ROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, SHELLER and POWELL JJA 2 December 1994, 16 December 1994 [1994] NSWCA 367 CONTRACT — unjust — relief claimed — experienced borrowers assert lack of knowledge of extent and nature of personal covenants — judge disbelieves their evidence — held: Appeal dismissed. Devries v Australian National Railways Commission (1993) 177 CLR 472 applied. JUDGMENTS & ORDERS — reasons — adequacy of — held — Judgment adequately states grounds for decision. CONTRACT — JUDGMENTS & ORDERS -unjust contract — Contracts Review Act 1980, s7(1) — claim for relief from security contracts entered with bank — wife and ex-husband execute security documents over home as security for an advance to a company in which each was interested — each expected the company to succeed financially — upon call up of mortgage over home, each seeks relief under the Act — claim that extensive security documents, including personal covenants, were not understood — claim of misrepresentations by bank officers concerning the content of such documents — claim that access to independent legal advice, although mentioned in a certificate furnished by the bank, was discouraged — assertion that contracts unjust — primary judge (Smart J) finds husband and wife experienced business people with good understanding of mortgages and clear appreciation of risks under personal covenants — rejects claim for relief under Act — on appeal — held: (Sheller JA; Kirby P and Powell JA concurring): Upon he findings of fact made by the primary judge, particularly relating to the experience and understanding of the borrowers, the contracts were not unjust and no error was shown in the denial of relief under the Act. Devries v Australian National Railways Commission (1993) 177 CLR 472 applied. JUDGMENTSS & ORDERS — reasons — adequacy of — necessity to state grounds for decision — dismissal of claims for relief under Contracts Review Act 1980 — judge disbelieves asserted lack of knowledge of personal covenants by borrowers — held: (Sheller JA; Kirby P and Powell JA concurring): The reasons for judgment adequately exposed the grounds for the primary judge's decision Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 (CA) applied. Contracts Review Act 1980, s7(1). Kirby P Upon the findings of fact recorded by Smart J, his conclusion as to the credibility of the appellants, his opinion as to their business experience, acumen and understanding and his evaluation of their appreciation of the subject security contracts which they entered with the Bank, the challenges to the refusal of relief under the Contracts Review Act 1980, s7(1) must fail. I agree with the reasons given by Sheller JA. T also agree with his Honour's conclusion concerning the complaint about the adequacy of the primary judge's reasons. Given his Honour's bases for denying the appellants relief, Smart J's reasons were entirely adequate. I agree with Sheller JA. 2 UNREPORTED JUDGMENTS I would not wish my conclusion in these appeals to mislead credit providers into thinking that a simple device for overcoming the beneficial protections offered (including to security transactions) by the Contracts Review Act is the execution of a somewhat self-serving "certificate" in the form used in this case and set out in Sheller JA's reasons. I do not criticise that procedure. Appropriately implemented, it might, in some circumstances, help to alert the mind of the contracting party to his or her obligations, the real risks run and the possible desirability of securing independent (even legal) advice before subscribing to the personal covenants recorded in the contract. At the least, it would be preferable that such a document should be provided to borrowers in advance of the signing "ceremony". When the signatories to security documents are assembled in a bank officer's room, confronted with a large collection of formal documents for signature, accompanied, possibly, by another borrower anxious to proceed and confronted by bank officials obviously expecting the execution of the prepared documents, it would take a rare and highly independent spirit to cry halt. Precautionary words in the Bank's "certificate" are unlikely, in the ordinary case, to work such magic. In different circumstances, with different borrowers and findings of the primary judge less emphatic than those recorded by Smart J (and sustained by the evidence) a different result could follow in a claim for relief under the Act. But in this case, upon the findings made, the appeals must be dismissed with costs. Sheller JA Introduction These are appeals by Patricia Ann Roberts and her former husband, Kevin Thomas Roberts, from a decision of Smart J given on 11 August 1984 in two proceedings. His Honour delivered one set of reasons for judgment in both actions. The first was an action, 14281/1981, in which the respondent, State Bank of New South Wales (State Bank), by statement of claim, claimed possession of certain land situated at 196 Clovelly Road, Clovelly, of which Mrs Roberts was the registered proprietor. In the second action, 5044/1992, State Bank by summons sought judgment in an amount in excess of $950,000 against Mr Roberts. The claim against Mrs Roberts related to advances made by State Bank to Duro Travel Goods Pty Ltd (Duro), which that company failed to repay on the due date. The terms upon which this facility was made available by State Bank to Duro included a third party mortgage over the Clovelly Road land. On 12 September 1989 Mrs Roberts executed a third party mortgage with State Bank whereby she granted security over the Clovelly Road land to secure to State Bank the payment of the "moneys hereby secured" which included all moneys owing or payable by Duro to State Bank from time to time. Mrs Roberts covenanted and agreed to pay to State Bank the "moneys hereby secured" and interest thereon. Mrs Roberts failed to pay such moneys when demanded by State Bank. The claim against Mr Roberts also related, in part, to the moneys advanced by State Bank to Duro. The terms upon which the facility was made available by State Bank to Duro also included a third party mortgage over a home unit at 80/127 Cook Road, Centennial Park. On 12 September 1989 Mr Roberts executed a third party mortgage over that home unit and another home unit at 122/127 Cook Road to secure to State Bank the payment of the "moneys hereby secured" as defined in that mortgage which included all moneys owing or payable by Duro to State Bank from time to time. Mr Roberts covenanted and agreed to pay to State Bank the "moneys hereby secured" and interest thereon. UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) Mr Roberts failed to pay such moneys when demanded. On the same day, Mr Roberts also executed a second mortgage over his estate and interest in the home units in consideration of State Bank's providing him with financial accommodation. Mr Roberts made default in his obligations thereunder. On 24 April 1991 the home units were sold and the mortgages discharged. The discharge of the mortgages was subject and