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.