, saying what his affidavit of 20 August 2009 does say, given the poor quality of recollection he demonstrated in the witness box. I have doubts as to which parts of his evidence can really be accepted. I treated it all with caution.

Ross Golotta 39 Mr Ross Golotta showed a lack of attention to detail in the execution of many aspects of this loan and mortgage transaction. For example although the subject loan transaction paid out the mortgage which Mr and Mrs Verduci had taken out with the Pizzutos, Mr Ross Golotta had overlooked for some 22 years the need to lodge a discharge of mortgage for them in respect of the Pizzuto loan. The Verduci's loan obligation to the Pizzutos had not existed since 1988. Mr Ross Golotta, although acting for Mr and Mrs Verduci on the Pizzuto loan, admitted that he had not taken any steps to discharge that mortgage. Mr Ross Golotta's rather casual explanation for this longstanding omission was just that he "had overlooked it". 40 Mr Ross Golotta also failed to send regular loan statements of account to Mr and Mrs Verduci. The statements that were sent were sent sporadically, were sometimes associated with the making of a payment by Mr Verduci, sometimes associated with a demand for repayment by Mr Ross Golotta but sometimes associated with no such event. It must be accepted that the position of a borrower in the position of Mr and Mrs Verduci in a loan being administered by Mr Ross Golotta was a very confusing one. 41 The lack of regular statements to Mr and Mrs Verduci summarising the up to date position on the loan had the effect also that Mr Ross Golotta lost track of his own calculations of the interest that was due. He was asked to reconstruct some of the interest calculations between 1994 and 2005 in his own recently created ledger for the loan. He was not readily able to do so. He could not show how a reduction in interest in 10% was actually factored into the calculations. Nor was he able to precisely reconcile the calculations to contemporaneous documents such as letters that were sent to Mr and Mrs Verduci from time to time. 42 It is difficult readily to explain his languid loan administration. Mr Ross Golotta did not regard the loan as a private arrangement between an earlier generation of the two families that would somehow sort itself out. The loan had never been discussed between Mr Verduci and Mr Graziano Golotta. All communications between Mr Graziano Golotta and Mr and Mrs Verduci about the loan were conducted through Mr Ross Golotta. 43 But Mr Ross Golotta did explain his inaction in recovering the loan. He was asked why it had all been allowed to go on for so long. His response was illuminating and I accept it as undoubtedly correct: "it was simply a situation where he [Mr Verduci] would say that they cannot afford to pay the loan off and the alternative was to have taken steps to have the house sold and it was not something my father was prepared to do." 44 Mr Graziano Golotta was unwilling to be seen selling Mr and Mrs Verduci's house. That unwillingness inhibited the mortgagee from recovery action but the continuing indecision resulted in loan interest accumulating to well over ten times the original principal sum. Mrs Verduci 45 Mrs Verduci did not give evidence. She was incapacitated in a nursing home. She was involved in the initial loan transaction in 1988 but not later. When Mr Verduci sought to obtain supplementary advances in the mid 1990's Mrs Verduci was not present. She neither signed for these further advances nor played any other identifiable role in relation to them. There appears to have been no contact between Mr Ross Golotta and Mrs Verduci after 1988. 46 It is now necessary to consider each of the other issues for trial identified above. Contracts Review Act 47 The Verducis ask this Court to declare the loan contract void pursuant to Contracts Review Act 1980 (NSW) s 7, on the basis that it is in all circumstances 'unjust' within the meaning of that legislation. The plaintiffs also seek an order pursuant to s 7(1)(d) terminating the registered mortgage.

48 Contracts Review Act s 9 identifies the matters this Court must consider in determining whether relief ought to be given pursuant to section 7. Contracts Review Act s 9(1) relevantly provides: "(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract."

49 Contracts Review Act s 9(2) provides a list of matters "to which the Court shall have regard... to the extent that they are relevant to the circumstances."