without prejudice to all rights and remedies of State Bank against Mr Roberts personally under the mortgages. Interest which Mr and Mrs Roberts had covenanted to pay was owing on all the mortgages. To both claims the appellants raised numerous defences and cross claims. Nevertheless Smart J in the first action gave State Bank possession of the land at Clovelly Road and granted it leave to issue a writ of possession and in the second action found for State Bank against Mr Roberts. The appellants' cross claims were dismissed. Findings Made By Smart J In a careful judgment Smart J summarised the evidence and made findings. The moneys advanced by State Bank to Duro were to enable it to develop its business of making and selling Globite and Regency suitcases and other products and importing and selling travel goods. The shares in Duro, which had been acquired in 1988, were owned by Globite Holdings Pty Ltd. The shares in that company were owned equally by two companies controlled respectively by the appellants and Mr and Mrs Monaghan. Under the purchase agreement the purchasers took over an overdraft of $250,000 to the National Australia Bank and allotted the vendor $200,000 redeemable preference shares, $100,000 redeemable at the end of June 1989 and the balance redeemable at the end of June 1990. In early 1989 Mr Roberts approached Mr Player, the manager of State Bank at Bondi Junction. As a result of discussions it was proposed that State Bank should pay out the amount owing under the overdraft facility of $250,000 and provide an additional amount by way of working capital. By letter of 28 April 1989, the Business Banking Centre, City/Eastern Suburbs, of State Bank (BBC) advised Duro that it had approved a facility consisting of an overdraft limit of $450,000 and a documentary letter of credit facility of $50,000. Included amongst the security required by State Bank was "1. Registered second third party mortgage over land and dwelling at 196 Clovelly Road, Clovelly; 2. Registered second third party mortgage over home unit at 80/127 Cook Road, Centennial Park." In a letter of 16 May 1989 the BBC replaced this offer and offered the same facility with some variation. The two above mentioned securities were still required. Under the list of securities required was the following note: "No part of the facilities will be made available until all security and other documents have been executed and the Bank's requirements in respect of the security and the facilities satisfied. The above security will extend to cover not only the principal and interest in respect of these facilities but also any other liabilities the company may have to the Bank, either past, present or future, actual or contingent, or whether alone or jointly with other persons." The letter of 16 May 1989 was forwarded with a letter from State Bank of 5 June 1989 signed by Mr Player and addressed to Mr Roberts. That explained the variations in the conditions from the April offer and asked that the signatories to the loan should sign a copy of the letter of offer on the final page and return it 4 UNREPORTED JUDGMENTS to State Bank. Mr Monaghan and Mr Roberts signed a copy accepting the conditions in respect of the loan described in the letter. Part of the agreement was that shares to a company title unit at Potts Point, which were owned by Mr Roberts, would be sold and the proceeds from the sale utilised to reduce the overdraft limit from $450,000 to $275,000. Mrs Roberts was aware in early 1989 that her husband and Mr Monaghan were looking for finance for Duro's factory. Mr Roberts told her that State Bank was prepared to make finance available, that he and Mr Monaghan were putting up their respective homes and they needed "collateral" and she was asked if she would put up her home. She agreed. She knew that Mr Roberts was selling the shares in the Potts Point unit and of his intention to pay the proceeds to State Bank and reduce the amount outstanding to $275,000. She thought that State Bank wanted an "awful lot" (of security) and she would not be taking any risk as they had always discussed that the factory should go first. Mr Roberts said that he, his wife and Mr Monaghan saw Mr Player shortly after the letter of 5 June 1989 was sent. At that meeting he and Mr Monaghan signed the copy of the letter of 16 May 1989. He agreed that he was intimately aware of the terms of the offer and realised how extensive his liability was when he read the terms of the note which I have quoted. He was unconcerned because he believed, as Mrs Roberts and Mr Monaghan believed, that the business was going to be profitable and that there should be no shortfalls. Smart J summarised the evidence Mrs Roberts gave about this meeting with Mr Player. His Honour said that after Mr Player had engaged in some small talk: "Mrs Roberts acknowledged that they were putting up the properties to secure an overdraft for $500,000. Mr Player explained to her that it was an overdraft of $450,000 and $50,000 letter of credit facility. In answer to her statement of concern Mr Player told her that he did not see that she had anything to be concerned about because there was also a mortgage over the assets of the company and the loan was very well covered. I interpolate that these comments were appropriate. Mr Player assumed competent management and the company's debts being kept under control." According to Smart J Mrs Roberts said that she mortgaged her property because she was told that the bank wanted more collateral security. She was not concerned because the amount borrowed was more than covered by the other securities. Mr Player made her feel very comfortable with his commendation of "Globite". His Honour said that at the meeting everybody proceeded on the basis that all would go well. "Mrs Roberts, a very intelligent, astute and knowledgeable lady, was very interested in the business venture which they all believed would yield substantial profits. Nobody believed that there was any real commercial risk....... However, she realised that if more money had to be borrowed and the venture failed her Clovelly property could be sold up to pay what was due to the Bank. She made a keenly judged commercial decision....... She relied on the skills of Messrs. Monaghan and Roberts." It will be seen that his Honour was not only summarising the evidence but stating what he drew from it. His Honour summarised Mr Player's evidence. His recollection was that he did not have a meeting at the bank with Mr and Mrs Roberts shortly after the letter of 5 June 1989, but "somewhat later". Mr Player stated that he remembered saying that the security looked pretty good but he did not give Mrs Roberts the impression that hers was not required. As to Globite, he said that the name was UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) a bit like Vegemite, that it should be reasonably easy to market and that all his twenty-three staff knew the name Globite. He did not recall saying that they had done very well but he said that the name Globite was very well known and that perhaps Duro would