Westlawn Finance Limited v Tagg

Supreme Court of NSW|2018-09-07|Before: Ball J

Provident Capital Ltd v Papa (No 1) [2011] NSWSC 460 Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 Walker v Bowry (1924) 35 CLR 48; [1924] HCA 28 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 Category: Principal judgment Parties: Westlawn Finance Limited (Plaintiff | Cross-Defendant) Sally-Anne Mary Tagg (First Defendant | Cross-Claimant) Frank Bernard Tagg (Second Defendant) Circles of Gold Pty Ltd ACN 088 460 146 (Third Defendant) Representation: Counsel: JR Clarke SC with AMB Cornish (Plaintiff | Cross-Defendant) A Rogers (First Defendant | Cross-Claimant) S Docker (Second and Third Defendants)

Solicitors: Esplins (Plaintiff) Legal One Services Pty Limited (First Defendant) Henry William (Second and Third Defendants) File Number(s): 2016/240865 Publication restriction: None

Introduction

The plaintiff, Westlawn Finance Limited (Westlawn), is a finance company based in Grafton, New South Wales. The first defendant, Mrs Sally-Anne Tagg, is the wife of the second defendant, Mr Frank Tagg. Mr Tagg controls the third defendant, Circles of Gold Pty Limited (Circles of Gold), through which he carries on business as a McDonald's franchisee in Kirrawee. He also controlled a company known as Arch of Gold Pty Limited (Arch of Gold), through which he invested in thoroughbred bloodstock. Arch of Gold was placed into administration on 22 December 2015.
In June 2014, Arch of Gold refinanced its existing borrowings from Westlawn through a new facility from Westlawn with a maximum drawdown amount of $1,998,000 (the First Facility). That facility was guaranteed by Mr Tagg and Circles of Gold (in its own right and as trustee of the Circles of Gold Trust). It was also secured by a charge over the assets of Arch of Gold (again, in its own right and as trustee of the Arch of Gold Trust) and a charge over a 2006 thoroughbred colt named "Carrara". The facility agreement was signed on 26 June 2014 and Arch of Gold drew down on the funds advanced under the agreement on 30 June 2014, with the result that its total indebtedness to Westlawn at that time was $1,930,027.59. The facility was repayable on 20 business days' notice, but not earlier than three months after it was drawn down.
At the time of the First Facility agreement, Mr Tagg was in serious financial difficulties. Circles of Gold owed a total amount of approximately $14,600,000 to the National Australia Bank (NAB) under various facilities and on 10 July 2014, NAB served a demand for the amount owed. The facilities were guaranteed by Mr and Mrs Tagg and NAB held security over their family home in Rose Bay, the sole registered proprietor of which was Mrs Tagg, and a penthouse apartment on Market Street, Sydney, the sole proprietor of which was Mr Tagg. In 2013, NAB had appointed Korda Mentha to sell the Rose Bay property, but no sale occurred. On 13 March 2014, Mr Tagg had entered into a contract for the sale of the apartment for $10,000,000, but that sale fell through on 4 July 2014. On 16 July 2014, NAB commenced proceedings against Mr and Mrs Tagg seeking judgment in the sum of $14,657,495.18 together with vacant possession of the Rose Bay property and the Market Street apartment.
On 18 August 2014, Westlawn wrote to Mr and Mrs Tagg confirming that it agreed to provide a facility to Circles of Gold in the sum of $6,800,000 (the Second Facility), $6,250,000 of which was to be used to refinance part of the NAB debt. The facility was expressed to be subject to a number of conditions. One was that Circles of Gold would pay $21,000 per month towards its obligation to pay interest and that the balance of the interest would be capitalised. Another was that the facility would be guaranteed by Mr and Mrs Tagg and secured by a mortgage over the Rose Bay property and the security would be "cross collateralised as extended security" for the loan advanced under the First Facility agreement. A further condition of the loan was that Mrs Tagg "receive independent legal advice on the financial obligations of this proposed funding and to be evidenced by a signed solicitor certification that such advice has been obtained".
At about the same time, Mr and Mrs Tagg agreed to judgment against them for the amount claimed by NAB and agreed to give NAB possession of the Rose Bay property and Market Street apartment. However, NAB agreed not to enforce its rights against the Rose Bay property if it was refinanced for a sum of at least $6,250,000 by 18 September 2014 and not to enforce its judgment against Mr and Mrs Tagg personally or its rights against Circles of Gold before 1 December 2014.
The Second Facility settled on 17 September 2014. The borrower under the loan agreement was Arch of Gold, not Circles of Gold as originally anticipated. Mr and Mrs Tagg's signatures on the formal loan agreement and associated documents, including a mortgage of the Rose Bay property and a declaration by Mrs Tagg that she had received independent legal advice in relation to the documents (the First Declaration), were witnessed by Mr Robert Shacklady, a solicitor who at the time practised in Double Bay. Mr Shacklady gave evidence that he explained the effect of the loan agreement and mortgage to Mr and Mrs Tagg.
On 10 December 2014, NAB sold the Market Street apartment for $5,250,000, leaving a balance owing to it of approximately $5,000,000.
Following that sale, Mr Tagg, with the assistance of his accountant, Mr Eli Goldfinger, had negotiations with the Commonwealth Bank of Australia (CBA) about refinancing the NAB debt. It appears that the maximum amount CBA was willing to lend on security of Circles of Gold's interest in the McDonald's restaurant was $3,500,000 and, at some stage, NAB indicated to Mr Tagg that it was prepared to accept that amount in satisfaction of the remaining amount owed to it. It was a condition of the facility to be provided by CBA that Westlawn release Mr Tagg and Circles of Gold from their guarantees of Arch of Gold's debt to Westlawn and that Arch of Gold be released from its obligation to pay $21,000 per month towards its interest obligations under the Second Facility, with the result that all future interest under that facility would be capitalised.
In about January 2015, Westlawn's directors agreed to those terms subject to a number of conditions. One condition was that the restrictions on Westlawn's rights were to be limited to its rights against Mr Tagg and Circles of Gold. Another was that Mrs Tagg provide a written acknowledgement that "she acknowledges and agrees to the limitation of the guarantee of Frank Tagg". A third was that if the sale of the Rose Bay property did not realise sufficient money to repay the amount owing to Westlawn, Mr Tagg would assist Westlawn to sell thoroughbred horses to repay the balance.
Those conditions were acceptable to CBA and to Mr Tagg and, on 20 May 2015, Westlawn, Circles of Gold, Arch of Gold and Mr and Mrs Tagg executed a Deed of Release. That deed was conditional on the successful refinancing of the NAB debt, NAB providing a full release to Mr and Mrs Tagg and Arch of Gold and Mrs Tagg "signing an acknowledgement that she has received independent legal advice as to the effect of this Deed".
At the same time, Mr Tagg signed a letter of undertaking in which he undertook that if the proceeds of sale of the Rose Bay property were not sufficient to repay the First Facility and Second Facility in full, he would use his best endeavours "to sell or cause to be sold horse bloodstock owned by me and/or by Arch of Gold including but not limited to the broodmare named "Hveger (Aus)" (Danehill x Circles of Gold) which is currently resident in Ireland and to do all things necessary to assist Westlawn in that regard" and to pay the proceeds of sale to Westlawn.
Also on the same day, Mrs Tagg signed the declaration sought by Westlawn (the Second Declaration). Again, her signature was witnessed by Mr Shacklady.
The sale of the Rose Bay property did not go according to plans. There was limited interest in the property. It was damaged by a storm on 25 April 2015 and took some time to repair. Eventually, on 26 May 2015, Mr Tagg notified Mr Geoffrey Scofield, the Chief Executive Officer and Managing Director of Westlawn, that he and his wife had agreed to sell the property for $9,500,000 on terms that included "6 months settlement, 5% deposit, will not be released … ."
Contracts were exchanged on 14 July 2015. The actual contract provided for a deposit of $950,000, $475,000 of which was to be paid on exchange and was to be released to the vendor immediately and the balance of which was to be paid on completion. The $475,000 was paid into an account in the name of Mrs Tagg on 22 July 2015. The following day, Mrs Tagg used $363,830 of that amount to repay the balance of a loan of $400,000 that had been made by her parents to her and Mr Tagg in 2011. She paid the balance into another account controlled by her. It is unclear what happened to that money.
Subsequently, on 14 September 2015, Westlawn took over control of the settlement of the sale of the Rose Bay property. On 12 November 2015, it served a notice of default on Mrs Tagg and on 1 December 2015, it took possession of the Rose Bay property, by which time Mr and Mrs Tagg had moved out.
The purchasers of the Rose Bay property failed to complete and following service of a notice to complete, Westlawn terminated the contract. It later resold the property for an amount of $7,069,240.19. That sale completed on 28 June 2016. Following completion, Westlawn, on 29 July 2016, served on Mrs Tagg a demand for the outstanding balance claimed by it, which was $2,125,874.76.
In these proceedings, Westlawn claims the total amount still owing to it from Mrs Tagg under the mortgage and guarantee she gave. It also claims that Mr Tagg engaged in misleading conduct in contravention of s 18 of the Australian Consumer Law (ACL) by representing that Mrs Tagg had agreed to sell the Rose Bay property on terms that included a term that the deposit would not be released and by failing to inform Westlawn that subsequently the parties agreed that the deposit would be released. It claims as its loss the amount of the deposit and the costs of pursuing the purchaser of the Rose Bay property. In the alternative, Westlawn claims that Mr Tagg committed the tort of inducing a breach of contract by Mrs Tagg by encouraging, requesting or insisting that she agree to the release of the deposit. In the further alternative, it claims that Mr and Mrs Tagg committed the tort of conspiracy by agreeing to cause the payment of the deposit to Mrs Tagg.
Mrs Tagg raises two principal defences to the claim against her. First, she contends that she was a co-guarantor with Mr Tagg and the effect of the release of Mr Tagg was to release her. Second, she seeks relief under the Contracts Review Act 1980 (NSW) (the CRA) on the basis that the guarantee she gave was an unjust contract within the meaning of s 7 of the Act. Mrs Tagg also pleaded an alternative case based on unconscionable conduct. However, during the course of final submissions, Mr Rogers, who appeared for Ms Tagg, conceded that she could not succeed on that case if she failed on her case based on the CRA. Consequently, it is not necessary to address that defence any further.
Westlawn also brings three contingent claims against Mr and Mrs Tagg and Circles of Gold in the event that Mrs Tagg's defence based on the CRA is successful. More will be said about those claims later in this judgment.

