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[2000] NSWSC 775
Supreme Court of NSW
2000-08-11
Hulme J
Original judgment source is linked above.
CITATION : WESTPAC BANKINGS CORPORATION v GATTELLARO [2000] NSWSC 775 revised - 11/10/2000 FILE NUMBER(S) : SC 12474 of 1990 HEARING DATE(S) : 1.11.99; 2.11.99; 5.11.99 JUDGMENT DATE : 11 August 2000
PARTIES : Plaintiff: Westpac Banking Corporation Defendant: Rocco and Yolanda Gattellaro JUDGMENT OF : Hulme J at 1
COUNSEL : Plaintiff: J Stevenson Defendant: G McVay SOLICITORS : Plaintiff: Spencer Whitby & Co Defendant: Henry Davis York DECISION : Orders deferred
IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION
HULME J WESTPAC BANKING CORPORATION v Rocco GATTELLARO & Yolanda GATTELLARO JUDGMENT
1 By Summons filed on 30 May 1990 the Plaintiff, a mortgagee, sought judgment for possession of the land contained in Certificate of Title Volume 7212 Folio 230 known as 12 Withers St Chiswick, an order that the Defendants pay an amount of $197,378.09 which the Plaintiff alleged to be owing, interest thereon and consequential orders. 2 In an Affidavit of 3 August 1990 the First Defendant denied the indebtedness claimed, contending that the Commercial Bank had failed to credit his account in a sum of $32,380.28 paid on 1 December 1978 and, on 30 June 1978 had debited without explanation, and by inference wrongly, a further sum of $42,873.99 to the Defendants' account. It was asserted that these sums together with the interest that had been charged in consequence, exceeded the sum claimed by the Plaintiff. 3 A Cross-Claim filed on 8 August 1990 sought a declaration that a sum of $30,000 and interest thereon from 12 October 1978 and the sum of $42,873.99 and interest thereon from 30 June 1980 were due from the Plaintiff to the Defendants. There was no explanation in the Cross Claim of these sums. 4 Pleadings were ordered. So far as is presently relevant, the Statement of Claim added nothing to the above account other than to particularise the mortgage as one dated 2 June 1986. On 27 June 1991 a Defence was filed. In effect that admitted all of the allegations in the Statement of Claim other than those of indebtedness and matters consequent thereon. In the Defence the Defendants asserted that on or about 1 August 1977 the Plaintiff's predecessor, the Commercial Bank of Australia Limited provided a commercial bill facility to the Defendants, and that on or about that date their account should have been credited with a sum of $30,000 but was debited with the amount of the bill facility and that in consequence they have lost the benefit of the $30,000 the subject of the bill facility. The Defence also repeated the complaint concerning the sum of $42,873.99. There was no repetition of the earlier complaint concerning the sum of $32,380.28. 5 On 10 July 1998 an Amended Cross-Claim was filed in which, in addition to the earlier claims, it was asserted that the mortgage of 2 June 1986 relied on by the Plaintiff was unenforceable pursuant to the Contracts Review Act as to particularised amounts of $69,822.79 and $125,625.67 together with interest thereon from 2 June 1986. It was asserted that prior to that date, these moneys had been advanced to a company, Falgat Constructions Pty Ltd, were unsecured and were not debts of the Defendants. It was also alleged that the Plaintiff had been guilty of misleading or deceptive conduct within Section 52 of the Trade Practices Act, and had negligently misstated the effect of the mortgage, an omission which led to the Defendants entering into it and for which the Defendants sought damages. It is convenient to defer further particularisation of the matters relied on in these respects. 6 Subsequent amendments to the Cross-Claim have not altered the substance of the dispute between the parties. In its Amended Defence to the Further Amended Cross Claim the Plaintiff, inter alia:- (i) relied on a term (endorsed on bank statements of Commercial Bank of Australia Limited) that "vouchers supporting entries in this statement will be destroyed after two years and this account will be considered as settled unless objection is received in respect of any entry shown hereon within six months of the date of issue of this statement", contending that this was a term of the contract or, in conjunction with other factors, gave rise to an estoppel, (ii) said that by a guarantee which the Bank could not produce but the existence of which the bank asked to be inferred, the Defendants had guaranteed Falgat Constructions' indebtedness and this indebtedness was secured by an earlier mortgage of 17 June 1977, and (iii) asserted that a number of the Plaintiffs' claims were barred by the passage of time. 7 Prior to early 1986 the Defendants conducted their banking at 59 Goulburn Street, Sydney, originally with the Commercial Bank of Australia Limited and, after that was taken over or merged, with Westpac. The Defendants operated on a number of bank accounts either in their own name or in the name of Falgat Constructions. Included in these were accounts 007,59,922 and 007,60,499 in their own names which seem to have been opened on or about 22 April 1977 and 20 June 1977 respectively. An account 007,60,472 in the name of Falgat Constructions Pty Ltd seems to have been opened on or about 27 July 1977.