be a very successful company. He made a general observation that they had "a very good thing going with Globite". His Honour said: "Mr Player did not recall saying to Mrs Roberts that her liability would be limited to $275,000 and did not believe that he said anything to that effect. He did not recall saying that her liability was restricted to any sum. It is my view that he did not do so." Mr Player thought that Mrs Roberts asked him about the house and that he told her that the bank needed it to make up the security. He told Mr and Mrs Roberts that if the worst happened the factory, plant and equipment would be sold first, followed by Mr Roberts' home and that Mrs Roberts' house would be the last one to be sold and only if the bank had to do so to recover the money which it had advanced. He thought the meeting lasted about ten minutes. Smart J said that Mr Player impressed him as a rather simple, straightforward man devoid of guile. He tended to trust people and play with a straight bat. "He was honest but less sophisticated commercially than Mr and Mrs Roberts". Perhaps to illustrate that he referred to the fact that State Bank did not require Globite Holdings Pty Ltd, which owned the name "Globite" and the shares in Duro, to enter into any guarantee or indemnity or to assign to Duro or to State Bank the trade name. Smart J then dealt with what Mrs Roberts said about her working experience. She had worked at Arthur Andersen's, the accountants, for eleven years, leaving them at the beginning of June 1989. For her last three or four years there, she was the administration controller of the Sydney office. She was responsible in the Sydney office for the administration staff who numbered about two hundred. She had supervisors under her and reported to the national director of administration. The position was demanding and required a capable person. In her evidence in chief Mrs Roberts gave her account of the occasion in about August or September 1989 when she went to the bank and signed some documents. She could not recall whether she went alone or with others. She thought that Mr Player introduced her to Mr Daniel Marotta. She claimed that they sat at his desk in a partitioned office. She continued: eee and he produced all his paper work and made some comments about there being a lot of pages there and that it was all legal and he said "You don't need to read all of this,... You know what it is all about' and I said 'Oh yes.... there is a lot of pages there, I am not worried, I know the bank is not going to do anything wrong, I am happy to sign." This was the extent of the conversation. She then signed the documents. In cross examination Mrs Roberts was shown the following notice: "TO: PATRICIA ANN ROBERTS PLEASE READ THIS NOTICE BEFORE SIGNING THE DOCUMENT(S) ATTACHED TO IT The Bank strongly recommends that you take the attached document(s) to a Solicitor and request that its/their nature and effect be explained to you. The Bank seeks to be fair and reasonable in its dealings with you and would like to be assured that: (a) you have signed the document(s) voluntarily; (b) you understand its/their nature and effect; and 6 UNREPORTED JUDGMENTS (c) you have: - i. compared your obligations and responsibilities to the Bank with those of any other person named in the document(s); and ii. considered the consequences to you should there be any default in those obligations and responsibilities. Accordingly, the attached document(s) must be signed before an officer of the Bank or a Solicitor. That person must complete the certificate below." There followed a certificate, dated 17 August 1994, given by Mr Marotta confirming the matters listed. The documents referred to were the mortgage over the Clovelly Road land, a copy of the detailed conditions incorporated in the mortgage and an Acknowledgment and Consent of Guarantor. Mrs Roberts said that this document was probably given to her at the meeting with Mr Marotta. She said that she glanced at it and did not read it properly. She guessed that she would have read the opening words "The Bank strongly recommends you take the attached documents to a Solicitor and request that their nature and effect be explained to you." She agreed that Mr Marotta had handed to her and she had signed the Acknowledgment and Consent of Guarantor which was in the following terms: "T, PATRICIA ANN ROBERTS of 196 Clovelly Road, Clovelly (hereinafter called 'the Guarantor') hereby acknowledge: - I. STATE BANK OF NEW SOUTH WALES (hereinafter called the 'Bank') proposed to grant certain credit advances and/or accommodation and/or other banking facilities (hereinafter called the 'advance') to Duro Travel Goods Pty Ltd (hereinafter called the 'Customer'). II. The advance is secured, inter alia by a second registered third party mortgage over residential land and dwelling situated at 196 Clovelly Road Clovelly (being the whole of the land contained in Certificate of Title Volume 8102 Folio 244) from the Guarantor to the Bank. Ill. It is understood that the advance comprises various facilities to the Customer totalling Five hundred thousand dollars ($500,000.00) with the option of the Bank to extend the advance at the Bank's discretion. It is further understood that the advance may also include any future liability of the Customer to the Bank either actual or contingent or whether alone or jointly with other persons. AND IN CONSIDERATION OF THE BANK GRANTING THE ADVANCE TO THE CUSTOMER IT IS HEREBY AGREED AND DECLARED AS FOLLOWS: A. I take note of the fact that the Bank is granting an advance. B. I give my consent to the advance being secured in the same manner referred to in paral and parall above. C. I fully understand the facts and circumstances surrounding the advances to be made by the Bank. D. I am not relying on any statement or representation made by either the Bank and/or the Customer but rely totally on my own judgment or on the advice of a party independent of the Bank and/or the Customer in my consent and acknowledgment herein. E. I affirm the terms and conditions of the advance." ParallI makes plain that the advance to Duro, which was secured by the mortgage over the Clovelly Road land, might be extended and included any future liability of Duro to State Bank. Mrs Roberts asserted that she did not read this fully. She ran her eye down it casually. She did not have too much pressure UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) put on her, she did not feel that she was doing anything that she could be concerned about and she signed. They wanted to have the account opened so they could start operating. She agreed that she understood paralII. The copy Memorandum containing the conditions incorporated into the Mortgage contained the following endorsement signed by Mrs Roberts: "The enclosed memorandum has been made available to me and I have been given the opportunity of inspecting it and taking independent legal advice on its contents at my discretion." Mrs Roberts agreed that she read those words before signing the endorsement. She also signed as a director