Further Background

Mrs Tagg is 52 years old. She married Mr Tagg in 2001. Both she and Mr Tagg had been married previously. After completing high school, Mrs Tagg went to secretarial college and then did a marketing course at TAFE, following which she commenced working as a marketing executive with St.George Bank. She was working in that position when she met Mr Tagg in 1994 and continued to do so until September 2000. While working for St.George, Mrs Tagg commenced studying for an MBA. After leaving St.George, Mrs Tagg continued to study for a while until the birth in 2002 of her and Mr Tagg's first child. Since then, she has been a stay at home mother.
Mrs Tagg came across as an articulate and intelligent woman who was quite capable of looking after her own interests, although she was happy to leave anything to do with the family finances to her husband. She understood what a guarantee and mortgage were. Previously, she had entered into a mortgage in connection with the financing of a house that she had bought with her first husband. She had, of course, also given NAB a guarantee and mortgage in respect of debts owed to it by Circles of Gold.
Mr Tagg has operated McDonald's restaurants since about 1980. In July 1999, he incorporated Circles of Gold and he is that company's sole director. On 27 October 2000, Circles of Gold as trustee of the Circles of Gold Trust entered into a licence agreement with McDonald's Australia Limited to operate a McDonald's restaurant at Kirrawee. At the same time, Circles of Gold entered into a lease with McDonald's Properties (Australia) Pty Ltd of the premises on which the restaurant is situated. The licence agreement is for a term of 20 years. Mr Tagg is named as the "Principal" in the Licence Agreement. Under cl 13(b) of the agreement, it is a material breach of the agreement if the licensee or Principal becomes bankrupt or commits an act of bankruptcy, giving the licensor a right to terminate the agreement. Mrs Tagg is paid an income by Circles of Gold, although she does not work for the restaurant.
As I have said, Mr Tagg has also invested in thoroughbred racehorses for a number of years and for that purpose he incorporated Arch of Gold in August 1986. In 2006, his accountant introduced him to Westlawn which provided financing for his thoroughbred investments from that time.
Initially, Mr Tagg enjoyed considerable success from his investments in thoroughbred racehorses. In particular, in about 2007, Arch of Gold sold its interest in Haradasun, a stallion out of another successful horse named "Circles of Gold" in which Arch of Gold also had an interest, for approximately $9,500,000. Although the evidence is unclear, it appears that Arch of Gold used the proceeds of sale initially to provide a loan to Mrs Tagg to buy the Rose Bay property, which was secured by a mortgage over the property in favour of Arch of Gold. At some stage, in circumstances not explained by the evidence, the mortgage to Arch of Gold was discharged and Mrs Tagg gave guarantees in respect of a number of facilities provided by NAB to Circles of Gold and Saint of Mocha Pty Ltd, another company controlled by Mr Tagg through which he had invested in Gloria Jean's franchises.
The details of the facilities granted by NAB are not important to this case. However, it is relevant to observe that some of the money advanced by NAB was used to purchase the Market Street apartment, where Mr and Mrs Tagg resided while the Rose Bay property was being renovated, and NAB took a mortgage over that property. As I have said, NAB also took a mortgage over the Rose Bay property as security for Mrs Tagg's obligations under the guarantee she had given.
The terms of the Second Facility were negotiated by Mr Tagg and his accountant on behalf of Circles of Gold and by Mr Scofield on behalf of Westlawn. They were set out in a two page letter from Westlawn dated 18 August 2014 to Mr and Mrs Tagg. The essential terms are set out earlier in this judgment. At no stage did Mr Scofield or anyone else from Westlawn speak to Mrs Tagg or write to her separately. However, Mrs Tagg signed an acknowledgement attached to Westlawn's letter of offer acknowledging that she accepted the "the terms of proposed funding as outlined in the above". Her signature appears above the typed words "Guarantor Sally-Anne Mary Tagg". Mr Tagg signed the acknowledgement on behalf of Circles of Gold and himself.
Although the letter of offer and acknowledgement were dated 18 August 2014, Mr Scofield did not submit a formal application to the Westlawn board for approval of the loan until 19 August 2014. That application observed: This opportunity provides Westlawn with the capability to obtain freehold security which will be also utilised to cross collaterise and secure existing lending that holds limited security by way of bloodstock which has declined in value considerably. The funding as proposed is on the basis that the security property is placed on the market by 1 October 2014 with any failure to secure a sale by 28 Feb 2015, an auction to occur by 1 May 2015. Proceeds from the sale of security property to repay the debt advanced under this proposal plus to retire any or all of the existing cross collaterised loan.
The application also contained the following comment: Its [sic] clear that borrowers [sic] cash flow is insufficient to repay debt. Only form of ability to repay debt is by selling landed assets which is the intention.
The members of the board noted their approval in handwriting on the application. Some commented that the loan would need to be monitored closely to ensure compliance with its terms.
On 3 September 2014, Mr Tagg sent to Mr Scofield an email saying "We have utlilised the following Lawyer in Double Bay previously and would appreciate you forwarding relative [scil relevant] documents to him for Sally's execution." The email goes on to give Mr Shacklady's details. He had witnessed Mr and Mrs Tagg's signature on a number of NAB documents previously.
On 15 September 2014, Esplins, who were acting for Westlawn, sent Mr Shacklady copies of the Second Facility agreement and a security deed between Westlawn and Arch of Gold together with a number of documents to be executed by Mr and Mrs Tagg. The letter also stated: Pursuant to rule 58 of the Solicitors' Rules we enclose a certificate of independent legal advice for the purposes of special condition 5 of the Line of Credit. Can you please arrange for the execution of documents 3 to 6 above where indicated by "Sign here" tabs and return same to us as soon as possible so that we can arrange settlement of this matter.
Mr Shacklady arranged to meet Mr and Mrs Tagg at the coffee shop at the Cosmopolitan Hotel at Double Bay on 17 September 2014. According to Mr Shacklady, the meeting lasted for approximately one hour and 20 or 30 minutes. Mr Shacklady says that he explained to Mrs Tagg that she had a mortgage with NAB at the moment and that she was effectively swapping one loan for another. He also said that he explained to her that she could lose her home. He said that Mrs Tagg listened to what he said and on occasions acknowledged what he said by nodding. It appears that Mr Shacklady did not explain that Mrs Tagg was agreeing to guarantee the First Facility.
Mr and Mrs Tagg give a somewhat different account of the meeting. Both say that it lasted between 15 minutes to half an hour. Mrs Tagg says that Mr Shacklady simply asked her to sign a number of documents. She has no recollection of doing so, but accepts that her signature appears on the documents. She says that if her husband asked her to sign something, she would.
After the documents were signed, Mr Shacklady returned them to Esplins.
Clause 2.2 of the mortgage provides: Repayment of Secured Moneys The Mortgagor shall repay the Secured Moneys to the Mortgagee at the times and in the manner set out in the Loan Facility Agreements. "Secured Moneys" is defined to include any money advanced under the Second Facility.
Clause 6 of the mortgage sets out a number of general obligations placed on the mortgagor. Clause 6.5 includes an obligation not to sell or deal with the mortgaged property. Clause 6.6 includes an obligation not to take "any steps which would curtail postpone defeat extinguish or suspend the Mortgagee's rights in relation to the Mortgaged Property without the Mortgagee's prior written consent". Clause 6.8 includes an obligation not to deal with fittings and fixtures. Clause 6.9 imposes an obligation not to alter the Mortgaged Property. Clause 6.12 provides: Not to Assign or Encumber Rents or Profits The Mortgagor shall not assign or encumber or cause or permit any other person to have any right to receive: (a) any present or future rents profits or money or money's worth; or (b) the Mortgagor's present or future legal or beneficial right title or interest in any rents profits money or money's worth, whether of a capital or an income nature payable from time to time in respect of any lease or licence to use or occupy the Mortgaged Property or any business conducted on the Mortgaged Property or otherwise derived at any time from or in connection with the Mortgaged Property.
