New South Wales Supreme Court CITATION : IMB Society Limited v White & Ors [2000] NSWSC 1085 FILE NUMBER(S) : SC 10736/1995 HEARING DATE(S) : 17/04/00, 18/04/00, 19/04/00, 20/04/00, 19/06/00 JUDGMENT DATE : 24 November 2000 Illawarra Mutual Building Society Limited - Plaintiff Margaret Lorraine White - Defendant Margaret Lorraine White - First Cross Claimant PARTIES : Illawarra Mutual Building Society Limited - First Cross Defendant Margaret Lorraine White - Second Cross Claimant Dennis Grogan, Lewis Webb - Second Cross Defendant Illawarra Mutual Building Society Limited - Third Cross Claimant Dennis Grogan, Lewis Webb - Third Cross Defendant JUDGMENT OF : Bell J at 1 DM Loewenstein - Plaintiff, First Cross Defendant and 3rd Cross Claimant COUNSEL : R D Wilson - Defendant, 1st and 2nd Cross Claimants G Inatey SC - 2nd and 3rd Cross Defendants Russell McLelland Brown - Plaintiff, First Cross Defendant and 3rd Cross Claimant SOLICITORS : AM Dickinson & Son - Defendant, 1st and 2nd Cross Claimants Colin Biggers & Paisley - 2nd and 3rd Cross Defendants CATCHWORDS : Claim for possession - cross claim against lender seeking relief pursuant to Contracts Review Act - cross claim against solicitors - breach of retainer, negligence and breach of fiduciary duty (no informed consent to double employment and non-disclosure of material facts). LEGISLATION CITED : Contracts Review Act, 1980 Real Property Act, 1900 Goldsborough v Ford Credits (unreported) NSWSC, Young J, 10.11.89; Teachers Health Investments Pty Ltd v Wynne (1996) ASC 56-356; National Home Loans Corporation Plc v Giffen Couch & Archer [1998] 1 WLR 207; West v AGC (Advances) Ltd (1986) 5 NSWLR 601 per McHugh JA at 621; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398; Gellert v Bellamy [1999] NSWCA 123; Clark Boyce v Mouat [1994] 1 AC 428; CASES CITED : Farrington v Rowe McBride & Partners (1985) 1 NZLR 83; Bristol & West Building Society v Mothew [1997] 2 WLR 436 at 450E; Boardman v Phipps [1967] 2AC 46 at 124; Beach Petroleum NL v Kennedy & Ors [1999] NSWCA 408, 48 NSWLR 1 at para 425; Lowy v Alexander [2000] NSWSC 661; Stewart v Layton (t'as B M Salmon Layton & Co) (1992) 111 ALR 687; Thompson v Mikkelson (unreported) NSWSC 3.10.74; Wan v McDonald (1992) 33 FCR 491 at 511; Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at 469; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262; Maguire v Makaronis (1997) 188 CLR 449; Target Holdings Ltd v Redferns [1996] 1 AC 421 at 432E-H; DECISION : Judgment for the plaintiff for possession. First, second and third Cross-claims dismissed. Defendant and first cross-claimant to pay plaintiff/first cross-defendant's costs. Second cross-claimant to pay the second cross-defendant's costs. IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BELL J 24 November 2000 10736/95 - Illawarra Mutual Building Society Ltd v Margaret Lorraine White & Ors JUDGMENT HER HONOUR: Introduction 1 On 31 December 1992 the plaintiff, the Illawarra Mutual Building Society Ltd ("the IMB") advanced the sum of $240,000 to Margaret Lorraine White, the defendant, ("Mrs White") and Mr John Maggio upon the security of a mortgage over premises at 114 Quarry Road, Ryde ("the premises") of which Mrs White was the registered proprietor. It is common ground that the monies were not repaid in accordance with the terms of the loan agreement. By these proceedings the IMB claims possession of the premises. 2 Mrs White resists the IMB's claim contending that the mortgage should not be enforced against her because it would be unconscionable so to do or because it is an unjust contract within the meaning of s 7 of the Contracts Review Act, 1980 ("the Act"). Mrs White also cross claims against Dennis Grogan and Lewis Webb, solicitors practising in partnership under the name "Grogan & Webb" ("the solicitors"). The solicitors were retained by Mrs White and Mr Maggio and by the IMB in relation to the execution of the loan agreement and mortgage ("the transaction"). Mrs White's claims against the solicitors are pleaded in contract, tort and breach of fiduciary duty. 3 The proceedings came on for hearing before Abadee J on 28 September 1999. Mrs White gave evidence on that occasion. The following day his Honour granted leave to Mrs White to amend her second cross claim. The hearing of the proceedings was not