50 The Verducis have put detailed submissions in support of orders to set aside the loan and mortgage in the public interest and from consideration of each of the factors in Contracts Review Act s 9(2). The Verducis make the following submissions about those factors:

a. There was inequality in bargaining power between the parties, in circumstances where the Verducis sought advice from their solicitor who arranged a loan with his father (2(a)).

b. There was no negotiation of the terms of the loans or the mortgage by the Verducis. Mr Golotta, acting for both the Verducis and the lender, drew up the documentation (2(b)).

c. It was not reasonably practicable for the Verducis to negotiate the terms, in circumstances where Mr Golotta, their solicitor, purported to represent them and organise the loans (2(c)).

d. The interest rate of 20% pa calculated monthly with interest capitalising and running indefinitely was not reasonably necessary for the protection of the legitimate interests of the lender. This term was difficult to comply with (2(d)).

e. Both Mr and Mrs Verduci were relatively elderly when they entered into the first loan. Mr Verduci was 66 years old, a farmer by trade and Mrs Verduci was 58. They did not understand written or legal English. They were not able to protect their own interests (2(e)).

f. Mr and Mrs Verduci were unable to read English documents, and therefore legal documents in English (2(f)).

g. The Court can take notice of the physical form of the contracts, with very small print and legalistic words, which in the plaintiffs' submission makes it very difficult to read and understand, even had there not been an issue of the language being English (2(g)).

h. Mr and Mrs Verduci went to the person they considered their family solicitor for legal advice about borrowing money. Mr Ross Golotta was not independent, as he was also acting for his father, the lender. They did not receive any other financial or legal advice (2(h)).

i. Mr and Mrs Verduci did not understand the nature of the contracts. (2(i)).

j. Mr Graziano Golotta was Mr Verduci's friend. Further, Mr Ross Golotta was Mr Verduci's solicitor. A presumption of undue influence exists in equity in circumstances where a solicitor enters into a contractual relationship with a client. Mr Graziano Golotta can be taken to have known that Mr Ross Golotta was advising Mr Verduci in relation to the loan (2(j)).

k. Mr Graziano Golotta can be taken to have known the purpose of the loan to Mr Verduci. He knew he was lending money to a friend for his daughter's wedding (2(l)). Principles in Relation to the Contracts Review Act 51 The principles relevant to the grant of relief under the Contracts Review Act are well established. Consideration of an applicant's claim for relief pursuant to the Contracts Review Act involves a two stage process: firstly the determination of whether the contract was "unjust" which is a conclusion of fact involving a "broad based value judgment" and, second, if the contract is found to be relevantly "unjust", whether any relief should be granted, and if so, what relief should be granted, in exercise of judicial discretion: Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [34]-[36] per Spigelman CJ, at [109]; Kowalczuk v Accom Finance (2008) 252 ALR 55 per Campbell JA (with whom Hodgson and McColl JJA agree) at [87] and Riz v Perpetual Trustee Australia Limited [2007] NSWSC 1153 at [51] per Brereton J. 52 In the exercise of the discretion that the Contracts Review Act confers, if the contract is found to be unjust by reason of circumstances not known to one of the contracting parties, it does not automatically follow that relief will be given to remedy the injustice: Kowalczuk v Accom Finance Pty Ltd (2008) 252 ALR 55 at 74-75; [2008] NSWCA 343 at [88]. In applications under the Contracts Review Act relief will not ordinarily be granted against an innocent party: Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 per Meagher JA at 277 and Hraiki v Beljon [2008] NSWSC 775 per McDougall J at [35]. The statutory "circumstances relating to the contract at the time it was made" are not limited to circumstances concerning what the person resisting an order under s 7 of the Contracts Review Act did or did not do or knew or ought to have known; and, when determining unjustness under Contracts Review Act s 9 the Court should have regard "to the public interest and to all the circumstances of the case": Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [76]-[77]. 53 An entitlement to relief is not made out merely because the circumstances relating to the transaction did not work out in favour of one party, a relevant principle which is consistent with the public policy in keeping parties to their bargains: Baltic Shipping Co v Dillon ("the Mikhail Lermontov") (1991) 22 NSWLR 1 at 9 per Gleeson CJ. Even if the Court does find a contract to be unjust and warranting the provision of relief, the relief to be granted would be limited to the minimum required to do justice between the parties: S H Lock (Australia) Ltd v Kennedy (1998) 12 NSWLR 482. There should be a causative connection between the relevant injustice and the unjust consequence which requires relief to be granted: S H Lock (Australia) Ltd v Kennedy (1998) 12 NSWLR 482 at 492 per Priestley JA. 54 A contract can be unjust because of the way it operates in relation to the claimant or because of the way in which it was made or both; a contract may be unjust because its terms, its consequences or its effects are unjust ("substantive injustice") or because of the unfairness of the methods used to make it ("procedural injustice") or both; a contract may be unjust even if it is not unconscionable, harsh or oppressive; a contract may be unjust even though the circumstances that give rise to the injustice are not known to the other party: Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 at 277; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [94]-[96]. 55 One factor entitled to significant weight in favour of a party seeking an order under s 7 of the Contracts Review Act, is the fact that that person had no involvement of any kind in the making of the investment the subject of the transaction: Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [77].