A number of clauses deal with money payable in respect of the Mortgaged Property. So, for example, cl 5.2 provides that the proceeds of any insurance policy of the Mortgaged Property are to be applied first towards payment of the secured moneys or at the mortgagee's option towards reinstatement or replacement of the Mortgaged Property. Clause 10.1(f) contains a warranty that "the Mortgagor has an absolute indefeasible free and unencumbered title to all present and future rents profits money or moneys [sic] worth whether of a capital or an income nature payable from time to time in respect of all leases or licences to use or occupy the Mortgaged Property or otherwise derived at any time from or in connection with the Mortgaged Property". However, there is no specific provision in the mortgage dealing with the payment of any deposit.
Clause 11.1 of the mortgage sets out what constitutes an Event of Default under the mortgage. Clause 11.1(a) provides that it is an Event of Default for the mortgagor to fail to pay any of the Secured Moneys in accordance with the mortgage. Clause 11.1(e) provides that it is an Event of Default if "the Mortgagor does fails to do or permits the doing of any act with the result that in the Mortgagee's opinion the value of the security conferred on it by this Mortgage or any Collateral Security is materially and adversely affected".
Under cl 12.1, in the case of an Event of Default, the mortgagee had an option to make all of the Secured Moneys payable on demand. The mortgage conferred a number of other powers on Westlawn following an Event of Default including a power under cl 12.2(a) to take possession of the property and "receive any rents and profits" and a power under cl 12.2(b) to "manage the Mortgaged Property".
Clause 18.4 of the mortgage provides: Primary Obligations The Mortgagor's obligation to pay the Secured Moneys is a primary obligation and the Mortgagee is not obliged to proceed against or enforce any other right against any person or property or demand payment from any other person before making a demand for payment by the Mortgagor of the Secured Moneys.
The mortgage also contains in cl 21 a guarantee and indemnity given by Mr and Mrs Tagg for due and punctual payment by Mrs Tagg of all the Secured Moneys. It provides in cl 21.3 that the guarantee and indemnity "shall not be abrogated altered prejudiced or affected in any way" by, among other things, the mortgagee releasing the Mortgagor or Co-Surety.
The Second Facility agreement was signed by Arch of Gold as borrower and Mr and Mrs Tagg as guarantors. It provided for a variable interest rate that was anticipated to be 9 per cent on commencement of the facility together with a default interest rate of 2 per cent above the applicable interest rate under the agreement. It contained a number of special conditions corresponding to the conditions on which the loan was made, including a condition that the Rose Bay property would be placed on the market for sale by 1 October 2014 and that the estimated sale price was to be approved by Westlawn after consultation with the agent. If the property was not sold by 28 February 2015, it was to be scheduled to be sold by auction by 1 May 2015 with the reserve to be determined solely by Westlawn.
Special condition 2 of the Second Facility agreement provides: Principal and capitalised interest must be repaid in full from the sale of the real property the subject of the Security ("the Secured Property"). Any shortfall in the repayment of the Secured Monies … from the sale of the Secured Property is to be repaid on demand on such terms as directed by Westlawn in its sole discretion from existing business cash flows or sale of same.
The facility also included a number of general terms and conditions.
Clause 1.(4) of the general terms provides: If there is any conflict or inconsistency between the terms, conditions and provisions of this Agreement and any security then the terms, conditions and provision [scil provisions] of this Agreement will prevail.
Clause 12.(1) provides: No requirement for notice or for enforcement of security It is not incumbent on Westlawn: (a) To give any notice of its rights under this Agreement or the security to any Guarantor, debtor or member of the Borrower or Guarantor or to any other person; or (b) To enforce the security or to take any steps or proceedings to enforce the security, unless Westlawn thinks fit. Westlawn is not liable for any omission to give any notice or for any delay in enforcing the security. Apart from that clause, there is no specific provision in the Second Facility agreement setting out the circumstances in which Westlawn is entitled to call on the guarantees given by Mr and Mrs Tagg or the consequences of a release of one of the guarantors.
The Rose Bay property was put on the market in accordance with the requirements of the Second Facility agreement. However, there was a poor response to the inspections and the sale of the property was put on hold during the January 2015 holidays.
In the meantime, Mr Tagg and Mr Goldfinger continued negotiations with NAB, CBA and Westlawn concerning the remaining indebtedness to NAB.
On 19 January 2015, Mr Tagg wrote to Mr Scofield stating that CBA was willing to refinance the remaining NAB debt on the following conditions: #Westlawn agrees to capitalise all interest until sale of Rose Bay home. #Westlawn agrees that if there is a shortfall in the sale price of Rose Bay and the outstanding debt then that amount be written off.
Initially, Westlawn rejected those conditions. However, on 3 February 2015, Mr Scofield wrote to Mr Tagg saying that Westlawn had reconsidered its position and was prepared to agree to the following conditions: 1. Should the CBA funding be obtained, at the time of settlement with NAB that full discharge is obtained including the personal guarantees of Frank & Sally Tagg as well as the release of company charge security held on the PPSR over the company Arch of Gold Pty Ltd and the Arch of Gold Trust. 2. In the event that a shortfall results from the sale of residential security on Westlawn liabilities, that Frank Tagg provides and signs an undertaking that he will assist in the arranging in the sale of bloodstock owned by Arch of Gold including Ireland based mare, Hveger supported by an irrevocable order that any sale proceeds relating to the ownership shareholding is to be paid direct to Westlawn Finance. Insurance confirmation that mare, Hveger, is insured is required. 3. The limited recourse restriction required by CBA is restricted to the right to action against Frank Tagg and Circles of Gold Pty Ltd/Circles of Gold Trust. No limited recourse to be provided against residential security, personal guarantee of Sally Tagg and registered PPSR charge held against Arch of Gold. 4. Sale of residential property to occur by auction if not sold beforehand, by the date of 1 May 2015 with the setting of sale price reserve to be instructed by Westlawn (this condition is already accepted in terms of conditions in loan contract agreement signed 17/9/14). 5. Written acknowledgement and acceptance to be obtained from Sally Tagg in respect to the limiting of recourse against Frank Tagg as pointed out in point 3.
Mr Tagg responded the following day stating that he confirmed that he and Mrs Tagg agreed to the conditions outlined in the email.
Raine & Horne, who were the agents originally retained to sell the Rose Bay property, recommended that the auction occur in May 2015. Westlawn agreed to that proposal. However, as I have already mentioned, the property suffered storm damage on 25 April 2015 and there were further delays in arranging for its sale as a result of that damage.
On 8 May 2015, Mr Scofield sent Mr Tagg an email which relevantly said: … The documents are set to go. The Deed of Variation incorporations [sic] the signature of Sally who needs to acknowledge and basically consent to the release of you and Circles of Gold from obligations of our loan. Given that this involves a mortgage over residential property, this document will again need to go to a solicitor for Sally's independent advice. Are happy to email this document direct to solicitor if you would be able to provide the details. As for your undertakings, they are enclosed for your execution and return of originals. In a later email, Mr Scofield expressed a preference that the independent advice be given by Mr Shacklady given his previous experience. Mr Tagg replied on the same day stating "[W]as planning to use [Mr Shacklady] anyway, just wanting to confirm he was in Sydney".
Mr Shacklady met with Mr and Mrs Tagg again at the coffee shop in the Cosmopolitan Hotel in Double Bay on 20 May 2015. During that meeting, Mr Shacklady witnessed Mr and Mrs Tagg's signatures on the Deed of Release. The Deed contained a number of recitals recording the circumstances in which the release was given, including the fact that Mrs Tagg had provided a mortgage to Westlawn over the Rose Bay property, the fact that CBA had requested that Westlawn release Mr Tagg and Circles of Gold from the guarantees they had given as a condition of refinancing the NAB loans and the fact that "Westlawn has agreed to that request and to release Frank Tagg and Circles of Gold from their guarantees on the terms and conditions of this Deed …". Mrs Tagg's initials appear next to each of those recitals.