completed on that day. Abadee J's commitments did not permit him to return to the hearing of the matter on any date this year. For this reason the proceedings before Abadee J were abandoned and the matter was fixed for hearing afresh. The parties agreed to the tender of the evidence of Mrs White given before Abadee J in the proceedings before me. I should observe that Mrs White was further cross examined before me. The Facts 4 The premises are Mrs White's family home and her sole asset of value. As at the date of the transaction Mrs White was aged forty five years. She was the mother of four children who were then aged between twelve and twenty years. 5 The premises were purchased in 1976 by Mrs White and her first husband, David Crees. Around January 1984 the couple obtained a divorce. The terms of the property settlement provided for Mrs White to acquire sole title to the premises in return for the payment of the sum of $50,000 to Mr Crees. 6 It was necessary for Mrs White to take out a loan from the ANZ Bank in order to pay the lump sum due to her first husband. On 14 April 1984 Mrs White married Aubrey White. Mr White attended to the negotiation of the loan with the ANZ Bank. It was secured by a registered first mortgage over the premises. Mr White arranged the repayments of the loan. In due course the loan was repaid and the title documents were returned to Mrs White. 7 Mr Maggio operated a small goods shop located on the corner of Quarry Road and Dobson Crescent, Ryde. Mrs White first met Mr Maggio around 1986. His son was involved in the same sporting pursuits as one of Mrs White's children. Arising out of this link the two families came to be on friendly terms. 8 Around April 1992 Mr Maggio told Mrs White that he was involved in a commercial venture with an accountant named David Mansfield. He said that the pair of them were trying to raise money for a gold deal in the Philippines. He asked if Mrs White was interested in investing in the scheme. Mrs White said that she would need time to think about the matter. By this time her marriage to Aubrey White was in difficulties and there was talk of a separation. Mrs White was mindful that she may need to raise a further substantial lump sum in order to effect a settlement with Mr White with respect to his interest in their matrimonial property. 9 Mrs White viewed Mr Maggio's investment proposal as a means of raising money to pay out Mr White. In April 1992 she spoke with Mr Maggio and she offered to invest the sum of $10,000 with him. Mr Maggio said that he would pay 15% interest. Principal and interest were to be repaid within nine months. Mrs White agreed to this arrangement. On 24 April 1992 she gave Mr Maggio a cheque for $10,000. She prepared a document described as a loan agreement which Mr Maggio signed. The document acknowledged Mr Maggio's receipt of the $10,000 noting that the principal sum together with interest calculated at 15% per annum were to be repaid by 24 January 1993. 10 In May 1992 Mrs White had a conversation with Mr Maggio in which he told her that "David needs more money for the gold deal". As a result of that conversation, on 16 May 1992, Mrs White gave Mr Maggio a cheque drawn in the sum of $20,000. Again, Mrs White drafted a form of loan agreement which was signed by Mr Maggio. 11 Around the middle of 1992 Mr Maggio told Mrs White about a commercial venture to raise money for a gold deal. He explained that someone "puts up their property for six months at no risk for $20,000". 12 In the months that followed Mrs White spoke with Mr Maggio on more than one occasion concerning the gold deal. During one of these conversations Mrs White inquired: White: "If I put up my house what sort of benefits would I get?" Maggio: "You put up your house for six months, you get $20,000 in return, there is absolutely no risk. David Mansfield arranges the deal overseas and if anything terrible happens, David will sell his accountancy practice in Sydney". White: "Is there any risk?" Maggio: "There is definitely no risk". White: "What happens if something happens to you?" Maggio: "I will put the loan agreement with my will in the safe and if anything happens, my insurance policy one million would cover the house". White: "Let's go ahead". 