The Claim for $32,380.28 8 By registered mortgage No. Q283471 dated 17 June 1977 the Defendants mortgaged to the Commercial Bank the land contained in Certificate of Title Volume 7212 Folio 230. 9 On or about 20 June 1977 the Bank advanced a sum of $25,000 to the Defendants to enable them to purchase a property at 51 Petersham Road, Marrickville. This sum was debited to account 007,60,499. 10 In late 1978 the property at 51 Petersham Road, Marrickville was sold. Settlement of the sale occurred on 1 December 1978. The settlement statement included with a letter from the Defendant's Solicitor of that date recorded a balance on settlement of $32,380.28. That figure was arrived at after deducting from the sale price a deposit of $3,650. It may be inferred that, in accordance with the usual practice, that sum, representing 10% of the sale price, had been held in accordance with the usual practice, by an estate agent. Exhibit G, which is a statement put out by the Real Estate Institute of New South Wales of the minimum fees and charges effective from 1 January 1978 records that on the sale of city or suburban properties the fee should be calculated on the following basis:-
"Up to $15,000 5% On the next $45,000 3% 11 If these figures are applied to a sale price of $36,500.00, they result in a figure of $1,395.00. The difference between that and the deposit of $3,650.00 was $2,255.00 which, when added to the balance on settlement emanating from the solicitors results in a total of $34,635.28. 12 There is recorded as deposited to account No. 007,60,499 on 1 December 1978 the sum of $25,000.00 and on the same date to account No: 007,59,922 the sum of $9,624.28. These sums total $34,624.00. 13 The difference between $34,635.28 and $34,624.00 is likely to be accounted for by the minor adjustments commonly made and reflected in settlement statements on the sale of real estate. The two figures are so close that, given also the coincidence of dates, I would infer that the Defendants have, contrary to the statement in the First Defendant's Affidavit, received credit for the sum of $32,380.28. Accordingly, this claim fails. 14 Before leaving it however it may be appropriate to record that during the course of the hearing it was agreed between the parties that, prior to the commencement of proceedings, the Plaintiff had, in the usual course of its business, destroyed all vouchers in its possession relevant to:- The credit of $25,000 of 1 December 1978 The credit of $9,624.28 of 1 December 1978, and The debit of $42,873.99 of 30 June 1980 (referred to below.) The Claim for $30,000 15 Set out below are extracts from the bank statements relating to account 007,59,922 and which relate to, or may bear on, the $30,000 in contention. Also included are notes endorsed in handwriting on the copies of the bank statements tendered. The evidence in the case makes it clear that in all probability they were notes of the first named Plaintiff or, less likely, his accountant. Reference Debits Credits 1978 Note
16 Although when first asked whether he had borrowed money on bank bills in 1978, the First Defendant denied doing so, in the Defence of June 1991 he had asserted the existence of such a facility with the Commercial Bank from about August 1977 and the rolling over of a bill in or about February 1978. (It was conceded the reference to "1988" in the document was a mistake. The entries asterisked in the above table (and others in significantly greater amounts) correspond with the form of entries commonly associated with a bill facility whereby one sees a credit entry of an amount representing the discounted value of a bill, then one or more months later on or about the same day of a month the debiting of a round figure somewhat higher and the crediting of another discounted figure in consequence of a roll-over of the bill. The cycle of such pairs of debits and credits may be repeated (the debit figures varying with changes in discount or "interest" rates) and if in due course all liability is discharged, there will be a final debit figure. 17 There is no direct evidence that the entries asterisked do not all fall into this category. The Defence said that the bill facility was entered into in or about August 1977 but in this it seems to me the Defendants may well be mistaken. Certainly there seems to be no bank account entries earlier than those tabulated to support the time claimed, either in the form of debits or credits. While I appreciate Mr Gattellaro's complaint is that there is no credit when there should have been, neither is there a debit of the (higher) face value of a bill maturing to correspond with any such credit. Furthermore, even if he be right in his contention that there should have been an earlier credit, it would have not been in the sum of $30,000 but in some lower figure, probably of the order of $28,600 - the discounted value of a $30,000 bill. 18 When the evidence is considered in totality, I am not persuaded that the credit of $28,523.94 on 27 January 1978 does not represent the money received, and all the Defendants were entitled to receive, as part of the first bill transaction. Indeed, I take the view it probably was. If that be right, the debit on 2 August probably represented payment of the full value of the bill, and the credit on 31 July, the discounted proceeds of a second bill or, in common parlance, the "rollover" of the first. Accordingly, the claim in respect of the sum of $30,000 fails. 19 In coming to that conclusion, I have rejected evidence from Mr Gattellaro to the effect that at the time of the acquisition and ownership of the property at 51 Petersham Road, Marrickville, there was only one "loan" he had obtained from the Commercial Bank. In that I think he must have been mistaken.
The Claim for $42,873.99 20 I have included in the above table of entries extracted from bank statements relating to account number 007,59,922 the information there recorded concerning the sum of $42,873.99 debited on 30 June 1980. The topic was the subject of consideration by a Mr Coble, the Defendants' accountant. In a document which found its way into evidence, he said:- "We traced the dealings for 25 Crief Street, Ashbury as follows:- 5.11.79 $45,000.00 debited to 000760472 and credited to 00759922 5.11.79 $42,083.87 debited to 00759922 to purchase property 23.5.80 $68,548.18 credited to 00759922 being proceeds from sale 26.5.80 $50,000.00 invested with CBA Properties 27.6.80 $50,390.41 withdrawn from CBA Properties 30.6.80 $42,873.99 debited to 00759922 whereabouts in question"
21 None of the evidence in the case revealed what had happened to the $42,873.99 although the reference in the bank statement "000000", taken with other similar references, to my mind indicates that the debit reflected an appropriation of the money by the bank, rather than a payment of some third party such as payee of a cheque. Whether that appropriation was pursuant to some authority conferred by the Defendants and what then happened to the money are other questions. 22 The first written query or complaint concerning this payment, which passed between the Defendants and the Bank and which found its way into evidence, was a letter of 15 April 1988 from Mr Coble to the Plaintiff. So far as is relevant the letter provided:- "We refer to a meeting that we had with Mr and Mrs Gattellaro this morning and we understand they intend meeting you this afternoon. Mr Gattellaro has expressed doubts in the past as to the accuracy of certain entries on his bank statements, but has not received satisfactory explanations. Whilst examining his statements this morning, the following were items that he said have not been able to be explained to him." 23 There followed reference to debits to account No. 00759922 on the following dates and amounts:- 12.10.78 $30,000.00 30.06.80 $42,873.99 29.09.81 $56,000.00
The total of these sums is $128,873.99. 24 Another letter signed by Mr Gattellaro dated 23 May 1988 demanded an explanation in respect of the $42,873.99 debit. The letter asserted "I have for a number of years complained about this problem, but for the same amount of time never received a solution from the Bank." 25 In evidence, Mr Gattellaro asserted that he had made oral complaints to the Bank concerning this matter from as early as "about 81, 82". He denied that this and other complaints were raised in response to an indebtedness to the Plaintiff in the sum of $130,000 and the subject of a 180 days bill drawn at about the end of October 1987. In his affidavit of 28 July 1998 the first complaint alleged is one made to Mr Alan Power, the manager of the Goulburn Street Branch from October 1985 to June 1986. 26 Mr Power, had no recollection of the Plaintiff complaining about this amount at all and said that a search of his records where any such complaint to him would be recorded had not revealed any notation of it. 27 Of limited relevance to an assessment of this claim is the history of events concerning the complaint Mr Gattellaro made concerning the sum of $56,000 and which was also a sum which the Bank had debited to his account. Some time after his complaint, in September 1988 Mr Gattellaro produced records of an investment account into which the sum had been placed and wherein interest had been earned. 28 In the face of this evidence it would not surprise me if Mr Gattellaro had simply forgotten what had happened to the $42,873.99. But be that as it may, when one has regard to Mr Gattellaro's practice of checking his bank statements, and the absence of any record of complaint prior to 1988, I think the proper inference to draw is that the debit was one with which Mr Gattellaro was content at the time and thus one which was authorised and the Bank entitled to make. I am not persuaded to the contrary by his evidence. 29 This conclusion makes it unnecessary to deal with other defences to this claim relied on by the Plaintiff. 30 Before I turn to the next area of dispute between the parties I should record that Mr McVay, counsel for the Defendants did not address on any of the 3 claims I have so far dealt with. However, as they were not formally abandoned, I have thought it appropriate to deal with the substance of them.