Mrs Tagg also signed the Second Declaration which relevantly stated: 1. I am the Third Party Mortgagor and a Guarantor named in certain loan and security documents between Westlawn Finance Limited, Arch of Gold Pty Limited, Circles of Gold Pty Limited, Frank Tagg and myself including in relation to property at [Rose Bay property]. 2. The parties referred to in paragraph 1 have agreed to release Frank Tagg and Circles of Gold from their respective guarantees of those loan and security documents referred to in that paragraph by signing a Deed of Release. 3. I have received independent legal advice regarding the Deed of Release referred to in paragraph 2. 4. After receiving that advice I have freely and voluntarily signed the Deed of Release between Westlawn Finance Limited, Arch of Gold Pty Limited, Circles of Gold, Frank Tagg and myself. Mr Shacklady witnessed Mrs Tagg's signature on that document.
As I have said, it was initially proposed that the 5 per cent deposit for the sale of the Rose Bay property would not be released by the agent. Mr Tagg informed Mr Scofield of that fact in an email dated 26 May 2015. The same information was repeated in an email sent later that day to Mr and Mrs Tagg by Mr Mark Meyer, a real estate agent with LJ Levi Real Estate who had introduced the purchaser, which Mr Tagg copied to Mr Scofield. The email from Mr Meyer relevantly said: We will be advising your solicitor of the agreed price and terms. Sale Price: $9,500,000 Deposit: 5% deposit to be invested Settlement Terms: 6 months from date of exchange
On 19 June 2015, Phelps Reid Lawyers, the solicitors acting for Mrs Tagg, sent Mr Meyer a "full copy of the contract for sale upon which exchange may be effected" and noted a "5% deposit clause has been added to the contract, with such deposit to be released to the vendor immediately upon exchange".
On 26 June 2015, Phelps Reid Lawyers sent Mr Bernard Chiu, the solicitor acting for the purchasers, an email which relevantly said: We note your advice of this morning that the deposit is not to be released and shall seek our client's instruction in relation to this …
On 1 July 2015, Mr Scofield sent an enquiry to Mr Mussa Hijazi of Phelps Reid Lawyers enquiring about any developments with respect to the exchange of contracts.
On 2 July 2015, Mrs Tagg entered into an agency agreement with LJ Levi Real Estate.
On 7 July 2015, Mr Tagg sent an email to Mr Scofield. That email said: Received your sms, with concerns about the Chinese not proceeding and the position with your Auditors concerning loan account now out of order, cannot do Monday or Tuesday next week as I am attending a training course but can meet you at McDonalds [sic] Kirrawee at say 10am on Wednesday if that suits, of course if exchange takes place then we can further discuss the meeting. Spoke with Builders today and they expect to have all storm repairs completed by Friday 23rd July, the fencing company are replacing all fencing starting Tuesday 21st July and will take about a week, so the house should be presentable to market from Friday 30th July. Spoke with Agents and will put in place the following, subject to non exchange of contract; #4 week marketing program commencing Saturday 1st August #Auction Date Tuesday 1st September #Agent will confirm via email exact dates depending on Auction House availability.
On 9 July 2015, Mr Meyer sent an email to Mr and Mrs Tagg and Mr Hijazi stating that settlement was expected to occur the following day and suggesting that he meet with Mr and Mrs Tagg "to sign the new contract rather than exchange on an amended copy".
Contracts were exchanged on 14 July 2015. As I have said, the contract included a special condition (cl 37) which was amended by hand to provide that the 5 per cent deposit payable upon exchange was "to be released to the vendor forthwith". Mr Tagg told Mr Scofield that day or the next day that contracts had been exchanged.
There is a dispute about whether Mr Tagg told Mr Scofield at that time that the deposit would be released. Mr Tagg said that he did. Mr Scofield denies that he did. I accept Mr Scofield's evidence on this point. Mr Tagg did not regard the release of the deposit as important because he thought that there would be sufficient moneys to repay Westlawn even without the deposit. Consequently, there is no reason for him to have said anything about the deposit.
On 16 July 2015, Mr Hijazi sent a copy of the exchanged contract to Mr Scofield in response to a request from Mr Scofield the previous day.
It was apparent from the contract that the deposit would be released. Mr Scofield rang Mr Tagg about that on the morning of 21 July 2015. He told Mr Tagg that he had run the numbers and realised that there was likely to be a shortfall without the deposit and that he was "under a huge amount of heat from the directors". Mr Tagg replied that he had thought there would easily be enough money to repay the loan without the deposit and that Mr Scofield had never given him any statements of the amount owing.
Following that conversation, Mr Scofield sent Mr Tagg an email in which he said: As per our telephone conversation of today's date, please find the attached spreadsheet providing an estimated calculation of the payout of liability (two loans) that is secured by the property sold. It is estimated that the total liability will be $9.317m, including capitalised interest until scheduled settlement date. Your advises [sic] today have confirmed that the 5% deposit paid by the purchaser has in fact been released (without our consent) as per special conditions in contract and these funds have already been utilised in retiring a personal debt. The release of the deposit is in conflict with your previous advices, detailed in email 26 May 2015, which stated that the deposit will not be released. We understand that the agents commission on the sale is $142,500, therefore the following is estimated to be received at settlement: Purchase Price $9,500,000 less agent fee $142,500 less deposit paid and released $475,000 = Balance available $8,882,500 Based on the above, there is a liability payout shortfall of $434,500 as a result of the released deposit not being paid to Westlawn. Had we been correctly advised about the deposit being able to be released, we would have insisted that this be paid to us being part of the sale of our security. The email went on to give notice that "the release of our security to meet settlement obligations will require full repayment of our liability at the time of settlement".
Mr Tagg responded shortly after receiving that email stating: Debt was not mine but Sally's to her mother and father who assisted over the years in family shortfall in trying to meet NAB demands against her home, sincerely apologise as I was not aware their [sic] would be a shortfall let alone to the significance you mention.
The deposit was paid into Mrs Tagg's account on 22 July 2015. As I have said, the following day she paid $363,830 of that amount to her father. She transferred the balance into another account controlled by her. It is not clear what happened to that money.
On 24 August 2015, Westlawn wrote to Mr and Mrs Tagg stating that in its view, the actions in relation to the deposit constituted a breach of the mortgage. The letter continued: As a result of the default, Westlawn intends to take the steps outlined above unless the following is undertaken by 15 September 2015: 1. The deposit funds of $434,000 are repaid in full to your agent's trust account; and 2. The mortgagor signs an irrevocable power of attorney in favour of the directors of Westlawn regarding the property and its sale and an irrevocable authority to the selling agent and solicitor instructing them to take directions solely from Westlawn regarding the sale of the property including all dealings with the Purchaser (and its solicitors) under the sale contract. The "steps outlined above" was a reference to a threat to exercise its rights under cl 12.2 of the mortgage, including its right to take possession of the property.
Mr Tagg responded to that letter on 14 September 2015 stating in part: The deposit of $475000 was agreed to be released only on day of exchange by the purchaser, something that I certainly didn't pursue, but a point that the agent had continually raised with the purchaser because of the delayed settlement, and I can honestly state that I had no idea that the net proceeds at settlement of approx $9m wouldn't have been enough to satisfy your debt, until I requested a copy of your account statements, which revealed that the debt was accruing at the rate it was.
Following further correspondence, Westlawn gave Mr Tagg some time in which to attempt to raise the shortfall from the sale of thoroughbred horses. However, on 2 December 2015, it took possession of the Rose Bay property pending completion. On about 22 December 2015, it also appointed a receiver to Arch of Gold.
As I have already explained, the sale fell through and Westlawn ultimately sold the property for $7,069,240.19.
Following completion of the sale, Arch of Gold sold a number of thoroughbred horses which realised a total amount of $627,282.56.