13 On 1 September 1992 Mrs White lent a further $2,000 to Mr Maggio. On 16 October 1992 she lent him the sum of $15,187. Both these further loans were the subject of agreements drafted by Mrs White and signed by Mr Maggio. 14 Around October 1992 Mrs White handed Mr Maggio the documents of title relating to the premises. 15 On 27 October 1992 Mrs White signed a document described as "Mortgage Application" addressed to Finance Mortgage Corporation ("FMC"). That document recited that Mr Maggio and Mrs White were applicants for a loan in an amount of $360,000. It proposed that security would be offered by way of first registered mortgage over the premises. The purpose of the loan was said to be "to pay out existing mortgage". The application contained a representation that Mrs White was employed by Mansfield & Co as a computer consultant. This was not true. Mrs White noted this false statement and asked Mr Maggio about it. In the event, she proceeded with the application knowing that it contained the false representation as to her employment. 16 On 20 November 1992 Neil MacDonald of FMC sent a memorandum to the solicitors. It was in these terms: "New Matter - White & Maggio I am preparing a new matter for clients who jointly own a property, but is lived in by only one, with the property held in the name of the resident (land tax purposes). Loan is to be via IMB and we are seeing $350,000 over fifteen years. Can you urgently advise joint income that they would require to show". 17 It appears that the memorandum of 20 November 1992 was the first notice the solicitors had of the application by Mr Maggio and Mrs White for loan funding. The solicitors responded to the FMC advising that an income of $120,000 would be sufficient to support a loan in the stated amount. 18 By letter dated 30 November 1992 the solicitors advised FMC that they were awaiting income details before they were in a position to proceed further in the matter of Maggio and White. Subsequently on or about 2 December 1992 FMC supplied the solicitors with a letter signed by David K Mansfield of Mansfield & Co, public accountants, certifying that Mrs White was employed by that firm as a computer consultant. Her remuneration was said to be $44,980 per annum. 19 By memorandum dated 4 December 1992 FMC advised the solicitors that an appointment was urgently needed for their clients Maggio and White. Thereafter the solicitors wrote to the IMB referring to an appointment for Mr Maggio and Mrs White to attend at the Chatswood office at 2 PM on 9 December 1992. I think it likely that this appointment was not kept. 20 A letter dated 9 December 1992 written by the solicitors to the IMB asserted that the premises were worth $460,000. Subsequently the premises were valued by T R Houlahan. On 14 December 1992 Mr Houlahan prepared a report valuing the premises at $290,000. 21 In the light of the relatively low valuation FMC forwarded a new loan application on behalf of Mr Maggio and Mrs White to the solicitors on 16 December 1992. By this application a loan in the amount of $240,000 was sought to discharge the existing mortgage. 22 Attached to the mortgage application forwarded on 16 December 1992 was a letter signed by Dean Peters, Director, Meridian Management ("Meridian"), dated 16 December 1992. It was addressed to Mr Grogan and was in these terms: "I refer to our discussions of yesterday and confirm that the total amount of our loan to the above is $240,000. Interest payments are up to date, and the account has been well conducted. Please contact us when you have a firm settlement date." Mr Grogan understood that Meridian was related to FMC. 23 Mr Grogan wrote to FMC on 16 December 1992. In that letter he referred to a tentative appointment for Mr Maggio to attend his office at 2.30 PM on 17 December and thereafter to attend the IMB at 3 PM on the same day. By reference to notations appearing on the front cover of the solicitors' file it would appear that the appointment for Thursday 17 December 1992 at 3 PM was changed to 11 am on Friday 18 December. 