on behalf of Duro an Authority to Pay and an Authority to Date Security Documents. Mr Roberts signed as Secretary and the common seal of Duro was affixed. Mrs Roberts glanced at these documents. Smart J summarised the evidence of Mr Roberts who said that he attended at the bank to sign the mortgage documents. Mrs Roberts, Mr Player and Mr Marotta were present. In his evidence in chief Mr Roberts said that the documents were produced for signature and were too lengthy to read. They were told that they were mortgages securing an overdraft of $450,000 and letter of credit facilities of $50,000. Mr Roberts said that Mrs Roberts remarked that the limit was $500,000 in total, that there was some discussion about its being reduced to $275,000 and that Mr Marotta confirmed that the limit was $275,000. He said that everything was fairly hurried and there was not much said. In cross examination Mr Roberts said that all Mr Marotta did at the meeting was to indicate where the documents had to be signed and that all Mr Marotta said was "Sign here" as he went through the documents. At this meeting when the documents were signed there was no discussion with Mr Marotta about the overdraft being reduced to $275,000. He did not recall any discussion with Mr Player about overdraft limits. Mr Roberts said he had been chatting with Mr Player informally. He did not recall whether Mrs Roberts had said anything to Mr Marotta. His Honour referred to the questions put to Mr Roberts about different versions he had given of what took place on two days of cross examination. Mr Roberts denied that he had made up his evidence. Smart J said: "Mr Roberts said that as Mr Marotta went through the documents he indicated that a particular mortgage was his mortgage and another particular mortgage was that of his ex-wife and so forth. Mr Roberts stated that Mr Marotta did not give them the opportunity to take the documents away and seek legal advice because they were there to sign them. Mr Roberts is wrong. He and his ex-wife had ample opportunity to seek independent legal advice." Smart J turned to Mr Marotta's account. He described Mr Marotta as a nervous younger man who was overwhelmed by the experience of giving evidence in the formal setting of the Court and did not do himself justice. He was an honest witness who tried hard. The substance of his evidence which had to be pieced together was correct but the sequence in which he thought events happened and words were uttered might have been slightly inaccurate. He said that when Mr and Mrs Roberts came in to sign the mortgage documents there were initial pleasantries during which Mr Player came into the section and spoke with them. The general discussion being mainly (if not entirely) pleasantries, lasted about ten minutes. Mr Marotta produced the security documents and said that they were the security documents relating to the financial facilities being granted to Duro. Mr Marotta told Mr Roberts that he had the right to obtain legal advice which he acknowledged. He replied that things 8 UNREPORTED JUDGMENTS had been going on long enough and "I just want to get it over and done with. I know what I am signing". Mr Roberts did not want to read the documents. At one stage when Mr Marotta started to explain that the booklet headed "Memorandum" contained the conditions of the mortgage Mr Roberts stated that he knew what mortgages were, had signed mortgages before and knew what the Memorandum (or booklet) was. Smart J said that he had no doubt that these statements of Mr Roberts were made and correctly put his position and that his ex-wife went along with him. Mr Marotta explained that there was an advance of $500,000 to Duro made up of an overdraft of $450,000 and letter of credit facilities of $50,000 and that the loans were supported by security given by Duro and Mr and Mrs Roberts. Mr Marotta handed each document individually to Mr Roberts and explained what it was and indicated where he had to sign. Mr Roberts signed the document and returned it to Mr Marotta. This process was repeated with each document. He estimated that the signing process took six to eight minutes. Mr Marotta repeated to Mrs Roberts that she had the right to seek advice about the documents from an independent solicitor. She turned and spoke to Mr Roberts. She took the same approach as Mr Roberts. Mr Marotta handed to her the Acknowledgment and Consent of Guarantor and asked her to read it. She appeared to read it. He told her that if she was happy to sign the document she could do so. Smart J said: "Mrs Roberts probably did read that document. She was more than capable of understanding that document and its effect." Mr Marotta handed to her a copy of the bank's Memorandum containing the mortgage conditions. He again mentioned that she had the right to obtain independent legal advice in relation to the mortgage document. She turned around to Mr Roberts and spoke to him. She probably glanced through that document. She signed the endorsement on the front of it. She was also given the mortgage. Mr Marotta explained to Mrs Roberts that her property was being used as part of the security for the loan to Duro and that under the mortgage the bank could call up the security of her property if default occurred. He told her that the bank could sell up her property if there was default in payment by Duro. He gave her a general description of the effect of the mortgage. He did not go through the mortgage on a clause by clause basis. Mr Marotta did not think that there was any discussion about any limitation of Mrs Roberts' liability. He had no recollection of such a discussion. "He dealt with the matter on the basis that there was a loan of $500,000. Nothing was mentioned orally as to what would happen if the loan exceeded $500,000. There was no mention of $275,000 being the limit of liability." Mr Marotta's evidence was that Mr and Mrs Roberts read the shorter documents but not the booklet containing the mortgage conditions. Smart J said that this was probably correct. Mr Marotta estimated that he spent about ten to twelve minutes going through the documents with Mrs Roberts including her signing them. Mr Marotta denied that he said to Mr and Mrs Roberts that they did not need to read the documents or that they knew what it was all about. Smart J said: "Mr Roberts was an experienced businessman and accountant who was familiar with mortgages and what was taking place. He was tough and alert and inclined to be less than truthful. He was well versed in the ways of banks and lenders. Mrs Roberts was also familiar with mortgages. She is a strong minded lady who was content to accept Mr Roberts' position that independent legal advice with its cost was unnecessary. Once she read the shorter documents UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) (including the Acknowledgment and Consent of the Guarantor) and glanced at the mortgage conditions she was fully seized of the position. Both Mr and Mrs Roberts were anxious to get on with running the business of Duro. They saw it as a good business out of which they