The claims against Mrs Tagg

The claim against Mrs Tagg turns on whether either of her defences succeeds.

The defence based on the release

The general principle is that the release of one guarantor operates as a release of all guarantors of the same debt. As Starke J explained in Walker v Bowry (1924) 35 CLR 48 at 58; [1924] HCA 28 (cited with approval in Mahoney v McManus (1981) 180 CLR 370 at 380; [1981] HCA 54 per Gibbs CJ (with whom Murphy, Aickin and Wilson JJ agreed): In the case of sureties, the principle is that the joint suretyship is the "essential condition of the liability" of each, or, as the Judicial Committee phrase it, "part of the consideration of the contract of each". Does it make any difference that the creditor has pursued one surety to judgment on a joint and several guarantee, and then released him from the judgment debt? The judgment itself does not affect his right to indemnity from the principal, or to contribution from his co-sureties. The equities arising from the relationship of principal and surety still subsist. But, in releasing the judgment debt, the creditor just as surely discharges the "joint suretyship" and also the arrangement that both should be bound to the creditor as if he released all claims upon the guarantee itself. The creditor has broken the essential condition of liability of the other sureties, and thereby discharged them. [footnotes omitted]
However, that principle only applies to guarantees and it does not apply where it is precluded by the terms of the guarantee: Horsburgh v Emerald Rock Pty Ltd [2016] QCA 47 per Fraser JA (with whom Philippides and Bond JJ agreed). Moreover, the principle does not apply where a guarantor consents to the release of a co-guarantor: see Cole v Lynn [1942] 1 KB 142 at 146 per Clauson LJ, referring to the decision of Parke B in Kearsley v Cole (1846) 16 M & W 128. Those cases were concerned with the release of the principal debtor, not a co-guarantor. However, if the principle applies in the former case, there is no reason why it should not apply in the latter.
In the present case, it is plain from cl 18.4 of the mortgage that Mrs Tagg's obligation to pay the moneys secured by the mortgage was a primary obligation. It was not simply an obligation to pay in the event that Arch of Gold failed to pay. The clause provides a complete answer to Mrs Tagg's defence. Moreover, as I have said, Mrs Tagg signed the Deed of Release. By doing so, she consented to its terms. The effect of the deed was to release her husband but not her. By signing the deed she must be taken to have agreed to it operating according to its terms, which was to release her husband, but not to release her obligations under the mortgage. Otherwise, her signature on the deed was meaningless.

The defence based on the CRA

Section 7 of the CRA relevantly provides: (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) … ...
Section 4 defines "unjust" as including "unconscionable, harsh or oppressive", and provides that "injustice" is to be construed in a corresponding manner.
Section 9 sets out various matters the Court is required to have regard to in determining whether a contract is unjust. Section 9(1) states that the Court is to have regard to the public interest and to all the circumstances of the case including the consequences of compliance and non-compliance with the contract. Section 9(2) lists specific matters the Court must take into account to the extent that they are relevant. They include: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) …
It is well established that the CRA is to be interpreted liberally: see West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 631 per McHugh JA (with whom Kirby P and Hope JA agreed on this point); cited with approval in IW v The City of Perth (1997) 191 CLR 1 at 12; [1997] HCA 30; per Brennan CJ and McHugh J. It requires the Court to engage in a "normative evaluation of the totality of relevant circumstances": see Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [7] per Allsop P. In undertaking that task, the focus of the Court is on whether the person seeking relief was in a position to protect his or her own interests in the circumstances. As Allsop P explained in Provident Capital at [7]: Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances. See also Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 at [122] per Gleeson JA (with whom Barrett and Emmett JJA agreed).
In determining whether a contract is unjust, it is necessary to consider both procedural and substantive unjustness. As McHugh JA explained in West (at 620, Hope JA agreeing): Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision. In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract. More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice. [footnotes omitted]
A failure to ensure the provision of independent advice on the risks associated with entry into a guarantee and mortgage will not always make those transactions unjust. The importance of independent advice will depend on the circumstances of the case and, in particular, the level of knowledge of the person seeking relief under the CRA.
So, for example, in West, McHugh JA (with whom Hope JA agreed) rejected Mrs West's claim that a mortgage was unjust because she executed it without independent legal or other advice within the meaning of s 9(2)(h): at 627. His Honour considered that Mrs West had received but disregarded independent advice from her son, an accountant, and from a friend, who was a barrister: at 627. However, even if she had not, his Honour would not necessarily have considered that fact to be decisive (at 627): [T]he legal and practical effect of giving the mortgage was clearly understood by Mrs West: cf s 9(2)(i). Whether or not a person has obtained independent legal or other expert advice is simply one factor to be taken into account. In some cases the absence of such advice may be decisive. In other cases it may be irrelevant. The presence of expert advice is relevant in considering whether a contract is unjust because it makes it likely that a person has an informed appreciation of the effect of the contract. On the important finding of Hodgson J [the trial judge] which I have earlier set out, Mrs West had a full appreciation of the consequences of the contract. This makes it very difficult for her to rely on any alleged failure to have obtained independent expert advice.
A similar approach was adopted by the Court of Appeal in Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309, a case that bears considerable similarities to the present one. In that case, Gleeson JA (with whom Barrett and Emmett JJA agreed) gave the following reasons for finding that a guarantee was not unjust: [142] Whether there may be circumstances in which the creditor has a duty to the intending guarantor to ensure that he or she has received independent advice before giving the guarantee, does not require decision in the present case. Here Mrs Canty willingly signed the Deed of Guarantee at the request of her husband. She was prepared to do so without reading the document or requiring any further information beyond the brief description given to her by him. She did so in circumstances where it was her practice over many years to sign documents at her husband's request relating to the Quality Print companies. She received a material benefit in giving the guarantee in view of her interest in the business of TQG through the Denise Canty Family Trust, a trust of which she was the nominator and one of the two named beneficiaries. She was quite content to proceed without legal advice and to sign without reading such documents. There was no evidence that she suffered from any relevant disability such as lack of education or intelligence, gullibility, or exploitation by her husband. [143] Mrs Canty trusted her husband's business judgment and it was no part of her case that her husband withheld matters from her or misrepresented the transaction to her. She saw her financial interests aligned with those of her husband and the Quality Print companies in which she had a material interest. Her perception of where her interests lay was not shown to be incorrect. [144] Nor was it part of Mrs Canty's case that she did not understand the nature of a guarantee. Mr Canty's unchallenged evidence establishes that Mrs Canty was told by him, correctly, that she was signing a guarantee in favour of one of the suppliers of the Quality Print companies. Mrs Canty did not require independent legal advice to explain to her the nature and practical effect of the transaction: cf s 9(2)(i) of the Act.
In considering the public interest, it is important to bear in mind that there is a strong public interest in holding parties to bargains freely entered into: Provident Capital Ltd v Papa (No 1) [2011] NSWSC 460 at [187] per Fullerton J; Provident Capital Ltd v Naumovski [2013] NSWSC 40 at [297]-[299] per Garling J.
In my opinion, the guarantee and mortgage signed by Mrs Tagg were not unjust. They were on normal commercial terms. Mrs Tagg was not suffering from any disability at the time she signed them. She understood what a mortgage and guarantee were. There is no suggestion in this case that her husband put any pressure on her to sign the documents. Like Mrs Canty, she trusted her husband to manage the family's financial affairs. If her evidence is to be believed, she has no recollection of signing the documents and she paid no attention to what she was being asked to sign by her husband. However, if that is what she did, it was as a result of a choice that she made.
Mr Rogers submitted that the guarantee and mortgage were unjust for two principal reasons. First, Mrs Tagg did not receive independent advice in relation to them. There is some suggestion that Mr Shacklady did not give Mrs Tagg advice, but simply witnessed her and Mr Tagg's signatures on the documents. It is also suggested that Mr Shacklady's advice was not independent because it was given to Mrs Tagg in the presence of her husband. Second, Mr Rogers submitted that, as a result of signing the documents, Mrs Tagg became liable for the amount payable under the First Facility. That was not explained to her and was not a liability for which she received any benefit.
I do not accept those submissions. I accept Mr Shacklady's evidence that he gave Mrs Tagg at least some advice. In particular, I accept that he explained to her that she was signing a mortgage and a guarantee of a loan which replaced a loan and mortgage under which she was already liable. Mr Shacklady clearly understood that he was being asked to give Mrs Tagg advice and there is no reason to doubt his evidence that that is what he did. Mr and Mrs Tagg's recollections of the meeting are so poor that they were not in a position to contradict Mr Shacklady's evidence on this point; and there is nothing else that does so.
Although the advice given by Mr Shacklady was not strictly independent because it was given in the presence of Mr Tagg, there is no suggestion that Mrs Tagg was the subject of any pressure from her husband. Nor was there any requirement that Mrs Tagg receive independent advice. Whether she received it or not is just one of a number of factors to be taken into account.
The likelihood is that Mrs Tagg understood that she was signing a mortgage and guarantee. A number of documents made that clear to her, including the First Facility agreement and the First Declaration. That is also what Mr Shacklady told her. If she did not understand that that was what was happening, it was because she chose to read nothing that she was given and to listen to nothing that she was told. Had she listened to what was said to her, she would have understood that she was being asked to sign a guarantee and a mortgage and she would have understood that the mortgage was to replace a mortgage that NAB already had over the Rose Bay property which was for an amount that was greater than the value of the property.
It is true that it appears that Mr Shacklady did not explain that she personally was taking on an additional liability because she would be liable under the mortgage for Arch of Gold's liability under the First Facility. However, that is not significant in the context of this case. On the evidence given by Mrs Tagg, it would have made no difference to her decision to sign the documents. She would have signed anything her husband asked her to sign.
It is not correct to say that Mrs Tagg got nothing for taking on the additional liability of the First Facility. It was plain that NAB was about to obtain judgment against her for approximately $14.5 million. Absent some settlement with NAB, Mrs Tagg faced bankruptcy in the near future. It seems equally plain that, absent a settlement with NAB, Mr Tagg would have lost his McDonald's franchise, which was the principal source of income for his family and was the source of a modest income for Mrs Tagg. The only apparent source of funds which could be used to reach a settlement with NAB was Westlawn. By entering into the guarantee and mortgage, Mrs Tagg obtained the possibility of reaching an accommodation with NAB in relation to the total amount she owed to it (which came to fruition) and the possibility of protecting the business that generated income for the family. Consequently, by executing the mortgage and guarantee, Mrs Tagg obtained substantial benefits that were unlikely to be available from any other source.
It follows that the claim for relief under the CRA must be dismissed.