Determination of Unjustness 56 This is a case in which most of the factors in Contracts Review Act s 9(2) are relevant to the Court's consideration of the issue of unjustness. It is convenient though to group some of them together under the headings below. 57 Unequal Bargaining Power and No Negotiation There was in fact no negotiation of any of the terms of the loan and mortgage. The Verducis' bargain was wholly constrained by their relationship and their trust in their solicitor, Mr Ross Golotta. Without really turning his mind to it, he did not encourage them to negotiate in a way that might diminish the benefits to his father under the transaction. I do not think that he did this deliberately but his cross examination showed a general incomprehension of the fact that the duty he owed to the Verducis might be in conflict with his duty to his father as his father's solicitor. A prominent example of the Verducis' lack of negotiating power was that Mr Golotta varied the Pizzuto mortgage by adding an extra clause to the form of the advance from Mr Graziano Golotta, clause 4, which provided for the compounding of interest. The Verducis were unaware of the change. Mr Ross Golotta did not highlight it. Its introduction was adverse to their interests. Even at the time this loan was entered into the possibility of future default was real because of the course of their poor performance of the loan with the Pizzutos, so the change is an important one. The lack of negotiation on this issue is emblematic of the Verducis' lack of negotiating power in the whole of the relationship. Moreover, Mr Ross Golotta did admit that he did not negotiate the terms of any of the loans with Mr Verduci. 58 Unreasonably Difficult or Unnecessary Conditions. Ms Peden compares the Pizzuto loan with the instant loan and submits that the combination of an interest rate of 20% per annum calculated monthly with interest capitalising and running indefinitely was not reasonably necessary for the protection of the legitimate interests of Mr Graziano Golotta because it was not a condition in the Pizzuto loan. Mr Warren says that there is nothing wrong per se with capitalisation of interest clauses and that the purpose of capitalising interest was to make sure that the Verducis paid the interest. The difficulty for Mr Warren's argument is that Mr Ross Golotta did not advance evidence explaining why the clause was included and seeking to justify the need for it on objective grounds. Thus the change from the Pizzuto loan remains unexplained. The ballooning of the Verducis' actual interest liability is the consequence of this clause. Mr Ross Golotta had no evidence as to the Verducis' capacity to repay the loan. No independent advice was urged upon Mr Verduci and Mr Ross Golotta did not suggest they go to a bank or seek other financial advice. 59 Self Protection, Economic and Educational Background and Contractual Form and Lack of Explanation. There were severe disadvantages for the Verducis in this transaction because of their background and the form of the obligations they were taking on. These disadvantages were not cured sufficiently by what Mr Ross Golotta attempted to do for them as their solicitor. I accept his evidence that he endeavoured to explain the loan to them both on 20 February 1998 but given their performance of the Pizzuto loan and given Mr Ross Golotta's lack of knowledge of their means of repayment and given that the mortgage was to be taken over their home, the circumstances required Mr Ross Golotta to give very strong warnings about the inadvisability of proceeding and emphasising the Verducis' choices. I doubt that the bare explanation that Mr Ross Golotta gave them was sufficient to overcome their lack of comprehension of the financial risk they were facing due to their background and poor understanding of the financial consequences of what they were doing. 60 To the extent that through the limitations of their background Mr and Mrs Verduci did understand what Mr Ross Golotta was saying, unfortunately it was misleading. He said to them "you'll have to pay $195 per month". But this was only strictly true if they paid interest on time and the interest was calculated at the rate of 18%. Any missed payment would have pushed up the interest rate to 20% and generated compounding of interest. Mr Ross Golotta did not bring home to the Verducis minds the risks they were facing by doing a working calculation of what would happen to the interest if they defaulted. That was probably the only feasible way to bring home the issue of default risk to these particular borrowers. Mr Golotta admitted that he did not do that. 61 Mr Warren submits on behalf of Mr Graziano Golotta that the mortgage and loan were not complex and that they were explained. This is true as far as it goes but for the reasons indicated here, the primary problem for the Verducis by reason of their background was their lack of comprehension of the financial risk that they were facing through this agreement. I find that their lack of comprehension was not overcome by Mr Ross Golotta's explanation. 62 Independent Legal or Financial Advice. Although Mr Warren submits that Mr Ross Golotta 'acting for both parties' is not contrary to law, Ms Peden's analysis is correct that he was not an independent legal adviser. The lack of independence arises from his dual obligations as the solicitor for both sides of this transaction. Mr Ross Golotta candidly agreed that he did not at any stage suggest they get independent or legal or financial advice and they did not. The justice of the transaction should be analysed on the basis that the Verducis had no independent legal or financial advice. 63 Undue Influence, Unfair Pressure or Unfair Tactics. These reasons contain a separate discussion of the operation of the presumption of undue influence in this case set out below under the heading 'Undue Influence'. 64 Commercial or Other Setting. The fact that the Verducis were borrowing this money upon their home for a non income earning domestic purpose is of particular significance in this case. Where the security for a loan is the family home of a low income earner, the decision of a lender not to verify employment and income and thereby in substance to engage in the practice of asset lending is of significant weight against the lender in the determination of unjustness: Perpetual Trustee Company Ltd v Albert & Rose Khoshaba [2006] NSWCA 41 at [85]. This was a wholly domestic borrowing in circumstances where the Verducis had not been able to pay off the Pizzuto loan. 65 The only real counterweight that Mr Ross Golotta had available to him to meet the interest burden the Verducis were facing in this transaction was the future receipt of the Italian pension that Mr Verduci was expecting. However Mr Ross Golotta did not know the amount of this pension and I do not accept that Mr Verduci explained to Mr Ross Golotta that the Italian pension would be sufficient to repay the loan. Even if Mr Verduci had said this, this is the kind of fact that an independent solicitor would be likely to have verified before advising the client to proceed. Relief 66 The minimum relief necessary to remedy the unjustness which has been found would be effected in this case by relieving the Verducis of the punishing burden of compounding interest at interest rates that had long ceased to bear any relationship to modern commercial reality. The remedy appropriate in this case is to remove clause 4 from the contract and to vary clause 2 of the contract to reduce the amount of interest payable to the rate payable on judgments in this Court. Undue Influence 67 The Verducis also claim that the loan transaction and mortgage are vitiated by undue influence. Undue influence is presumed where a solicitor enters into a contract with his or her client: Dowsett v Reid (1912) 15 CLR 695 at 707 and Barron v Willis [1902] AC 271. 68 The Verducis' case is that the evidence raises the presumption of undue influence. They further submit Mr Graziano Golotta bears the onus of persuading this Court that the presumption ought to be rebutted; that he has not rebutted the presumption; and that Court ought to find that the loan, and therefore the mortgage, ought to be set aside. 69 Their case is that the presumptive relationship of influence between Mr Ross Golotta as solicitor and his clients, Mr and Mrs Verduci, renders the transaction between his father Mr Graziano Golotta and the Verducis liable to be set aside. In support of this argument Ms Peden referred the Court to cases where operative undue influence may emanate from someone, such as Mr Ross Golotta, who is not a party to the transaction under challenge: see Bainbrigge v Browne (1881) 18 Ch D 188 at 197; Bank of New South Wales v Rogers (1941) 65 CLR 42; Bullock v Lloyds Bank Ltd [1955] Ch 317; Lloyds Bank Ltd v Bundy [1975] QB 326; and, Khan v Khan (2004) 62 NSWLR 229.