The Claims arising from the mortgage of 2 June 1986. 31 Shortly stated, the Defendant's claim in this regard arises as follows. In November 1985 they were indebted to the Plaintiff bank at its Goulburn St branch in an amount of the order of $173,000. Falgat Constructions was indebted in two amounts, one of about $61,000 and one of about $115,000. At least to a significant degree this liability of Falgat Constructions was unsecured. In transactions associated with the mortgage of June 1986 on which the Plaintiff sues, the Plaintiff's Westpac Plaza branch provided funds which were used to discharge all of the moneys owing at the Goulburn St branch. In consequence, the Defendants effectively became liable to the Bank for, inter alia, what were previously the unsecured debts of Falgat Constructions. It is this liability that they seek to avoid. 32 The Defendants claim, inter alia, that:- (i) the mortgage is unjust, (ii) there was material inequality and bargaining power between the parties, (iii) they were not told the mortgage was to secure advances, previously unsecured, to Falgat Constructions, (iv) they had no opportunity to bargain with the Plaintiff, (v) the provisions of the mortgage were not subject to negotiation, (vi) the mortgage was not necessary for the protection of the legitimate interests of the Plaintiff, (vii) the Defendants were not able to reasonably protect their own interests in relation to the signing of the mortgage, and (viii) the Plaintiff knew (a) the Defendants were without legal advice, (b) the mortgage did not refer to Falgat Constructions or its debts, (c) the Defendants were Italian immigrants with poor grasp of English, and (d) its own position was being improved. 33 The Plaintiff puts most of these matters in issue. In particular, it contests the Defendants' claim that they did not understand in advance the substance of what occurred in June 1986, and submits that there has been no unjust conduct by the Bank and that there has been no unjust consequence or result within the meaning of s7 of the Contracts Review Act. In that latter connection, the Plaintiff submits that prior to the June pay-out of the debts at the Goulburn St branch, the Defendants were liable as guarantors of Falgat Constructions' indebtedness. 34 The passage of time since the mortgage relied on by the Bank was executed is likely to have resulted in the substantial dimming of memories concerning the events which occurred. The Defendants have an obvious interest in the issue, their credibility has been the subject of challenge and in these circumstances there is advantage in directing attention in the first instance to the documentary evidence. 35 On 22 September 1983, Westpac wrote to the Defendants advising that no further drawings would be permitted on their account and that all moneys received to its credit thereafter would be applied in permanent reduction of their indebtedness. However, a second "credit working account" was opened which was to operate on strict credit lines. It is not clear what account that was on which no further drawings were permitted, although the statements concerning account number 007,59,922 indicate that generally it seems to have gone further and further into overdraft after about July 1982. An account of Falgat Constructions No. 007,60,472 indicating cheques were being dishonoured during the early part of 1983. 36 Westpac wrote again to the Plaintiffs on 5 December 1984. The letter, Exhibit 4, is headed "Re; Purchase Petersham Property" and, inter alia, said:- "…the Bank cannot help any further than the level of assistance originally approved by AGC. … As previously advised, Strathfield house property must be sold to assist in reducing your commitments. The bank is concerned about your position and as previously discussed Bill Roll over and interest costs have not been provided. Therefore we have agreed to provide an additional $20,000 Bill to cover present debt in Gattellaro No 2 A/c and roll-over costs for Falgat Constructions … The additional Bill line is for 6 months and expires June 1985, within this time the Bank expects Strathfield to be sold and liabilities would be substantially reduced. Should the house not be sold the Bank would proceed to sale under its securities. …" 37 It would seem that by 27 November 1985, not much had changed. On that day an internal memo of the Plaintiff and on which both parties relied recorded, inter alia:- Falgat Constructions Pty Ltd (000's) Limit $5 Dr $61 Secy $120 G'tee supported No 2 A/c BAL Limit $115 Dr $115
Related Accounts (Directors) R & Y Gattellaro NFD Dr $34 Secy $400 SI No. 2 A/c Dr $19 BAL Limit $120 Dr $120
Preamble Last before you 22/7/85 for approval to increased BAL facility $50 for R & Y Gattellaro.
Matter for Consideration Report on unsatisfactory situation.
Remarks Position is worsening and is involved. We feel it is best to be summarise as follows:- * Debts overall are increasing with Bill rollovers and quarterly interest charging. * Strathfield security H/P is incomplete requiring (? paint) and paths * … * Mr Gattellaro has signed D & I Guarantee to support Company advances. Mrs Gattellaro is to sign this week. * … * Debtors have no chance of servicing interest load approx $70 pa from income. They are nice people but woefully ignorant concerning finances.