were going to make goodly sums of money. They never regarded the prospect of failure as having any reality. They knew that to obtain the finance which they wanted so much that they had to accept the Bank's terms and conditions. Mrs Roberts was upset that she faced the loss of her home and that their business judgment had been unsound. Both blamed Mr Monaghan, the Bank and the Bank's agent. Mrs Roberts' evidence was coloured largely by her desire to save her home. It was not evidence on which the court could safely rely except where corroborated by evidence other than that of her ex-husband." Having summarised the evidence and stated his views about the credibility of Mr and Mrs Roberts his Honour continued as follows: "Tt is unnecessary for me to find whether there was a meeting in June 1989 at the Bank as well as the one on 17 August 1989. There could have been a meeting in June 1989 attended by Mr and Mrs Roberts, Mr Monaghan and Mr Player. I do not feel able to say. While Mr Player thought that "Globite' was very well known and that given good and enthusiastic management the Clovelly property would not be realised, he at no time derogated from the terms of the letter of offer or the documents prepared by the Bank. He did indicate the order in which the securities would be sold, if necessary. He said that State was well covered by security. He did not say that no further moneys would be advanced under the securities and that the limits would be kept at $450,000 and $50,000. State advanced the moneys being borrowed about 12 September 1989. After some delay, the proceeds of sale of the shares of the Potts Point unit were applied to the reduction of the indebtedness to State. The assets of Duro were sold between January 1991 and mid 1991. Mr Roberts' unit in Cook Road Centennial Park was sold about 26 April 1991 and Mr and Mrs Monaghan's property at Parkwood, Queensland was sold about May 1991. State followed the order of sale of the securities indicated by Mr Player." Smart J dealt with events after the moneys were advanced and the part played by Mrs Roberts in the business of Duro. The extend of the overdraft in Duro's account with State Bank fluctuated in late 1989 reaching as high as $776,000. In early 1990 Mrs Roberts became a full time employee of Duro. With Mr Roberts and Mr Monaghan she attended a meeting in early January 1990 with Mr Leslie McCarthy, the acting Manager of State Bank's Bondi Junction Branch about the state of Duro's account with the bank. While her memory of the meeting was poor she thought that Mr McCarthy probably required something to be done about Duro's excessive borrowings. She was aware of the overdraft limit of $450,000 had been exceeded and was in excess of $600,000 in January 1990. Smart J observed that Mrs Roberts agreed that she had executed a first mortgage over her property to National Australia Bank Ltd and that at the time of execution she had understood what it was about. She accepted that by letter of 18 March 1990 Mr Roberts proposed to State Bank that the overdraft remain at $676,000. From 19 February 1990 the bank statements relating to Duro's account were collected from State Bank by, amongst others, Mrs Roberts. His Honour said that mostly the overdraft seemed to vary between $650,000 and $700,000 and that it was incorrect to suggest that, at the time, Mrs Roberts did not know the position and approximate amount of the overdraft. During this period there 10 UNREPORTED JUDGMENTS were conversations with bank officers. They wanted the outstanding balance substantially reduced. This unsatisfactory situation continued until January 1991 when State Bank took steps to make recovery. On this appeal it is unnecessary to refer to this in the detail that the issues at the trial required of Smart J. Nor is it necessary to dwell upon the steps taken to realise Duro's assets. Smart J said of Mrs Roberts' submissions that they placed emphasis upon the fact that the letter from State Bank of 16 May 1989 did not state expressly that she would be personally liable for the indebtedness of Duro. She also placed emphasis upon that matter not being expounded when the mortgage documents were signed. His Honour said: "T think that Mrs Roberts was probably aware that she was personally liable to State in respect of amounts due to [sic "by""'] Duro. Generally, with mortgages and third party mortgages the mortgagor has personal liability. It is usual and expected. It is many years since the requirement for a solicitor to give a Moratorium Certificate that he had explained the effect of the personal covenant was abolished. Personal liability is important and was understood by both Mr and Mrs Roberts to exist in the present case." Dealing with Mrs Roberts' claim that the documents prepared by State Bank were oppressive his Honour found that they were cast in terms which were common and were not oppressive. He said he was unable to find any conduct on State Bank's part which would give rise to it being estopped nor any conduct which could be described as unconscionable. "This flows in part from my inability to accept much of the evidence of Mr and Mrs Roberts. In some instances it was tailored to assist the case of each of them." He did not regard the conduct of any of State Bank's officers as either dishonourable or less than frank. Dealing with alleged breaches by State Bank of the Fair Trading Act 1987 his Honour said: "It is important not to lose sight of the knowledge, business experience and toughness of Mr and Mrs Roberts and the ability of each to manage his or her affairs and to make business decisions." Of Mrs Roberts' defence in reliance upon the Contracts Review Act 1980 his Honour said: "T do not regard the contract (the mortgage) as being unjust at the time it was made. Despite the optimism which existed at the time the risk of financial failure with such a venture cannot be overlooked. There was neither substantive nor procedural unfairness or injustice. She relied on her ex-husband's skill and judgment. She had obviously talked the matter through with him and she was not under pressure. She would not yield to pressure. None was applied. Her ex-husband was the most experienced commercial man present. He did not mislead her and was anxious to protect her. His belief in Globite and the business' future was genuine even if mistaken. Even if Mrs Roberts had technically been entitled to relief I would refuse it on discretionary grounds. While the explanation of the bank officers could have been fuller she understood prior to signing the security documents that her house could be taken to meet the losses of Duro and that she was personally liable for those losses. She was prepared to accept the terms required by the bank because she wanted the bank to lend the moneys required for the venture as she believed that it would be successful and make substantial profits. She was never misled in any material way. She was prepared to take a business risk because she believed it was a small one which would never eventuate. Her real complaint is against the business