70 Mr and Mrs Verduci's contention that the loan and mortgage can be set aside due to Mr Ross Golotta's undue influence case is persuasive. Undue influence is presumed between the solicitor Mr Ross Golotta and his clients Mr and Mrs Verduci, even though he is a third party to the transaction sought to be set aside. On the cases to which Ms Peden has referred me, especially Willis v Barron [1902] AC 271, transactions may be set aside due to the influence of a third party who may not clearly have received a benefit from the transaction: see also Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30. As Sir Eric Sacs stated in Lloyd's Bank Ltd v Bundy (1975) QB 326, at 341, "cases tend to arise where someone relies on the advice or guidance of another, where the other is aware of that reliance and where the person upon whom the reliance is placed obtains, or may well obtain a benefit from the transaction or has some other interest in it being concluded." In the present case it can be inferred that Mr Ross Golotta had an interest in this transaction being concluded as it benefited a member of his family, his father, the terms in which it was carried into effect. 71 If he received a benefit under the transaction Mr Graziano Golotta bears the onus of rebutting the presumption of undue influence: Johnson v Buttress (1936) 56 CLR 113 at 1345. But Ms Peden attempted to show that Mr Ross Golotta was the true counterparty to the transaction, not Mr Graziano Golotta. If this contention were successful it would have merged the source of the undue influence and the beneficiary of the transaction into the one person. But I do not accept that Mr Golotta was engaging in an elaborate fiction to create the impression of a loan and mortgage transaction between his father and the Verducis. My concerns about the adequacy of his explanations to the Verducis and the competence of his loan management do not extend into a finding that he deceived the Verducis by creating a sham transaction. The mortgage over the Fairfield property named Mr Graziano Golotta as mortgagee in February 1988. Moreover, the submission assumes an improbable degree of foresight on his part back in February 1988 that this loan was sure to go bad and would need a sham structure. 72 Mr Graziano Golotta did not give evidence. As a result Ms Peden submitted that the Court should draw a Jones v Dunkel inference that Mr Graziano Golotta's evidence would not have assisted his case. She submitted that considerable importance attaches to the inference here: Dilosa v Latec Finance Pty Ltd (1966) 84 WN(Pt 1)(NSW) 557 at 582 per Street CJ; and the Court is "entitled to be bold" in drawing the inference: SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 per Gleeson CJ and Handley JA. But the issue of the onus of proof does not need to be considered in this case because the Court can make affirmative findings that the presumed relationship of influence has not been rebutted. 73 No evidence sufficient to rebut the presumption has been advanced. The findings made above in relation to the Contracts Review Act case and based upon Mr Ross Golotta's candid admissions in cross examination, are sufficient to show that far from rebutting the relationship of influence Mr Golotta's solicitor-client relationship with the Verducis closely constrained their independence and freedom of choice in this loan and mortgage transaction.