The document contains a handwritten figure of 84% which is the proportion $355,000 (the combined debts of the Defendants and Falgat Constructions) bears to $420,000 the figure noted on the document as the bank's "SECY" (security). It would seem, although it is not completely clear, that the memo refers to the same visit as did the letters of 20 February. 43 (In the interests of clarity I might here record that the complaint concerning the sum of $57,000 seems to be the same one as related to the $56,000 referred to above and which was resolved.) 44 An internal memo to the General Manager, City South, also of 21 February 1986 recorded that both Defendants were aware that if they did not act then on the property sales, the Bank would act for them. Mrs Gattellaro was said to have been "clearly shocked" when fully acquainted with the current position. 45 It is next appropriate to refer to a file note dated 19 February 1986 made by a Mr Morello, a Manager's Assistant at the Westpac Plaza Branch of the Bank. It records that the First Defendant called accompanied by his brother-in-law, Mr Falcomata, a "valued client" of that branch, requesting a loan of $1.06M with a view to commencing a retail floor covering business. The sum proposed was to - "Purchase building and business … $750 Payout B.A.L. at Goulburn Street Branch $300 Payout mortgage at Goulburn St Branch $10 $1060"
The memo recorded that Mr Morello had written to the Goulburn Street Branch for account details. The security proposed included properties the subject of the Defendant's building or development activities and their home. 46 A further memo of Mr Morello of 14 March 1986 recorded that the First Defendant had again called and been advised that the Bank's inquiries and valuations had produced a different picture to that outlined in the diary note of 19 February. It was recorded that the cost of purchasing a new business was $750,000 and the cost to "re-finance Westpac Goulburn Street" was $355,000 and that an approach had been made to AGC who also were unable to assist. The diary note bears a handwritten notation "to confer with Rocky F". It is likely that note was an instruction to Mr Morello from Mr Roach the manager of the branch. 47 A diary note of Mr Morello of 21 April 1986 records, inter alia:- " GATTELLARO, Rocco & Yolanda SUBJECT : 1. Purchase of Petersham Business. 2. Funding of $15 to complete Strathfield property. GENERAL : 1. Following our recent discussion with Rocky Falcomata, Mr and Mrs Gattellaro called to further discuss situation."
Details that followed indicated that it was contemplated that the Petersham business would be purchased in the name of one of Mr Falcomata's companies. A handwritten notation in the margin records "not now proceeding". The memo continued:- "2. With regard to liabilities at Goulburn Street Branch it was pointed out to Rocco that interest bill is in the vicinity of $80 p.a. ($370 x 21.499%). Annual income is nowhere near this amount and Rocco has finally accepted the fact that he will need to sell his investment properties to reduce/clear indebtedness. Properties are on the market as follows: … They have requested an increase in borrowings of $15 from Goulburn St Branch. Funds are required to finish renovations on Strathfield property which will enhance sale prospects. Up until this point sale has not been pushed, however, now that Rocco has realised his predicament he is keen to complete renovations and arrange quick sale."
There then follows some remarks about security, including the Defendants' home, having a value of $505,000, that with the $15,000, indebtedness would increase to $385,000 "giving an acceptable loan/security ratio of 76% as opposed to the present 84%." The note continued "MGR GOULBURN STREET (Allan Power) We would appreciate your placing proposal before your Region and advising the Gattellaros the outcome." 48 On 12 May 1986, a relieving manager at Goulburn Street wrote to the Defendants advising that the Bank was not prepared to advance an additional $15,000, asking the Defendants to seek re-finance and threatening legal action. 49 On 13 May, Mr Morello made a diary note recording that Mrs Gattellaro had phoned and advised that the Goulburn St branch had declined their application for an additional $15,000. The document raised the possibility of the bank lending $15,000 to Rocky Falcomata which he could re-lend to the Gattellaros to enable completion of the renovations and noted that that possibility was to be discussed with Mr Falcomata. 50 The next document to be mentioned is a bank memo of 19 May 1986 which recorded that the manager had had discussions with Rocky Falcomata who had "agreed to provide a D & I Guarantee supported by his own house property to enable the payout of the Goulburn Street Branch debits". The memo went on to say that the proposal was now for a BAL facility of $450(000) to enable: "Payout of Goulburn St Branch debits $370 Complete renovations to Strathfield property $15 Capitalisation of interest for I year $65 $450"
Although headed "GATTELLARO Rocco and Yolanda" the memo did not refer to any discussions with them. However it contained an instruction that the matter was to be confirmed to them in writing. 51 On the same day, over the signature of Mr Roach the Chief Manager, the Bank wrote advising that approval had been given to a Bill Acceptance Line of $450,000. The letter said that the facility was to be used as follows:- To payout the debts at Goulburn Street Branch $370,000 To assist with renovations to the Strathfield property $15,000 Capitalisation of interest for 1 year $65,000 52 The letter went on to ask that if the terms and conditions were acceptable would Mr and Mrs Gattellaro sign and return an attached duplicate. In fact no signed duplicate was tendered. Mr Gattellaro gave evidence that the letter was received after 2 June 1986, probably with other letters from the Bank. 53 Documents tendered include a guarantee of the debts of Mr and Mrs Gattellaro by Mr Falcomata and his wife. It was signed by the 4 persons just mentioned, bears date 21 May 1986, and purports to have been signed at Chiswick and witnessed by Mr Morello. The document also bears an endorsement signed by Mr Roach and Mr Morello to the effect that the nature and effect of the guarantee were explained to the guarantors. 54 Mrs Gattellaro said she did not remember signing the document and did not remember the Falcomatas and the Gattellaros ever being together for the signing of a document. Mr Morello said that he had no recollection of the document. He said that the reference to Chiswick and the date was not in his handwriting although it was his practice to date a document he witnessed. He could not recognise whose handwriting they were. Mr Morello's said that he had never witnessed a document at Chiswick. Although it was Mr Morello's practice to make a diary note of witnessing a document, it seems common ground that there was no such note relating to this guarantee. Mr Gattellaro agreed that Mr Morello had not witnessed this document at Chiswick. Mr Gattellaro said that he had never asked Mr Falcomata for a guarantee. At one stage he said that he first knew of it only years later but then said that it was some time after signing the mortgage on 2 June 1986. When first shown the document in the witness box Mr Gattellaro denied ever seeing it before. 55 Some of this evidence demonstrates the unreliability of relying too readily on evidence of practice as establishing a particular event. Other of it did nothing to enhance Mr Gattellaro's credibility. However, none provided grounds for doubting the authenticity of the document. 56 The documents tendered also include a number dated 2 June 1986. They are the mortgage on which the Plaintiff sues, the Defendants' signatures purporting to have been witnessed by Mr Morello, one document signed by Mr and Mrs Gattellaro stating that the limit of their bill acceptance line was $450,000 and a third also signed by them authorising the bank to accept bills of exchange upon request signed by them and to debit their account if any such bills were not met on maturity. There was also a statutory declaration apparently witnessed by Mr Roach but it appears to be of no significance at all to the issues I have to decide. 57 On 3 June 1986 a Discharge of Mortgage number Q283471 appears to have been signed. The Discharge was registered on 7 July 1986. 58 On 5 June 1986 the bank wrote 3 letters to the Plaintiffs. One advised- "Settlement to pay out debts held at our Goulburn Street Branch was concluded today. Amount handed over was $383,242.49. "Please provide title particulars over …"