management and skills of the directors and the senior executives of Duro. At all times she was aware of the state of Duro's account with the bank." UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) His Honour considered that none of Mrs Roberts' defences or grounds for the cross claim had been made out. He observed: "The critical facts are not as she claimed." Turning to Mr Roberts his Honour said that Mr Roberts said that at the time he signed the documents, including before and shortly afterwards, no one made any reference to the personal covenants on his part. Mr Roberts denied that he ever agreed to be personally liable to State Bank for the debts of Duro. Any liability on his part was to be limited to the securities which he provided. Smart J continued: "T have earlier referred to some of Mr Roberts' evidence when the mortgage documents were signed. He said that when Mr Marotta passed the documents to him he said that they were the mortgages for signing. Mr Marotta did not insist that he read them nor did Mr Marotta tell him not to read them. Mr Marotta referred Mr Roberts to the bank's written statement that he was free to obtain legal advice. Mr Roberts agreed that he knew that that statement meant that he could take the documents away to a lawyer of his own choice or anybody else and have that person explain the document. He chose not to do so. Mr Roberts estimated that he would not have spent more than twenty minutes signing the documents. Mr Roberts believed that he understood mortgages. He did and was well aware that he was personally liable under the mortgage documents to pay the moneys which State had advanced to him and Duro and that if there was a shortfall when the properties were realised he would be called upon to make up the difference." His Honour referred to a facsimile message dated 9 September 1991 in which Mr Roberts referred to a meeting with a bank officer, Mr Lee, on 5 September 1991 and forwarded a "Statement of Assets and Liabilities". At the bottom of the Statement of Assets and Liabilities appeared the following: "There is also an undetermined amount owing to the State Bank of New South Wales." Mr Roberts said that this was a statement that he had liability to State Bank on his personal account which had to be determined. Smart J observed that Mr Roberts was uncomfortable when he gave his evidence about the statement quoted. Of Mr Roberts' evidence his Honour said: "Mr Roberts' evidence was so strongly coloured by his desire to save himself financially that it was not acceptable. He was aware of the thrust of the questions and the answers which he needed to give to avoid liability. As he gave his evidence I felt that Mr Roberts was being less than truthful." Smart J found as follows: "T am satisfied that he was aware before signing the mortgage documents that he was personally liable under the mortgages including the third party mortgage. He was aware that that was the usual situation under most mortgages. He was familiar with mortgagees and did not want to spend much time over them. He could see that the Bank's standard forms were being used with adjustments to suit the particular case. He knew that he had to accept the bank's terms of any loan or he would not receive the money. The bank would never have waived the personal covenants and, even if Mr Roberts had not been aware of his personal liability, he would have accepted it as the price of obtaining finance from State for what he regarded as a good business venture likely to yield substantial profits." 12 UNREPORTED JUDGMENTS His Honour rejected the contention that State Bank's mortgages, charges and documents were unjust at the time they were made. He held there was neither substantive nor procedural unfairness. He rejected Mr Roberts' cross claims and said that the mortgages were not the product of unconscionable and unfair conduct on State Bank's part. He observed: "The facts were not as Mr Roberts claimed. The true facts destroy all his defences and cross claims." Appeal Both Mr and Mrs Roberts filed notices of appeal from Smart J's decision. The Court gave leave, which was not opposed, to amend the grounds of appeal. As a result the grounds of appeal were reduced to the following. In Mrs Roberts' appeal: "1. His Honour was in error by concluding that the mortgage contract and the terms and conditions of that contract were not unjust within the meaning of the Contracts Review Act, 1980. 2. His Honour was in error: (a) in concluding that the appellant had business experience and toughness and ability to make business decisions; alternatively (b) by failing to give adequate reasons for that finding; alternatively (c) by not concluding from the uncontradicted evidence of the appellant's business experience and the uncontradicted evidence of the appellant's ability to manage her own affairs that the submissions made by the appellant did have reality. 3. His Honour was in error in finding that the appellant had familiarity with mortgages and mortgage arrangements." In Mr Roberts' appeal: "1. His Honour was in error in concluding that the respondent did not engage in unfair conduct within the scope of the Contracts Review Act. 2. His Honour was in error in not finding that such unfair conduct was a failure by the respondent to warn the appellant that the mortgages which he executed included an 'all moneys' guarantee and that the appellant's personal liability for the debts of the company was more extensive than a liability limited to the extent of his equity in the properties which he mortgaged." However the argument was developed somewhat differently. Both appellants claimed relief under s7(1) of the Contracts Review Act 1980. They submitted that Smart J should have found that the contracts of mortgage, under which State Bank claimed against them were unjust in the circumstances relating to each contract at the time that it was made. Counsel submitted orally, though this was not directly taken up in the amended notice of appeal, that Mr Player led Mrs Roberts to believe that there was no risk in her giving the mortgage because State Bank had plenty of security and the business of Duro was a great business. It was submitted that his Honour should have found that if Mrs Roberts had known that there was any risk she would not have executed the mortgage. Mrs Roberts also claimed that State Bank was bound to inform her of the personal covenant in the mortgage, which it failed to do. The inference drawn by his Honour about Mrs Roberts' business experience and familiarity with mortgages was wrong or not supported by sufficient reasons. Mr Roberts said that he did not know when he executed the mortgage that he was giving State Bank an all moneys guarantee which extended beyond the value of his equity in the properties he had mortgaged. Arguments On Appeal UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) Before dealing with the appellants' submissions I shall summarise the salient findings made by Smart J. ¢ Mrs Roberts was a very intelligent, astute and knowledgeable lady and was very interested in the