74 The relief that the Court will grant on the Verducis' claim of undue influence is the same as the relief the Court will grant on their claim under the Contracts Review Act although the precise legal basis for that grant of relief is different for each remedy. The applications by borrowers to set aside lenders' securities provide one example of the application of the equitable maxim that a person who seeks equity must do equity. In money lending cases where a borrower seeks to set aside a lender's security the lender can insist that no relief be granted in equity unless the borrower offers to do equity and compensate the lender for the money actually advanced to him together with reasonable interest: Automobile and General Finance Co Ltd v Hoskins Investments Ltd (1934) 34 SR (NSW) 375 and Langman v Handover (1929) 43 CLR 334. In order to obtain relief setting aside this loan and mortgage on the ground of undue influence the Verducis will need to repay the sum borrowed together with reasonable interest. That is in substance the relief the Court is granting under the Contracts Review Act. Unconscionable Conduct 75 The Verducis also submit that Mr Graziano Golotta's unconscionable conduct occasioned the transaction and grounds the relief they now seek. 76 The applicable legal principles are not controversial. In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Mason J identified the touchstone by which unconscionability is judged (at 462): "an underlying general principles which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis à vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created".

"[I]f 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." 77 Mr and Mrs Verduci submit they were suffering a special disability because they did not speak English, or read English; they were presented with English legal documents; they were borrowing from a friend; they were relying on their solicitor to advise them as to the agreement they were entering into and its effect, not only in relation to its legal effect, but to translate that effect into Italian. Their solicitor was also the son of the lender and the solicitor of the lender. 78 The plaintiffs further submit that the circumstances show that the Verducis suffered a special disability and this was sufficiently known to Mr Graziano Golotta. They submit bears the onus of satisfying this Court that the transaction was "fair, just and reasonable". Absent satisfactory evidence to discharge that onus, the plaintiffs finally submit on this issue that the Court should rescind the loan contract and therefore the mortgage.