The others advised that 2 bills, one with a face value of $400,000 and one with a face value of $30,000 had been discounted. The letters record that there was a limit on the bill line of $450,000. 59 On 10 June 1986 Mr Power wrote advising that on receipt of the $383,342.23 his branch had handed over "Title documents to the Chiswick and Strathfield properties", presumably to the Westpac Plaza branch. In a handwritten endorsement on the letter Mr Power said that certain statements went out separately and "Please phone if you have any queries." 60 Finally in this catalogue of documents, a later diary note of 5 September 1988 records that the account of Falgat Constructions was in debit to the extent of $1,727.74 and that the debt was unsecured. 61 I turn to the evidence of the witnesses. Mr Rocco Gattellaro was born in Italy in February 1935. He went to school for about 6 years until he was 13. Over about 5 years, he then learnt to be a carpenter and performed some 18 months military service. He came to Australia in 1959 on his own and could then speak no English. In Australia he worked with an Italian firm of cabinet makers for about 6 months and then an Italian builder for about 2 years. In 1961 or 1962 he commenced sub-contracting work for builders, an activity he continued for some 7 or 8 years. 62 He and his wife's brother then formed the company Falgat Constructions Pty Ltd. Its initial operations seem to have been to buy old houses, do them up and then sell them. Subsequently, the company extended its operations to carrying out alterations and additions and the building of cottages and units. 63 In general terms Mr Gattellaro gave evidence which was more or less what one might expect in support of his claims as I have outlined them. I shall deal specifically with some other aspects but, in particular so far as the present claim is concerned, Mr Gattellaro said that he would not have signed any mortgage or other documents which had the effect of him and his wife borrowing money to pay the debts of Falgat Constructions without seeking legal advice. There was nothing in Mr Gattellaro's demeanour which told against his reliability, indeed rather the contrary. I say that, notwithstanding Mr Gattellaro's tendency to ignore the question and talk as he wished. 64 On the other hand, the content of what Mr Gattellaro had to say was nowhere near as impressive. It is clear from a consideration of the documents that Mr Gattellaro was quite confused when cross-examined about his complaint concerning the sum of $30,000. Nothing will be gained by my attempting to summarise all of his evidence demonstrating that confusion. It is sufficient to say that his apparent belief that in 1978 there was but one loan from the Bank which was supposed to be paid off on the sale of the Petersham property is quite inconsistent with the records of account no. 00760499 showing a loan of $25,000 from 20 June 1977 to 1 December 1978 and the evidence in the statements of account no. 00759922 which , as I have indicated, demonstrate the existence of a bill facility at least from July 1978 and, in my view, earlier. Paragraphs 12 et seq. of the original Defence alleged the existence of a bill facility through the period after about 1 August 1977. 65 Bill facilities, while current, do not result in records such as the bank statements of account no. 00760499. 66 Mr Gattellaro was also disposed to deny the undeniable when to admit may have harmed his cause. Thus when cross-examined on his affidavit of discovery he said on 2 occasions, "This is not my document." and that he never had a guarantee in his possession. It does not seem to me that in those answers he can have been referring to anything else but, in the case of the first, the affidavit of discovery itself, and in the second, the form of guarantee (whether executed or not) referred to in the list of documents. 67 Along similar lines is Mr Gattellaro's evidence that he found out only years later that Mr Falcomata had guaranteed his debts. The guarantee itself was signed by Mr Gattellaro. 68 Of more significance are Mr Gattellaro's statements that:- "I never speak to Mr Falcomata about approaching the Westpac Bank. Whatever Mr Falcomata did was of his own will to help me but we never talk with Mr Falcomata." "…but that was the only time I went there with Mr Falcomata. There was only one meeting I had with Mr Falcomata. … That was after the 2 June 1986." Q. Did you ever meet Mr Morello before you signed the mortgage? A. Could be I met once and I talk with him for a few times when I phoned the branch for appointment, that's all, but not to discuss business." 69 Contemporaneous documents of the Bank within Exhibit B record Mr Gattellaro's presence there, (or at AGC) on or about:- 19 February with Mr Falcomata and Mr Morello - p 19 14 March with Mr Morello - p 25 21 April with Mrs Gattellaro and Mr Morello - p 27
There is no reason why these documents should not be reliable as to who was present and every likelihood that they are accurate in this respect and I accept them. 70 These are but examples. When the content of his evidence is examined, Mr Gattellaro was an unimpressive and unreliable witness. 71 Mrs Yolanda Gattellaro was born in Italy in September 1935. She went to school for six years leaving when she was 12 after which she learnt dress making. When she came to Australia in 1955 she could speak no English. She seems not to have had a great deal of exposure to that language until 1964 when she and her husband purchased a mixed business in Drummoyne. She said that then her English started to improve although when the shop was sold 4 years later she could still not communicate in relation to matters outside the shop business. She then resumed dress making from the place in which she was living and her English deteriorated again, improving in and after about 1992 when she applied herself to it. Her command of the language was certainly reasonable at the time she gave evidence. Mrs Gattellaro said that in 1986 she was neither fluent in English nor understood many English words. There was no challenge to this evidence nor did any of the bank employees give evidence to the contrary. 72 Mrs Gattellaro said that in 1971 or 1972 her brother left Falgat and she became the secretary and a director of the company. She signed cheques and returns but "could not read or understand the reading in any of the returns I signed." 73 So far as appearance in the witness box is concerned, Mrs Gattellaro also seemed honest. However her answers were to the effect that there was a great deal - and I think too much to be believable - she did not know or recall. 74 On behalf of the Plaintiff only 2 witnesses were called although Mr McVay tendered the affidavits or parts of the affidavits from others. The first called was Mr Power. There was nothing in the demeanour of Mr Power or content of his evidence to cause me to doubt his honesty or general reliability. 