24 There was some issue as to the date of the conference between Mr Grogan and Mr Maggio and Mrs White. There was a similar issue with respect to the date on which Ms Roebuck, Loans Development Manager, Chatswood Branch, IMB first saw Mr Maggio and Mrs White and obtained the details which were included in their Loan Application form addressed to the IMB. It is common ground that Mr Maggio and Mrs White attended only one conference with Mr Grogan. Both Mr Grogan and Ms Roebuck were of the view that they had seen Mr Maggio and Mrs White on 9 December 1992. They relied on diary entries and correspondence in fixing this date. 25 Mrs White recalled that she and Mr Maggio attended a conference with Mr Grogan on the same day that they were interviewed by Ms Roebuck. She could not exclude the possibility that the two of them had seen Ms Roebuck on 9 December however she had no memory of that having occurred. The day she remembered seeing both Mr Grogan and Ms Roebuck was in the week before Christmas. She had been conscious of the need to get home in order to take the children Christmas shopping. 26 Ms Roebuck believed that she had completed most of the information set out in the IMB's Loan Application form during a meeting with Mr Maggio and Mrs White on 9 December. That document is Ex 4. The amount sought by way of loan is $240,000. That figure shows no sign of alteration. As at 9 December (prior to receipt of the Houlahan valuation) Mr Maggio and Mrs White were seeking a loan of $360,000. 27 Mr Maggio and Mrs White signed the IMB's Authority for Loan Repayment Transfers on 18 December 1992. 28 In the light of Mrs White's evidence and having regard to the contents of the Loan Application form and the date of execution of the authority for loan repayment transfers together with the notations on the solicitors' file I am satisfied that the conference between Mr Grogan and Mr Maggio and White took place on 18 December 1992. I am also satisfied that the meeting at which Ms Roebuck completed the IMB's Loan Application form on behalf of Mr Maggio and Mrs White was on 18 December 1992. 29 The contents of the conference between Mr Maggio, Mrs White and Mr Grogan is the subject of some controversy. I will return to this in due course. Suffice it to note that it took place before the IMB had approved the loan. No loan agreement or security documentation had been prepared at that time. In the ordinary course Mr Grogan would have conferred with Mr Maggio and Mrs White on a subsequent occasion (assuming their application for loan funding had been successful) in order to explain the contents of the agreement and security documents and to witness their execution of the same. 30 Following the conference with Mr Grogan Mr Maggio and Mrs White attended a meeting with Ms Roebuck at the IMB's Chatswood Branch. Again, the contents of this meeting are controversial and I will return to it in greater detail. For present purposes it is to be noted that Mr Maggio and Mrs White made application for a loan in an amount of $240,000 on this occasion to be secured by first registered mortgage over the premises. The loan application described the purpose of the loan as being the refinance of an existing mortgage. 31 Mr Maggio and Mrs White's application was approved by the IMB on 24th November 1992. Thereafter the solicitors arranged for the agreement and mortgage documents to be prepared. Their offices were closed over the Christmas break. Mr Maggio and Mrs White wanted early settlement of the loan. They were advised to collect the documents from the solicitors' office and take them to the IMB for execution. 32 The deeds of loan and guarantee were executed by Mr Maggio and Mrs White in the presence of Ms Roebuck at the IMB's Chatswood office on 29 December 1992 (the mortgage appears to have been executed by Mrs White on 31 December 1992, again, in the presence of Ms Roebuck). Mr Grogan was on holidays. He returned to his office on 29 December to sign a letter addressed to the IMB confirming that the matter was ready for settlement. He did not confer with Mrs White on that occasion. It is not suggested that Mr Grogan explained the terms of the loan agreement or the security documents to Mrs White. 