Other issues

Westlawn advances two additional cases against Mrs Tagg in the event that she succeeded in her cross-claim. One is that she engaged in misleading and deceptive conduct in contravention of s 18 of the ACL by signing the First Declaration. The other is that she engaged in misleading and deceptive conduct in contravention of s 18 of the ACL by signing the Second Declaration.
Having regard to the conclusions that I have reached, it is not necessary to consider these alternative claims. Nor is it possible to do so in any meaningful way because, without knowing precisely why (contrary to the conclusions I have reached) Mrs Tagg is entitled to succeed in her cross-claim, it is not possible to know what significance, if any, should be attached to any error in the declarations. Some comments, however, can be made about the two claims.
As to both claims, there is a question whether Mrs Tagg's conduct was in trade or commence, as required by s 18 of the ACL. In my opinion, it was. According to submissions made by Mr Tagg (who is said to have accessorial liability for Mrs Tagg's conduct), the representations made by Mrs Tagg in the First Declaration were made in connection with the granting of a personal guarantee of the obligations of Arch of Gold. Mrs Tagg was not involved in the activities of Arch of Gold and she had no trading or commercial relationship with Westlawn. For those reasons, the representations were not made in trade or commerce.
I do not accept those submissions. The giving of the guarantee and mortgage itself involved a trading or commercial relationship between Mrs Tagg and Westlawn. Mrs Tagg gave the guarantee and mortgage in exchange for Westlawn agreeing to advance money to Arch of Gold, which was plainly a commercial transaction. Mrs Tagg had a commercial interest in that loan because it would be used to discharge part of a debt to NAB for which she was liable. That, in my opinion, is sufficient to make the representations she made in connection with the guarantee and mortgage she gave "in trade or commerce". For similar reasons, the Second Declaration was also made in trade or commerce.
As to the claim based on the First Declaration, it is far from clear that Westlawn suffered any loss as a consequence of that declaration, whatever role the matters the subject of the declaration played in the conclusion (which on the current hypothesis is the one that is assumed to be correct) that Mrs Tagg is entitled to relief under the CRA. If Mrs Tagg had not signed the First Declaration, then presumably Westlawn would not have granted the Second Facility. The result would have been that NAB would not have provided the releases it did and Westlawn would have had no effective security in respect of the First Facility and no means of recovering the amount that it was owed under that facility. Consequently, it is likely to have been worse off.
As to the allegation that Mrs Tagg engaged in misleading and deceptive conduct in connection with the Second Declaration, it is difficult to make sense of that allegation. That claim is only said to arise if the Court finds that Mrs Tagg did not receive independent legal advice in relation to the Deed of Release. However, no such contention was put and no such finding has been made. Consequently, the claim does not arise.