75 On the basis of the document of 27 November 1985, Mr Power agreed that at that time Falgat Constructions was indebted to the bank in the sum of $176,000. He acknowledged that, on the face of the document, the bank was exposed to the company's position and this was a situation he was seeking to redress. He was endeavouring to improve the bank's position as far as possible. Inter alia, he was seeking to bolster the security available to the bank by taking a second mortgage over the Campsie units but Mr Gattellaro either deferred this topic or agreed to sign later after the issue involving $57,000 was sorted out. In this respect it is also pertinent to record that Mr Power agreed that Mr Gattellaro formed his own views and was not somebody who did whatever Mr Power told him. 76 Mr Power said that the Gattellaros never provided a second mortgage over the Campsie units. Mr Power could not remember whether he had given Mr Gattellaro a guarantee to take away and have his wife sign. He had no recollection of whether a guarantee was signed by Mr Gattellaro. 77 Mr Power agreed he was the author of the memo of 21 February 1986. The notation "SECY D + I G'tee (supp)" is an indication that there was a D & I guarantee in place. This would have gone straight into the security packet after stamping and perusal. Stamping would have involved the guarantee accompanied by a transmittal form being sent to the legal branch in head office. It seems to have been common ground that no such transmittal form was discovered. 78 The bank's practice, and one Mr Power followed to the best of his ability, was to keep guarantee documents in the packet with mortgages if they existed. On transfer of an account from one branch to another, standard procedure involved the relevant security packet being passed to the new branch. 79 Taken to the letter of 10 June 1986, Mr Power agreed that the Bank's practice would have meant that any other security documents - a term I understand to include a guarantee - which the Branch held would have been handed over at the same time as the title documents referred to in that letter. 80 Mr Morello was the Plaintiff's second witness. Largely his evidence consisted of identifying documents, explaining events recorded in documents in evidence and detailing his practices as to the keeping of notes and witnessing of documents. There is no reason to reject his evidence although I confess I regard evidence of the latter type - easy to give and difficult to challenge - as commonly of less weight than more specific evidence. 81 Against this background I come to the issues I need to decide and to certain other evidence bearing directly on them. 82 In considering whether the mortgage on which the Plaintiff relies or any of its terms was unjust within the Contracts Review Act, it is appropriate to consider the position of the Defendants at the time it was entered into. Mr McVay, appearing for them drew attention to the fact that the effect of the transaction was to render them personally liable for the debts of Falgat Constructions, in that the money borrowed was used to discharge what Falgat Constructions then owed the bank. However, on the other side of the coin so to speak, is the fact that, as Mr Gattellaro conceded, the business of Falgat Constructions was to build or develop on properties owned by the Defendants. Subject to whatever they may have repaid, Mr and Mrs Gattellaro were thus the recipients and beneficiaries of its expenditure. Furthermore, Mr Gattellaro was conscious of the separate situation of the company. As he said in his affidavit of 27 September 1999:- "I knew that my personal assets were not available to secure the debts of Falgat Constructions Pty Ltd. I knew that very well because for many years my accountant, Keith Coble, had said to me on a number of occasions words to this effect: 'In case there is a problem with the company, it is better to keep your house and your personal assets out of the company and not used (sic) as security for the company debts.' I certainly knew in November 1995 that if I signed a guarantee personally in respect to the company's debts then I was putting my house and my personal assets at risk of the company's debts. I did not do that." 83 A company search annexed to an affidavit of Mr Power and the evidence of Mr and Mrs Gattellaro lead to the conclusion that at all times relevant for present purposes, they were the only directors and shareholders of Falgat Constructions and thus the sole beneficiaries of any profits it may have made. 84 Considered against such a situation and approach, it is difficult to criticise the Plaintiff or its employees, so long as they used no unfair or underhand means, for any endeavour they may have made to make Mr and Mrs Gattellaro liable for the moneys the Plaintiff may have advanced to the company and for any appropriate interest thereon. They were just as entitled to look after the Plaintiff's interests as the Defendants were to look after theirs and the fact that the Plaintiff and its employees may have been more successful does not necessarily render the result, or the documents by which the result was achieved, unjust. 85 In reaching that conclusion I do not forget the description in the memo of 27 November that the Defendants were "woefully ignorant concerning finances". They knew enough to engage in property development or renovation in a small way and to borrow money in that regard. They knew of advantages of incorporation. I have no doubt that, in view of their previous dealings, they both knew broadly what a mortgage was. It is impossible to believe they did not know that if the Bank remained unpaid, it would take, and they would lose, control of properties mortgaged and that they were in a position whereby time might be of advantage to them. 86 Nor do I suggest that merely because Falgat Constructions was, if I may use the description, the Defendants' company and its indebtedness was caused by them, a transaction which made them liable for those debts was not unjust. Rather is it a case of looking at the totality of circumstances. 87 Furthermore, I am unable to accept that Mr Gattellaro was as ignorant of what was occurring as he would have me believe. Although there is nothing in the mortgage signed on 2 June to indicate it had any connection with the debts of Falgat Constructions or the amount being provided by the Bank against it, there were other documents which, if he gave them the slightest attention, must have made Mr Gattellaro aware of what was occurring. There was firstly, the document stating the bill line limit to be $450,000. Having regard to Mr Gattellaro's experience with bank bills over a number of years, the significance of that figure should not have escaped him. Mr Gattellaro said that he was not given any explanation of the documents at the time and just told to sign where the crosses on them were but this document is of only one page and it is difficult to accept that Mr Gattellaro did not see the reference to $450,000. Furthermore, although I do not recall reference to this during the hearing, bank bills require the signature of the parties to them. Assuming he looked - and there is no evidence to the contrary - Mr Gattellaro must have known the amount of the bills. Having regard, inter alia, to what I infer from the bank records of that day was the conversation with Mr Power on 21 February, it is to be inferred that Mr Gattellaro knew the amount was such as to cover all that was owed to the Plaintiff. 