79 Many of the factors identified in relation to relief under the Contracts Review Act also justify the conclusion that Mr Graziano Golotta's entry into this contract was unconscionable. Of course Mr Graziano Golotta's entire knowledge of the transaction came through Mr Ross Golotta his son. His knowledge through Mr Ross Golotta of the Verducis' special disability in entering into this transaction is sufficient to bind his conscience. The Court's Contract Review Act analysis above shows that every one of the factors relevant to Contracts Review Act relief was actually known to Mr Ross Golotta. This is not surprising given that Mr Ross Golotta was acting as the Verducis' solicitor and attempting the often fraught task as a solicitor acting for both parties in a conveyancing transaction of attempting to avoid an actual conflict of duty between these two engagements. Indeed, although this case was not argued in this way by either side, it can incidentally be observed that particularly with respect to issues such as the insertion of clause 4 of the memorandum of mortgage this case represents a classic illustration of a solicitor failing to resolve a conflict of duty and duty: cf Haywood v Roadknight [1927] VLR 512; Princess Ann of Hesse v Field [1963] NSWR 998 at 1005-1010 and North & South Trust Co v Berkeley [1971] 1 WLR 470. 80 Accordingly the transaction will also be set aside on the basis of the defendant's unconscionable conduct.

81 Mr and Mrs Verduci submit that Mr Graziano Golotta's interest in the loan and the property have been extinguished due to the operation of the Limitation Act 1969. 82 The last payment made by Mr and Mrs Verduci was in 1995. But I accept Mr Ross Golotta's evidence that further money was lent on 16 January 1996. Mr Verduci denies receiving this advance but the objective evidence analysed below under the heading "The Outstanding Amount" supports a finding of a further advance on this date. The latest dealing between the parties in relation to the loan was that date. 83 The limitation period for payment of principal under a mortgage expires after twelve years, Limitation Act s 42. Twelve years is the limitation period for claims for possession: Limitation Act s 27. The limitation period for payment of interest under a mortgage is six years Limitation Act s 43. 84 No action for payment of the principal was commenced before 17 January 2008, being twelve years after 16 January 1996. Mr and Mrs Verduci submit in these circumstances that the limitation period for enforcing the loan and any right to possession under the mortgage both expired before these proceedings were commenced on 23 June 2009. 85 They further submit that as the mortgage was unregistered when the twelve year limitation period expired, Mr Graziano Golotta's interest in the land was extinguished. They additionally submit that there was nothing that could be secured by a mortgage, and therefore nothing that could be registered. Therefore the subsequent registration of the mortgage on 20 October 2008 did not secure any right to payment and the mortgage must be set aside.

86 When these proceedings were first commenced the relief claimed was for the execution of a discharge of the mortgage. The pleadings were later amended to claim the Contracts Review Act and other equitable relief. 87 Mr Warren submits on behalf of Mr Graziano Golotta that the Limitation Act only precludes action to recover principal and interest as a contractual debt under the terms of the mortgage. It does not prevent the mortgagee from exercising other rights given to the mortgagee by statute: Limitation Act s 40. He submits that the rights of a mortgagee under a registered mortgage continue to exist and that the mortgagee can claim possession of the property in order to sell it. Mr Warren points to the terms of Limitation Act s 40, the statutory provision that defines the application of the Limitation Act to "a cause of action founded on a mortgage registered under the Real Property Act 1900". The section provides: 40 Mortgage under Real Property Act 1900