business venture which they all believed would yield substantial profits and did not involve any real commercial risk. ¢ Mr and Mrs Roberts were more commercially sophisticated than Mr Player. « It was important not to lose sight of the knowledge, business experience and toughness of Mr and Mrs Roberts and the ability of each to manage his or her affairs and to make business decisions ¢ Mrs Roberts relied on her ex-husband's skill and judgment. She had obviously talked the matter through with him and she was not under pressure. She would not yield to pressure. None was applied. At the various meetings her ex-husband was the most experienced commercial man present. He did not mislead her and was anxious to protect her. * The letter of 16 May 1989 included the statement that the security mentioned would extend to cover not only the principal and interest in respect of the facilities to be provided to Duro but also any other liabilities the company might have to the State Bank, either past, present or future, actual or contingent, or whether alone or jointly with other persons. While Mrs Roberts claimed she had not seen this letter until a few weeks before she gave evidence, his Honour had considerable doubt whether that was correct. ¢ His Honour said that Mr Player's statement to Mrs Roberts that he did not see that she had anything to be concerned about because there was also a mortgage over the assets of the company and the loan was very well covered were appropriate. I interpolate that the State Bank's application for facilities prepared in April 1989 showed the value of securities after various discounts as in the order of $750,000. This was based either upon "customer's estimate" or the balance sheet of Duro. At no time did Mr Player derogate from the terms of the letter of offer or the documents prepared by the bank. He did not say that no further moneys would be advanced under the securities and that the limits would be kept at $450,000 and $50,000. ¢ Mrs Roberts read the opening words of the bank notice to the effect that the bank strongly recommended that she take the attached documents to a solicitor and request that their nature and effect be explained to her. ¢ Mr Marotta handed Mrs Roberts the Acknowledgment and Consent of Guarantor which she appeared to, and probably did, read. She was more than capable of understanding that document and its effect. She agreed she understood paralll. ¢ Mr Marotta explained to her that the property at Clovelly Road was being used as part of the security for the loan to Duro and that under the mortgage the bank could call up the security of her property if default occurred. He told her the bank could sell up her property if there was a default in payment by Duro. He gave her a general description of the effect of the mortgage. He dealt with the matter on the basis that there was a loan of $500,000. Nothing was mentioned orally as to what would happen if the loan exceeded $500,000. ¢ Before Mrs Roberts signed the documents Mr Marotta told her she had the right to seek advice about them from an independent solicitor. She turned and spoke to Mr Roberts. Mr Roberts had said that he just wanted to get it over and done with and that he knew what he was signing. He did not want to read the documents. Mrs Roberts took the same approach. 14 UNREPORTED JUDGMENTS * Mrs Roberts was familiar with mortgages. She was a strong minded lady who was content to accept Mr Roberts' position that independent legal advice with its cost was unnecessary. Once she read the shorter documents (including the Acknowledgment and Consent of the Guarantor) and glanced at the mortgage conditions she was fully seized of the position. ¢ When Mr Marotta handed her a copy of the bank's Memorandum containing the mortgage conditions he again said she had the right to obtain independent legal advice in relation to the mortgage document. She turned around to Mr Roberts and spoke to him. She probably glanced through the document. * Mrs Roberts signed the Acknowledgment and Consent of Guarantor, wherein she acknowledged that it was understood that the advance to Duro comprised facilities totalling $500,000 "with the option of the bank to extend the advance at the bank's discretion. It is further understood that the advance may also include any future liability of (Duro) to the bank either actual or contingent or whether alone or jointly with other persons" (parallII). ¢ Mrs Roberts did not have too much pressure put on her, she did not feel that she was doing anything that she should be concerned about and she signed. She and her former husband wanted to have the account open so they could start operating. « Mrs Roberts' evidence was not evidence on which the Court could safely rely except where corroborated by evidence other than that of her ex-husband. Mrs Roberts' Appeal Mrs Roberts was said to have been misled at the meeting with Mr Player by his statements about the risk of her mortgaging the Clovelly Road land. Two particular passages in her evidence were relied upon. "Q. Having talked about the values and ascertained you were a good guesser of value, what happened then? A. There was a lot of talk about Globite and it was extremely light-hearted and friendly - jovial. At some point Kevin said there was still discussion of properties and Kevin said to Mr Player that I was a little bit concerned about putting my house up, which I was because as I said earlier I could not see how they wanted all of this security - $275,000 loan, and Kevin told Mr Player how he had explained to me obviously, the factory if anything happened - the factory, plant and equipment would be used first and if the worst came to the worst it would be Kevin's place that would be used and that mine would be the last to go, but there was no question of it ever going --- Objection Q. If we could concentrate on what was said? A. All of this was said with Mr Player, how he had explained to me that the factory collateral, followed by Kevin's." Later in cross examination she gave this evidence: "Q. Everybody proceeded on the basis of things going well, did they? A. That's right. Mr Player made me feel very comfortable with his attitude saying, 'Gee, you have, you know you have got a good thing going with Globite'. I wasn't concerned. And I wasn't concerned because of the amount that was borrowed the other securities more than covered it. HARRISON: Q. But you knew that the company might require more than that money if things did not go well, didn't you? A. I suppose so, yes. Q. And you were aware that if that was to occur, your property would, of course, become at greater risk of being sold? A. No, because the other properties were going to realise that we had signed for. UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Sheller JA) Q. But if the company were to borrow more money on the other properties than the value of the other properties and the value of the company's assets, you were fully aware that your property was very much at risk, weren't you? A. We did not borrow more money. Q. Just take my question as