88 And even if one were to think that at the time Mr Gattellaro had forgotten his accountant's advice and did not advert to the distinction between what was personally owed and what was owed by Falgat Constructions why, given his approach and situation vis-a-vis the company is the result unjust? I do not so regard it. 89 To some degree, similar considerations apply to Mrs Gattellaro. She also said she was the beneficiary of advice from Mr Coble to keep her house separate from the company. Bank records which I accept as accurate in this regard show discussions with her on 14 and/or 21 February, 21 April and 13 May 1986. Nevertheless, it is fair to recognise that if the note of 21 February that Mrs Gattellaro was "clearly shocked" is correct - and I have no reason to think it is not - it points to a degree of ignorance on her part until then. 90 However, given the terms of the bank records of that date, I think the proper conclusion is that from that time onwards Mrs Gattellaro must have known of the extent of the total amount the bank was owed and of the bank's concerns, whether or not she received a letter of 20 February which also recorded that amount. If, as one would infer she was, she was conscious of the difference between company debts on the one hand and those of her husband and herself on the other, presumably she obtained information also as to the division of the total. 91 She then signed the same documents disclosing the amount being "borrowed" as Mr Gattellaro. 92 In the circumstances prevailing, knowledge on the part of Mr and Mrs Gattellaro of the amount being obtained by the bills leads, as a probable inference, to the conclusion that knowledge was also possessed by them as to the use to which the money was to be put. Why otherwise would the bills have been for $430,000 rather than a figure much closer to something over the $175,000 total of Mr and Mrs Gattellaro's debts apparent on the 21 February 1986 diary note? 93 I am not prepared to accept that Mr and Mrs Gattellaro thought the transactions were merely in aid of the transfer of accounts to Westpac Plaza. 94 I have so far dealt with the matter largely on the basis of the inferences to be drawn from documents. There is also other evidence to which I should refer. Firstly, it does seem that the course ultimately followed - to "borrow" only $450,000 to pay out the Goulburn Street branch, provide $15,000 for renovations at Strathfield and capitalise interest for a year - was proposed and agreed to in the first instance at a meeting on 19 May 1986 at which the Defendants were not present. It was a course significantly different from that envisaged in a memo of Mr Morello of 13 May 1986. It seems also that although the bank sought it in the Bank's letter of 19 May, the Defendants never formally recorded their agreement to this course. There is, indeed no direct evidence that they ever agreed to it. 95 An affidavit of Mr Falcomata was read. At face value he has an extraordinary lack of recollection of events. However, it seems in the highest degree unlikely that Mr Falcomata, who seems to have been seeking to help the Defendants, would not have discussed it with them. At the very least, the signing of Mr Falcomata's guarantee by the 4 parties who executed it would be likely to have inspired a discussion on the topic. 96 There is also the evidence of Mr and Mrs Gattellaro to the effect that the documents were not explained to them and Mr Morello's to the effect that the mortgage was. Despite my reservations concerning the nature of Mr Morello's evidence in this regard, I prefer his evidence on the topic to that of Mr and Mrs Gattellaro where there is a conflict. However given its form, there is nothing in the mortgage itself to inspire any reference to Falgat Constructions or explanation of the use to which the funds would be put. 97 No one formally witnessed the execution of the other two significant documents signed that day, including that referring to the bill acceptance line limit of $450,000 and there is no evidence that either of them was explained. In the result, I am not persuaded that the Defendants were told anything on that day to the effect that the money would be used to repay Falgat Constructions' indebtedness. Indeed I think the proper conclusion on the evidence is that there was never any explanation of what was proposed given by officers of the Bank orally to the Defendants. 98 Of significance also is the fact that, following the letters from the bank of 5 and 10 June 1986, there is no record of either of the Defendants complaining to the bank about what had occurred, notwithstanding the invitation on the last of these letters to which I have referred. Ultimately the conclusion at which I have arrived is that, no later than the affixing of their signatures to the bills on or about 2 June 1986, the Defendants knew that the money being made available by the Bank pursuant to the bills would be used as it was, including to discharge the liability of Falgat Constructions. It is inherently improbable that firstly, Mr Falcomata did not tell them what was proposed and secondly, that they did not receive the letter of 19 May 1986 and that they did not appreciate the significance of the amount of the 2 June 1986 or thereabouts bills. 99 Of course, this is not the end of the matter for, as I have indicated, the Defendants rely on a number of matters in support of their claim that the contract was unfair. I accept that a number of these are established, including:- · that there was material inequality and bargaining power between the parties and that the Defendants had no opportunity to bargain with the Plaintiff, · that the provisions of the mortgage were not subject to negotiation, · that the Plaintiff knew (a) the Defendants were without legal advice, (b) the mortgage did not refer to Falgat Constructions or its debts, (c) the Defendants were Italian immigrants with some limitations in their grasp of English, and (d) its own position was being improved. 100 I am not satisfied that the mortgage was not necessary for the protection of the legitimate interests of the Plaintiff. Neither am I satisfied that the Defendants were not able to reasonably protect their own interests in relation to the signing of the mortgage. I should say more on that latter finding. Emphasis should be placed on "reasonably". The Defendants were undoubtedly in difficulties and my finding is to be considered in light of the constraints they were under. I am certainly not satisfied that they could not have allowed events foreshadowed or invited by the Goulburn branch of the Bank to take their course, nor am I satisfied that there was not some money - say $15,000 available from Mr Falcomata - to enable a first step in overcoming their financial difficulties to be achieved. 101 In fact the Defendants failed to complete the renovations to the Strathfield property prior to December and, given the period over which this had been the subject of discussion - since at least December 1984 - one would be pardoned for thinking that this was not something they wanted to do. Perhaps, although I make no finding, its incomplete state was an excuse not to sell it. 102 However in light of the findings I have made, if the totality of events including the mortgage and the drawing of the bills is considered as one transaction, it was not unjust. If the mortgage should be looked at separately I would take the same view but even if that be wrong, nevertheless regard would have to be had to the actions of the Defendants in signing the bills made available in consequence. Having regard to the Court's obligation, imposed by s 7 of the Contracts Review Act, to avoid as far as practicable an unjust consequence or result those findings lead to the conclusion that, even if the mortgage was unjust, the Court would not interfere without giving to those actions their full significance - that is "borrowing" money from the Plaintiff bank at interest. To declare void or otherwise interfere with the mortgage on those terms would be pointless. (It was conceded that, on the pleadings, I was not entitled to interfere with the interest rate payable). 