The claim based on misleading or deceptive conduct

The claim that Mr Tagg engaged in misleading and deceptive conduct rests on the emails he sent to Mr Scofield advising that it was a term of the proposed sales contract that the deposit would not be released and on his failure to advise Mr Scofield that the final contract contained a clause to the opposite effect.
There is no direct evidence that Mr Tagg was aware of the terms of the final contract or that Mrs Tagg intended to use the deposit to repay her parents. However, in my view, it is likely that he was aware of both those matters. Mr Tagg gave evidence in cross-examination that he did not give instructions for the contract to include a term that the deposit be released to Mrs Tagg immediately. His evidence is to the effect that the instructions came from Mr Meyer.
I do not accept that evidence. Mr Tagg gave instructions generally in relation to the sale of the property. Although it was initially proposed that the deposit would not be released, it appears from Phelps Reid Lawyers' email dated 19 June 2015 to Mr Meyer that the draft contract provided that the deposit would be released. It also appears that the purchasers objected to that term. On 26 June 2015, Phelps Reid Lawyers wrote to the solicitor for the purchasers recording that fact and stating that they would seek instructions on the matter. The likelihood is that they sought those instructions from Mr Tagg, that Mr Tagg insisted that the deposit be released and that the purchasers ultimately agreed. The contract was then amended in hand on the day of exchange to reflect that agreement. If Mr Tagg's evidence is to be believed, Mr Meyer gave the instructions to include a term in the contract to the effect that the deposit would be released immediately and Phelps Reid Lawyers accepted those instructions and notified Mr Tagg of them shortly before exchange. That is implausible. It is difficult to reconcile with Mrs Tagg's evidence that her husband told her that the deposit would be released. There was no reason for Mr Meyer to give those instructions unless he was asked to do so by Mr Tagg. Neither Mr Meyer nor anyone from Phelps Reid Lawyers was called to corroborate Mr Tagg's evidence. In the absence of corroboration, I do not accept it.
It is also likely that Mr Tagg knew that it was Mrs Tagg's intention to use the deposit to repay the debt owed to her parents. Mrs Tagg gave evidence that Mr Tagg told her that the deposit would be paid into her account and that it was her decision to use part of it to repay her parents. But it is implausible that she would not have discussed her plans with her husband. Repayment of her parents was obviously a matter that was important to her. Mr Tagg had repaid a small proportion of the amount that he and his wife had borrowed. It would have been important for him to know that the debt had been repaid. Indeed, the likelihood is that Mr and Mrs Tagg discussed the possibility of repaying Mrs Tagg's parents from the deposit and it was for that reason that Phelps Reid Lawyers were instructed to ask for the deposit to be released. At the time, Mr Tagg believed that the proceeds of sale of the property without the deposit would be sufficient to repay Westlawn in full. Consequently, there was no reason for him to resist the proposal that the deposit be used to repay the debt, so that the absence of resistance is not itself evidence of a lack of knowledge. It is difficult to understand why the contract for sale was amended if it was not to permit Mrs Tagg to use the deposit to repay her parents.
The question remains whether it was misleading or deceptive for Mr Tagg not to have told Mr Scofield of the change to the contract before exchange. The prohibition in s 18 is on engaging in "conduct" that is misleading or deceptive. Section 4(2)(a) of the Competition and Consumer Act 2010 (Cth) provides that "a reference to engaging in conduct shall be read as a reference to doing or refusing to do any act …" and s 4(2)(c) provides that "a reference to refusing to do an act includes a reference to … refraining (otherwise than inadvertently) from doing that act …".
It is common ground that silence may be misleading or deceptive for the purposes of s 18 of the ACL if, to quote from Hill J in Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114, "the circumstances are such that a person is entitled to believe that a relevant matter affecting him or her adversely would, if it existed, be communicated". Here, it is said that Westlawn was entitled to believe that Mr Tagg would have told it of the position in relation to the deposit because it was expecting to be repaid from the proceeds of the sale of the property and Mr Tagg had previously told Westlawn that the deposit would not be released.
Relevant to the question whether Westlawn was entitled to believe that Mr Tagg would tell it if the deposit was to be released is the question whether it was a breach of the mortgage or the Second Facility agreement for Mrs Tagg not to have paid the deposit to Westlawn. If there was no obligation to pay the deposit to Westlawn, it is difficult to see how Westlawn could have expected to be told anything about it.
There does not appear to be any provision in the mortgage itself giving Westlawn an entitlement to the deposit. The mortgage contains terms dealing with the payment of money recovered in respect of the mortgaged property - such as the payment of insurance moneys. However, it does not contain a similar term in relation to the payment of the deposit. Westlawn relies on cl 6.6 of the mortgage. But it is difficult to see how the payment of the deposit to the mortgagor can be said to curtail the mortgagee's rights in relation to the mortgaged property. Westlawn's rights over the property remained intact. It was still entitled to insist on payment of the full amount owing to it before it gave a discharge of the mortgage. Westlawn also relies on cl 6.12. But that clause is concerned with an assignment of rights in relation to the mortgaged property to a third party.
Westlawn also relies on special condition 2 in the Second Facility agreement. I accept that the failure by Mrs Tagg to pay the deposit to Westlawn was a breach of that clause. Mrs Tagg signed the Second Facility agreement as guarantor and was bound by it. Special condition 2 states that principal and capitalised interest must be repaid in full from the sale of the Rose Bay property. To the extent that that could not be done because Mrs Tagg kept part of the proceeds of the sale of the property or used them to repay her parents, she was in breach of that clause. It follows that Westlawn had an interest in what was to happen to the deposit.
Westlawn's principal concern must have been not whether the deposit would be released but what would happen to it if it was. However, I accept that it also had an interest in knowing whether the deposit would be released to Mrs Tagg. If it was not to be released to Mrs Tagg, then, in the normal course of events, Westlawn could have expected the deposit to be paid to it at the time of settlement, and there was nothing more it needed to do in relation to it. On the other hand, if the deposit was to be released to Mrs Tagg, it is to be expected that Westlawn would at least want to consider whether there were some steps it could or should take to ensure that Mrs Tagg paid the deposit to it.
It was plain that Mr Tagg was managing the sale of the property on behalf of his wife and was the person responsible for communicating with Westlawn in relation to the sale. Consequently, if anyone was to inform Westlawn of what was happening in relation to the deposit, it was reasonable to expect that it would be Mr Tagg. Mr Tagg had previously informed Westlawn that it was a proposed term of the contract that the deposit would not be released. Having done so, Westlawn might reasonably have expected Mr Tagg to inform it if the position changed. Mr Tagg's failure to do so could not be described as mere inadvertence. What was misleading was the combination of the emails informing Mr Scofield of the proposed terms of the sale and the failure to advise him that those terms had changed. It follows that Mr Tagg engaged in misleading and deceptive conduct.
In my opinion, Mr Tagg's conduct occurred in trade or commerce. Mr Tagg had a business relationship with Westlawn. His conduct occurred as part of that relationship.
There is, however, a difficulty with Westlawn's claim against Mr Tagg for misleading and deceptive conduct. Westlawn's case is that if Mr Tagg had not engaged in misleading and deceptive conduct, it would have taken steps to ensure that the deposit was not released to Mrs Tagg. However, what those steps were was never clearly explained.
In its submissions, Westlawn does not identify when it says it should have been informed that the deposit was to be released. Realistically, however, it could not have been before the contract was amended to provide for the immediate release of the deposit, which appears to have been on the day of exchange. Had Westlawn been informed of the change at that time, it is not apparent what it would have done. Westlawn was informed of the position on 16 July 2015, some two days after exchange, when it was provided with a copy of the signed contract. It did nothing until 21 July 2015, when Mr Scofield spoke and wrote to Mr Tagg. However, apart from expressing its extreme disappointment, Westlawn did nothing at that stage. Nor did Mr Tagg. At that time, Mr Tagg became aware that there would be a shortfall on the sale of the property unless the deposit was paid to Westlawn. It was open to him then to enquire of his wife whether she still had the deposit and to arrange for it to be paid to Westlawn. However, there is no evidence he did. Westlawn took no other substantive steps to insist on the payment of the deposit until 24 August 2015, when it threatened to take possession of the property. It did not make good on that threat until December 2015, although it took over control of the settlement of the sale on 14 September 2015.
There is no reason to suppose that the position would have been any different had Mr Tagg told Mr Scofield at the time the contract was amended that the deposit would be released. It is likely that Mr Scofield would have told Mr Tagg that the deposit had to be paid to Westlawn. But there is no reason to think that he would have done more at that stage. Nor is there any reason to believe that Mr Tagg could or would have done anything to prevent his wife from using the deposit to repay her parents. He did nothing when he did learn of Westlawn's position. It is apparent that it was important to Mrs Tagg that her parents be repaid. It is difficult to see why Mr Tagg or his wife would have acted any differently had the issue arisen two days earlier.
It might be suggested that had Westlawn known the position earlier, it would have instructed the agent not to pay the deposit to Mrs Tagg. However, there is no evidence that that is what it would have done or that it had a right to give those instructions. Westlawn took over control of the settlement on 14 September 2015. It is not apparent that it would have acted any more quickly had it been told earlier about the deposit. It might be said in Westlawn's favour that by the time it found out about the deposit, the horse had bolted and that there was no point in it taking immediate action. However, at the time that Westlawn became aware that the deposit was to be released, it could not be certain that it had been paid away and could not be recovered. Yet it did nothing.
In any event, it is not clear on what basis Westlawn could have instructed the agent not to pay the deposit to Mrs Tagg, absent exercising its rights under cl 12 of the mortgage. It appears that it relied on cl 14 of the mortgage when it took over the conduct of the sale on 14 September 2015. That clause provides that Westlawn and each of its directors and officers was appointed jointly and severally "to be the attorneys of the Mortgagor with power to do, at the Mortgagor's expense, all such acts and things and execute all such documents as the Mortgagor may be obliged to do or execute under this Mortgage or as may be necessary or expedient to give effect to any right or power conferred on Security [sic], by statute or otherwise including without limitation any contract of sale or transfer of the Mortgaged Property …". It is difficult to understand this clause. There appears to be some words missing. However, in the absence of clear words, I do not think that the clause should be interpreted as appointing Westlawn and its directors as attorneys to do anything Mrs Tagg was entitled to do in respect of the property. Rather, it appears to confer a power of attorney to execute documents to perfect the mortgage and to execute documents and to take other action once the security has been exercised. In order for it to have any relevance in the present context, it would have been necessary for Westlawn first to exercise its rights under cl 12. However, it could not exercise those rights until there had been an Event of Default. Westlawn does not identify any pre-existing Event of Default it would have relied on. The only relevant Event of Default was the failure of Mrs Tagg to pay the deposit to Westlawn. That Event of Default occurred no earlier than 23 July 2015. Consequently, Westlawn would have been in no different position.
It follows that the claim against Mr Tagg based on misleading and deceptive conduct must fail.
I should add that, had I reached the opposite conclusion, I would have concluded that Westlawn was entitled to recover the amount of the deposit from Mr Tagg but not the costs of pursuing the purchasers. If the true position is that Westlawn would have been in a position to stop the deposit from being paid to Mrs Tagg, then I accept that it would have been paid to Westlawn when the sale fell through. However, there is no connection between Mr Tagg's misleading conduct and any decision taken by Westlawn to seek to recover damages from the purchasers. Consequently, I would have concluded that those costs are not recoverable from Mr Tagg.