it comes, if you would. It was - you were very well aware that if the company borrowed more than was the value of the other directors' properties and the assets of the company, your property was very much at risk? A. In the event that - can I answer my way? If that had occurred, I would not have then been happy for my property to have been up if Kevin and Richard said, 'Okay, we have got to borrow more money from the bank', and then if I'd known my property would have been at risk, I wouldn't have agreed to my property being put up. Q. My question was - you knew as early as the meeting with Mr Player that if the company's debts exceeded its asset value and the value of the properties combined of the other directors, your property was liable to be sold? A. I have already answered you. Q. Did you know that or did you not know that? A. No, I didn't because I would not have agreed to it happening." It is not clear to me either from the pleading or his Honour's judgment that this point was raised at the trial. However I regard it as without merit. In the context of his Honour's findings I do not accept that Mrs Roberts believed, on the basis of anything that Mr Player or any other bank officer said to her, that the risk she was undertaking was any less than it was in truth. She no doubt had-high hopes that the business would succeed and the security would not be called upon. Those hopes were not based on anything State Bank said to her but on the views that she and her former husband had formed as to the viability of Duro. At one stage it was put that Mrs Roberts was not aware that she would be liable if the bank made further advances to Duro beyond $500,000. Mrs Roberts submitted that State Bank never expressly brought to her attention the open ended nature of her commitment and in particular the extent of her personal liability. The fact that, even if she had not fully read, she understood paralII of the Acknowledgment and Consent of Guarantor and signed it makes this submission impossible to support. No ground has been made out on this appeal for concluding that Mrs Roberts was misled by the bank either as to the nature of the risk she undertook or because she was left in a position where she was unaware of the nature of the mortgage and particularly the personal covenant. Counsel submitted that Mrs Roberts' only previous experience with a mortgage related to her own house some ten years previously and that there was no evidentiary basis for a finding that Mrs Roberts had business experience and the toughness and ability to make business decisions. Smart J referred to the high administrative position held by Mrs Roberts in the Sydney office of a large firm of accountants. His conclusions about Mrs Roberts were formed after he had seen her in the witness box. As counsel for the respondent pointed out, it was she who introduced into the evidence she gave the expression "collateral" which she then repeated from time to time. In my opinion her evidence, while patently evasive, allowed his Honour to come to the conclusions that he did about her. Mr and Mrs Roberts presented to his Honour as people of commercial sophistication. Mr Roberts did not want to read the documents and stated that he knew what mortgages were. His Honour found that this correctly put his position. Mrs Roberts, having spoken to her husband, took the same approach as Mr Roberts. Both were given ample and unconditional opportunities to seek advice 16 UNREPORTED JUDGMENTS from an independent solicitor. Neither availed themselves of that. His Honour found that personal liability was important and was understood by both Mr and Mrs Roberts to exist in the present case. In my opinion Mrs Roberts' appeal fails. Mr Roberts' Appeal Mr Roberts' appeal fails for similar reasons. In Devries v Australian National Railways Commission (1993) 177 CLR 472 the defendant appealed against a trial judge's decision which was based on his express acceptance of the plaintiff's account of events in the knowledge that there were inconsistencies between the plaintiff's evidence and statements he made in reports after the accident. The Full Court of the South Australian Supreme Court allowed the appeal on the ground that the inconsistencies between the plaintiff's oral evidence and other material threw such grave doubt on his testimony as to require the conclusion that the plaintiff had failed to establish that the incident had happened as he had sworn. The High Court reversed the decision of the Full Court. At 479 Brennan, Gaudron and McHugh JJ said: "\... that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'." More than once Smart J said that he did not accept the evidence of Mr and Mrs Roberts. Mr Roberts denied that he ever agreed to be personally liable to State Bank for the debts of Duro. His Honour observed: "Mr Roberts believed that he understood mortgages. He did and was well aware that he was personally liable under the mortgage documents to pay the moneys which State had advanced to him and Duro and that if there was a shortfall when the properties were realised he would be called upon to make up the difference." There is nothing glaringly improbable about this conclusion. It is not inconsistent with facts incontrovertibly established by evidence. For the purposes of this appeal it does not matter, but having read his Honour's judgment and the evidence to which we have been referred, I would have reached the same conclusion. Failure To Give Reasons Faced with the difficulty of overcoming Smart J's findings of fact the appellant amended its notice of appeal to assert that his Honour had failed to give sufficient reasons for his conclusions. In particular this was directed to the findings about Mrs Roberts' business experience and ability to make business decisions. In Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 280 McHugh JA, as he then was, said that the obligation, where it exists, to give reasons for a decision does not require lengthy or elaborate reasons. It is necessary that the essential ground or grounds upon which the decision rests should be articulated. Smart J carefully summarised the evidence and in the course of his judgment stated conclusions about it. I have highlighted the various factors which were critical. Mr and Mrs Roberts denied knowledge of the personal covenants. But his Honour did not accept their evidence. Quite simply the onus was on them to demonstrate that the mortgage contract was unjust. To do that they sought to establish that they entered into it without being aware of UROBERTS v STATE BANK OF NEW SOUTH WALES; ROBERTS v STATE BANK OF NEW SOUTH WALES (Powell JA) some of its terms. His Honour was not satisfied that this was so and rejected their claim. The appellants have not to my mind shown any reason for disturbing his Honour's conclusions. Powell JA I agree with Sheller JA. Appeals dismissed with costs. Counsel for Appellant: B C Oslington QC AND R W Cameron 10 Solicitors for Appellant: Cradock Murray & Neumann Counsel for Respondent: I G Harrison Solicitors for Respondent: Gordon & Johnstone