103 There is another matter to which reference should be made. The Plaintiff contended that even if the transactions of June 1986 were unjust and the Court otherwise minded to interfere, there was in existence at the commencement of those transactions an unlimited guarantee under which the Defendants had rendered themselves responsible for the liabilities of Falgat Constructions together with the 1977 mortgage to which reference has been made. 104 Although it is strictly unnecessary for me to pursue this topic I think I should say something about the guarantee. Evidence of its existence is to be found in the extracts from the Bank's diary note of 27 November 1985 and in a diary note and an internal memo to the Regional manager, City South both dated 21 February 1986. In these latter documents the note beside reference to the accounts of Falgat Constructions as to the security held is not as it was in the diary note of 27 November 1985 but in terms "Secy D + I G'tee (supp)". Furthermore, in the internal memo, it is recorded that at that stage Mr and Mrs Gattellaro would "not sign a second mortgage over Campsie units mainly because Mr Gattellaro disputes total indebtedness & is uncertain concerning a debit entry of $57,000 made to joint account in 1981". Except insofar as those just quoted did so, there was no entry referring to the D & I guarantee. 105 The Bank also placed reliance on a reference in the Defendants' Affidavit of Discovery:- "22. Copy of undated Guarantee document from R and Y Gattellaro to Westpac." 106 Mr McGee who, subject to supervision, was the Defendants' solicitor at the time, who prepared the List of Documents, and before whom the Affidavit of Discovery was sworn said that he had no recollection of the particular document and gave evidence that "if the documents had been signed, I am of the opinion I would have described it as being signed because of the importance of a guarantee in proceedings where a creditor is seeking to recover moneys from a debtor. 107 Under cross examination Mr McGee agreed that there were references to other documents in the List of Documents including originals and copies of correspondence and that these were not described as "signed" nevertheless he adhered to the evidence previously referred to. 108 When reflecting on Mr Gattellaro's credibility I have referred to his evidence on the topic. 109 I accept that Mr McGee was genuine in his evidence. I do not however have to come to any conclusion as to the matter to which that evidence was directed for I do not regard the entry in the list of documents as of significance. Neither on its own, or considered in the light of other evidence in the case, does it afford evidence that it itself was executed, a copy of an executed guarantee in fact handed to the Plaintiff so as to indicate it was intended to be operative or that it was not a copy of the limited guarantee referred to in the memorandum of 27 November 1985 - a document not referred to in the Plaintiff's pleadings as one on which reliance was placed. 110 Arguing against the existence of any unlimited "D & I" guarantee were a number of documents which recorded what documents were handed over by the Goulburn Street branch at the time the Gattellaro accounts were "transferred" to Westpac Plaza. In some ways the Bank seems to have treated this transaction as one between strangers whereby there was "settlement" between the branches. In what appears to be an internal memo of the Westpac Plaza branch it is recorded that - "Settlement completed today. Handed over $383,242.49 in exchange for CT's, discharges over Chiswick & Strathfield properties." 111 In the letter from the Goulburn Street branch to Mr and Mrs Gattellaro of 10 June 1986 it is said that "On receipt of $383,342.23 we handed over title documents to the Chiswick and Strathfield properties." In light of Mr Power's evidence the absence of reference to a guarantee argues against its existence. 112 Other documents of the Westpac Plaza branch recording, apparently comprehensively, the various security documents held contain no reference to an unlimited guarantee from the Defendants. In an affidavit tendered by Mr McVay, Mr Mathieson, a bank officer said that he was unable to find any guarantee by the Defendants of Falgat Constructions debts. 113 There was no explanation why, if the guarantee ever existed, it could not be produced or further reference to it found. Experience and common sense both indicate that banks do not readily mislay, lose or destroy security documents and the absence of evidence in this regard argues strongly against it ever having been in existence. 114 I do not regard the reference in the 5 September 1988 diary note to Falgat Constructions' indebtedness then being unsecured as taking the matter further. The lapse of time between 1986 and 1988, the apparent absence of a guarantee at the Westpac plaza branch in 1986 and, perhaps, the small amount involved inspire me to give that document no weight so far as 1985 and 1986 are concerned. 115 However, I think the entries in the documents of 27 November and 21 February argue more strongly for the view that the guarantee did exist. The reference that "Mr Gattellaro has signed D &I Guarantee …" in the diary note of 27 November is unequivocal. The further remark that Mrs Gattellaro was to sign at a different time argues for the conclusion that the document was with the Bank. Had Mr Gattellaro taken the guarantee home one would expect he and his wife would have signed together. The difference between the description of the security for Falgat Constructions' debts in the document of 27 November and those of 21 February also argues for a change having occurred in the meantime. And while there was reference to Mr Gattellaro refusing to then give a second mortgage over Campsie, there was no such reference to any security in the form of a guarantee; and undoubtedly, the Bank was seeking as much as it could get. 116 Clause 20 of the Bank's standard form of guarantee provides that it shall bind anyone who has signed it even if other parties named have not and thus if the statement in the note of 27 November to the effect that Mr Gattellaro had signed is accurate, the Bank then held a D & I guarantee from him. However, given the only evidence that Mrs Gattellaro signed the guarantee was the statement in that diary note that she would in the ensuing week, I would not be prepared to find that she did so. 117 In summary, I have come to the conclusion that at the time of the mortgage of 2 June 1986, the Plaintiff had, even if it could not find the document, an unlimited guarantee from Mr Gattellaro guaranteeing Falgat Constructions' liability to it. I am not persuaded the Plaintiff held one from Mrs Gattellaro. 118 As recorded in paragraph 5 it was also alleged in the Defendants' pleadings that the Plaintiff had been guilty of misleading or deceptive conduct within Section 52 of the Trade Practices Act, and had negligently misstated the effect of the mortgage, an omission which led to the Defendants entering into it and for which they sought damages. Nothing in the evidence supports either of these claims. 119 Accordingly, all defences to the Plaintiff's claims fail. Having regard to the fact that those claims include one for a monetary sum and no calculation has been done as to the amount presently owing - this judgment has been reserved for some time - it seems to me desirable to publish these reasons and stand the matter over for a short period during which the Plaintiff can carry out the necessary calculations and prepare short minutes of order, submitting both to the Defendants or their legal advisers a reasonable time before the adjourned date for checking. Hopefully the parties can resolve any question of when a writ for possession might issue.
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WESTPAC BANKINGS CORPORATION
GATTELLARO