This Act applies to an action on a cause of action founded on a mortgage registered under the Real Property Act 1900 to recover from any person any debt damages or other money payable under the mortgage, but otherwise, except to the extent that this Act is taken into consideration for the purposes of a possessory application under Part 6A of that Act, this Act does not affect the right title or remedies under a mortgage so registered of a registered proprietor under that Act of the mortgage or of the mortgaged land. 88 Mr Warren's point is that the Limitation Act "does not affect the right title or remedies under a mortgage so registered of a registered proprietor under that Act of the mortgage or of the mortgaged land." 89 A registered mortgage may create a contractual entitlement of the mortgagee to possession against the mortgagor to which the general provisions of the Limitation Act would apply. But a mortgagee is also entitled to remedies conferred by the Real Property Act 1900 (NSW) itself and these remedies are preserved by the words of the Limitation Act s 40: see Gleeson v Gleeson [2002] NSWSC 418 at [38] and [39] per Bryson J. Such Real Property Act remedies include the power to "sell the land mortgaged or charged" and to apply the proceeds of such sale "in payment of the moneys which may then be due or owing to the mortgagee": Real Property Act s 58(1) and (3). Real Property Act s 60(c) confers power to bring proceedings for possession. "Upon default in payment of the principal sum or any part thereof, or any interest…". Upon default a mortgagee may also apply to the Registrar General for a foreclosure order: Real Property Act s 61. 90 The combined effect of Limitation Act s 40 on the operation of Limitation Act Part 2, Division 4 and Real Property Act Part 7, Division 3 is that any claims to recover debt or damages or other money under the mortgage instrument itself, being claims to which the opening words of Limitation Act s 40 applies, are barred in respect of principal after twelve years by Limitation Act s 42 (1)(a) and in respect of interest after six years by Limitation Act s 43 (1)(a). But the mortgagee can still exercise the rights conferred by the Real Property Act "without limitation as to time" Gleeson v Gleeson [2002] NSWSC 418 at [39] per Bryson J. Thus, here Mr Graziano Golotta is entitled to rely upon his remedies under Real Property Act s 58 and s 60. 91 Mr Warren further submits that the Verducis' claim for discharge of the mortgage is a claim in the nature of a redemption action and that the price of the grant of equitable relief on such an action is that the mortgagor must do equity by paying to the mortgagee all areas of interest from the date of the mortgage not merely the interest due and owing within the applicable limitation period: Commonwealth of Australia v Mewett (1997) 191 CLR 471 per Gummow and Kirby JJ at 535. 92 In response to Mr Warren's submission Ms Peden submits that the defect in Mr Warren's argument is that as at 17 January 2008 when the limitation period for enforcing the loan and any right to possession under the unregistered mortgage expired, the mortgage was unregistered and did not have the benefit of the Real Property Act and the causes of action under the unregistered instrument were extinguished then and were not revived by subsequent registration. She cites Butt on Land Law: "Professor Peter Butt in Land Law , 6 th ed, 2010, explains at [18 85.4]: "Where the mortgage is over Torrens title land and is unregistered, … the expiry of the 12-year limitation period for payment of outstanding principal extinguishes the mortgagee's interest in the land: Limitation Act 1969 (NSW), s63,65." 93 Ms Peden submits that as there was nothing that could be secured by a mortgage and that therefore the situation is analogous to Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745 at [21] per Young CJ in Eq and Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 per Young CJ in Eq at [309] - [317]. 94 In my opinion Mr Warren's final answer to Mr Peden's argument is decisive on this issue. The form of this mortgage was unlike the form of "all monies" clauses in Vella and Tsai. It did itself specify the secured sum and the interest payable. This is the instrument that was registered. In a system of "title by registration", by registration it confers title to the estate specified within it: see Breskvar v Wall (1971) 126 CLR 376 at 381. 95 In a system of title by registration even a forged mortgage that specifies the secured loan is an effective security for that sum, notwithstanding that the mortgage was forged and the money never received: Small v Tomassetti [2001] NSWSC 1112 and Frazer v Walker [1967] 1 AC 569. Even if the mortgagee's causes of action on the subject mortgage were extinguished at the time of registration it still creates a title in its terms. Once registration is achieved, as it was, Limitation Act s 40 has the effect that the Limitation Act "does not affect the right title or remedies under the mortgage so registered". Mr Graziano Golotta is entitled to exercise his rights under Real Property Act ss 58 and 60. The Amount Outstanding 96 Calculation of the amount outstanding in this matter requires determination of two matters that were in close contest between the parties. The first matter is whether Mr Graziano Golotta made any further advances to Mr and Mrs Verduci after the principal advance in February 1988. The second matter is whether Mr and Mrs Verduci made any repayments of their obligations in excess of those recorded by Mr Ross Golotta in his loan account ledger. Further Advances 97 I accept Mr Golotta's evidence that there were further advances to Mr and Mrs Verduci under the loan. I reach this conclusion for several reasons. 98 Although Mr Verduci says that he did not receive any further advances and was quite contemptuous of the amounts of money involved, his credibility about matters of detail is so heavily impaired by his suspicious outlook that I am not prepared to accept his denial as correct. 99 Second, although the amounts of the further advances were small, the inherent probabilities support their being made. Mr and Mrs Verduci had a history of coming back after an initial advance and seeking smaller subsequent advances. That after all, is what they did with the Pizzutos. 100 Third, a documentary obstacle to acceptance of Mr Verduci's evidence that he did not receive further advances are the three documents recording those advances that he signed with Mr Ross Golotta dated respectively 6 February 1995, 3 July 1995 and 16 January 1996. Mr Verduci did sign the receipts for those three supplementary advances. I accept Mr Ross Golotta's evidence that the handwriting on the receipts is his own. It is difficult to see how the documents could have come into their existence in their present form without Mr Ross Golotta meeting Mr Peter Verduci to agree upon making further advances. The documents are not shams. Indeed, the third receipt, containing as it does the term in relation to the capitalisation of interest, is just the kind of subject that is likely to have been discussed between borrower and lender when the borrower was returning for a third small advance in circumstances when interest had not been paid for a long time. The Amounts Paid off the Loan 101 There are two related issues in this topic: what payments were made off the outstanding loan amount and were the payments made on interest or capital account? 102 Mr Verduci's evidence was that he had repaid more than Mr Ross Golotta's ledger documents recorded. Mr Verduci's recollection though was poor and he was not able to identify any precise amount paid on any particular occasion. On the other hand, Mr Ross Golotta's ledger was not well kept. The evidence was unsatisfactory on both sides but it can be resolved. 103 I do not accept that Mr and Mrs Verduci made any more payments than are recorded in Mr Ross Golotta's ledger. Mr Verduci's evidence is insufficiently reliable about such matters of detail for me to infer in his favour that any amount was paid other than what is objectively demonstrated to have been paid through Mr Ross Golotta's ledger.