Inducing breach of contract

A person commits the tort of inducing a breach of contract if, with knowledge of a contract between the plaintiff and a third party, the person caused the plaintiff to suffer loss or damage by persuading or inducing the third party to breach the contract and did so with the intention of procuring the breach: Daebo Shipping Co Ltd v Ship Go Star (2012) 207 FCR 220; (2012) 294 ALR 635 at [88] per Keane CJ, Rares and Besanko JJ; see also Australian Development Corp Pty Ltd v White [2001] NSWCA 9 at [100]-[107] per Handley JA (with whom Sheller and Stein JJA agreed). Relevantly, to be liable, "the defendant must know that the act he is procuring or inducing will be a breach of contract": Australian Development Corp Pty Ltd v White [2001] NSWCA 9 at [106] per Handley JA (with whom Sheller and Stein JJA agreed), citing Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26 at 32-3, 37, 40-2, 44-5 per Lindgren J (with whom Lockhart and Tamberlin JJ agreed).
There is no evidence that Mr Tagg knew that it would be a breach of contract for his wife not to pay the deposit to Westlawn, that he intended his wife to breach the contract or that he persuaded or induced her to do so. Any breach of contract occurred at the time Mrs Tagg used the deposit to repay her father rather than paying it to Westlawn. However, as I have said, there is no evidence that Mr Tagg appreciated that that would involve a breach of contract. Nor is there any evidence that Mr Tagg did anything to persuade Mrs Tagg to use the deposit to repay her parents or induce her to do so. It was plainly something that she wanted to do. She needed no inducement from Mr Tagg. Mr Tagg may have put Mrs Tagg in a position where she was able to use the deposit in the way that she did. However, that alone cannot amount to persuasion or inducement. It simply gave Mrs Tagg an opportunity to do what she wanted to do.

Conspiracy

It is generally accepted that there are two sub-species of the tort of conspiracy: liability for a conspiracy to injure and liability for a conspiracy to injure by unlawful means. A person will be liable for a conspiracy to injure where it is established that they were a party to a combination or agreement which had as its object the wilful infliction of damage upon another person by lawful acts, and the agreement or combination was carried out and caused damage: McKernan v Fraser (1931) 46 CLR 343 at 362 per Dixon J (with whom Rich and McTiernan JJ agreed); Marrinan v Vibart [1963] 1 QB 234 at 238 per Salmon J; see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1 at [67] per Gummow and Hayne JJ (with whom Gaudron J agreed). The desire to harm the person must have been "the sole, the true, or the dominating, or main purpose of their conspiracy": McKernan at 362.
Alternatively, a person will be liable for a conspiracy to injure by unlawful means where it is established that they were a party to a combination or agreement one motive or purpose of which was to cause injury to another person by unlawful means, and the agreement or combination was carried out and caused damage: McWilliam v Penthouse Publications Ltd [2001] NSWCA 237 at [12]-[13] per Mason P (with whom Handley and Hodgson JJA agreed). "Unlawful" in this context includes the commission of a tort: Maritime Union of Australia v Geraldton Port Authority (1999) 93 FCR 34 at 104 per Nicholson J; Fatimi Pty Ltd v Bryant [2002] NSWSC 750 at [192] per Campbell J, affirmed in Fatimi Pty Ltd v Bryant (2004) 59 NSWLR 678. However, there is no suggestion that a mere breach of contract is sufficient.
Neither species of the tort is made out in this case. There is no evidence that Mr and Mrs Tagg intended to injure Westlawn. And there were no unlawful means.

Additional claims against Mr Tagg and Circles of Gold

As I have said, Westlawn brings a number of additional claims against Mr Tagg and Circles of Gold in the event that Mrs Tagg was successful in defending the claim against her. Having regard to the conclusions I have reached, those claims do not arise. However, I should say something about them.
First, Westlawn contends that if Mrs Tagg succeeded in her claim under the CRA, then Mr Tagg was involved in the contravention of s 18 of the ACL by Mrs Tagg when she provided the First Declaration. As a result, it is said that Mr Tagg is liable under s 236 of the ACL for the damages Westlawn is said to have suffered as a result of relying on that declaration. Mr Tagg denies that he has any such liability. However, if he does, he submits that Westlawn was guilty of contributory negligence in failing to have in place processes to ensure that Mrs Tagg understood the transaction and that its damages should be reduced for that reason. Mr Tagg also submits that, if he is liable, the claim against him is an apportionable claim within the meaning of s 87CB of the Competition and Consumer Act 2010 (Cth) and that Circles of Gold is a concurrent wrongdoer, with the result that his liability should be limited under s 87CD to an amount reflecting that proportion of loss claimed that the Court considers just having regard to the extent of his responsibility for the loss.
As I have explained, it is not possible to address these contentions in any meaningful way without knowing the significance of the advice given by Mr Shacklady, and any inadequacy in that advice, to the conclusion that (contrary to the conclusions I have reached) Mrs Tagg was entitled to relief under the CRA. For that reason, there is little point in attempting to address this aspect of Westlawn's case in any detail. However, two points can be made in relation to it.
First, it is difficult to see how it could be said that Mr Tagg was knowingly involved in any contravention by Mrs Tagg. If there was a contravention by Mrs Tagg, it was presumably because she signed a certificate stating that she had received independent legal advice when the advice she received from Mr Shacklady was not independent because it was given in the presence of her husband. In order for Mr Tagg to have accessorial liability, it would be necessary for Westlawn to prove that Mr Tagg did something to cause Mrs Tagg to sign the acknowledgment and that he had actual knowledge that the representation it contained was false: see Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 at [10]. However, there is no evidence concerning Mr Tagg's involvement in those events. He arranged for Mr Shacklady to provide independent advice to Mrs Tagg. He attended the meeting with her. However, there is no evidence concerning the circumstances in which he came to be present through the whole of the meeting and none of Mr Shacklady or Mr and Mrs Tagg gave evidence on the matter. Nor is there any evidence that Mr Tagg had actual knowledge that the declaration signed by Mrs Tagg was false. There is, for example, no evidence that he read the declaration himself or knew the precise representations it contained. Consequently, there is insufficient evidence from which it could be found that Mr Tagg was involved in Mrs Tagg's contravention (assuming there was one).
Second, I have already indicated that it is difficult to see what loss Westlawn suffered as a consequence of Mrs Tagg's conduct. For the same reasons, it is difficult to see that Westlawn suffered any loss as a consequence of Mr Tagg's conduct assuming it otherwise gave rise to accessorial liability.
The second contingent claim brought by Westlawn is a claim to the effect that if Mrs Tagg succeeded in her defence that she was released by the release of her husband, then Mr Tagg and Circles of Gold were knowingly involved in Mrs Tagg's misleading and deceptive conduct in signing the Second Declaration. That claim is no more coherent than the claim against Mrs Tagg.
The third contingent claim is that Mr Tagg and Circles of Gold engaged in unconscionable conduct in contravention of s 21(1) of the ACL and s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). A broad range of conduct is pleaded, although no substantive submissions were made in support of the claim. The claim itself appears to be confused. It is, for example, not clear whether it is alleged that Mrs Tagg was the victim of the unconscionable conduct because, for example, it is said that Mr Tagg, for himself and as the directing mind of Circles of Gold, procured her to sign various documents without independent legal advice or whether it is said that Westlawn was the victim of the unconscionable conduct. In circumstances where no substantive submissions were advanced in support of the claim and where the claim does not arise on the conclusions I have reached, I have not attempted to deal with it.

Conclusion and orders

It follows from what I have said that Westlawn is entitled to judgment against Mrs Tagg for the amount still owing to it and that Mrs Tagg's cross-claim must be dismissed. On the other hand, the claim against Mr Tagg and Circles of Gold must be dismissed.
Westlawn provided the Court with a calculation of the amount owing to it. However, according to submissions made by Mr Docker, who appeared for Mr Tagg and Circles of Gold, that calculation omitted the receipt of $100,000 from the sale of a horse.
In those circumstances it is appropriate to give the parties an opportunity to agree on the amount owing. If agreement can be reached, including agreement in relation to costs, the parties should bring in short minutes of order to give effect to that agreement. If agreement cannot be reached within 14 days, I will hear submissions on any outstanding questions at a time to be fixed with my Associate.
Consequently, the orders of the Court are: 1. Direct that the parties bring in short minutes of order to give effect to these reasons for judgment; 2. Direct that, if the parties cannot reach agreement on the form of the short minutes of order within 14 days of today's date, the matter be relisted at a time to be fixed with my Associate to deal with any outstanding questions including the question of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 October 2018

Australian Consumer Law Australian Securities and Investments Commission Act 2001(Cth)

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