104 Furthermore, although Mr Ross Golotta was not proactive in managing the loan account he appeared to be reasonably competent in reacting to events that occurred. I have no reason to believe that if he had received money that he would not have recorded it faithfully. Most of the discrepancies in his accounts relate to interest calculations and the transposition of information from one part of this accounting system to another. I find that the payments he recorded in his accounting system were made and no others. 105 Mr Ross Golotta says that when Mr Verduci made payments off the loan that Mr Verduci described them as payments of 'interest'. It is difficult to accept Mr Ross Golotta's evidence as to this. It is not the kind of detail I would expect someone of his casual approach to this transaction to remember. Furthermore, when he did document the receipt of money as he did on 22 August 1994, he did so without appropriating the payment either on interest or capital account. 106 There was no term in the mortgage governing the appropriation of payments to either interest or capital account. The amounts paid do not bear any obvious relationship to payments of interest. 107 The law is that where a debtor omits at the time of the payment to declare on what account the money was paid, the debtor cannot do that afterwards: Wilkinson v Sterne (1774) 88 ER 551. The right of appropriation is then with the creditor who may declare upon what account he or she receives the money after payment and before action: Cunliffe Brooks & Co v Blackburn & District Benefit Building Society (1884) 9 App Cas 857. Mr Ross Golotta's evidence is at least consistent with accepting the monies paid as payments of interest. 108 Nevertheless, none of the distinctions between payments of interest or capital were explained to the Verducis at the time that the contract was entered into. The financial consequences of their not understanding this was substantial. It was important for this unjust consequence of the contract to be remedied. That can be achieved, in addition to all other remedies provided for under the Contracts Review Act, by grant of ancillary relief allowing the Verducis to treat such payments as they wish, for the purposes of calculation as payments on capital account.

Relief for the Mortgagee 109 I have found that the mortgage is valid but that the mortgage obligations should be varied. A revised balance due under the mortgage should be calculated and will form part of my final orders. If the amount due is not paid the mortgagee may exercise its rights under the mortgage. Given the disruption caused by these proceedings both to mortgagee and mortgagor I would be prepared to entertain argument as to a temporary period during which enforcement would be stayed.

Conclusion and Orders 110 In the result, I have granted relief under the Contracts Review Act in these proceedings. I have found the loan agreement and the mortgage made between Mr and Mrs Verduci and Mr Graziano Golotta in February 1988 to have been unjust in the circumstances relating to that contract at the time it was made. The relief granted however is restricted to varying the interest rate so that interest accrues under the mortgage at the rate prescribed from time to time on judgments in this Court. The clause permitting the compounding of interest will be deleted as part of the relief given. 111 Relief would be granted on grounds of undue influence or unconscionable conduct. The relief that would have been granted upon success of those causes of action is no wider than the relief that has been granted under the Contracts Review Act. 112 For the reasons already stated the loan agreement is still on foot in this varied form. I have made findings about the amounts that have been paid off the loan. This will enable the parties to calculate the final sum outstanding including interest. 113 I have not been prepared to find the mortgagee's rights to enforce the mortgage have been extinguished by the operation of the Limitation Act 1969. If the varied interest is not paid then the mortgage remains enforceable in the varied amount. 114 I direct the parties within 14 days to bring in short minutes of order giving effect to these reasons. If the parties cannot agree upon one set of short minutes of order then they should exchange draft short minutes of order and provide them to the Court within 14 days. **********

01/06/2010 - Typographical error - Paragraph(s) 108

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