33 In February 1993 Mr Maggio told Mrs White "David needs more money for the security guards in the Philippines". Mrs White asked how much money was required and Mr Maggio replied "as much as you can manage". Following this conversation Mrs White lent a further $20,000 to Mr Maggio on or about 16 February 1993. She prepared a form of loan agreement which was signed by Mr Maggio on that day. 34 In the period between January and June 1993 repayments of the loan were made to the IMB in accordance with the terms of the agreement. Mrs White collected cheques from Mr Maggio which had been apparently drawn by David Mansfield. She deposited them in their account at the Chatswood branch of the IMB. 35 During March and May 1993 Mrs White lent Mr Maggio a number of smaller sums amounting in total to $5,300. On 11 June 1993 she obtained Mr Maggio's signature to a further loan agreement detailing these latter sums. 36 On 4 June 1993 Mrs White lent a further $14,000 to Mr Maggio. Again she prepared a loan agreement which was signed by Mr Maggio. At the time she advanced this sum she was concerned about the fact that Mr Maggio and Mr Mansfield continued to need so much money when they had already had access to the $240,000 borrowed from the IMB. 37 Around July 1993 Mr Maggio stopped providing cheques for the repayment of the IMB loan. Mrs White started borrowing from friends in order to meet the repayments. By December 1994 she had run out of resources to do so. The Conference with Mr Grogan 38 Mrs White's account of the conference between herself, Mr Maggio and Mr Grogan was significantly at odds with Mr Grogan's account of the same. In summary she stated that the conference had been a short one in which she played little role. She said that most of the discussion had taken place between Mr Maggio and Mr Grogan and concerned the lending requirements of the IMB and when settlement was likely to occur. She denied that Mr Grogan told her that he was also the IMB's solicitor. She said she had not been asked the purpose of the loan nor how it was proposed that it might be repaid. There was no discussion of the consequences of default. 39 Mr Grogan's account of the conference was set out in his affidavit, sworn on 10 December 1997. In paragraph 14 he stated that at 12.30 PM on 9 December 1992 he conferred with Mrs White and Mr Maggio. At that time there was no IMB loan application form available, nor any form of mortgage. Mr Grogan characterised the meeting as "an initial conference". He said that he had asked whether the property was held in joint names at the commencement of the conference and that Mrs White had said "It's just my place". Mr Grogan said that he informed Mrs White: "If the loan has been approved in two names then both of you are responsible but your home is total security for the loan. If there is default in repayment IMB could take possession of the property and sell it." 40 Mr Grogan went on to recount that he had asked Mrs White whether she had had a mortgage before and that she said "yes". He said to her "do you know what's involved?" and she replied "they can sell your place if you don't make the repayments". He said that during the course of the conference he had also advised Mrs White "in the event of default, you could lose your house" and "your whole home is being used as security" and "in the event of default IMB could sell your whole home even though you are only one of the borrowers". It was Mr Grogan's account that he had inquired as to the identity of the existing mortgagee and been informed it was Meridian. 41 Mr Grogan made no notes of his conference with Mrs White and Mr Maggio. He said that about six months after settlement of the transaction Aubrey White contacted him complaining about the matter. This had caused him to recall the contents of the conference. Specifically Mr Grogan denied that his conference with Mrs White had been a short one and that she had remained silent throughout most of it. 42 Mr Grogan's account of the conference as set out in his affidavit proceeded upon the footing that it had taken place on 9 December. In his evidence, he conceded that it was possible he had been mistaken in this regard. The matter has some significance since between 9 December and 18 December the Houlahan valuation became available. In his affidavit Mr Grogan recalled that after his conference with Mr Maggio and Mrs White he had obtained the valuation and that thereafter Ms Roebuck had advised "the valuation that has been ordered only allows the clients to borrow less than they required". Mr Grogan's recollection, at the time of swearing his affidavit in December 1997, was that after this contact from Ms Roebuck he spoke with Neil MacDonald at FMC and advised him as to the maximum figure that Mr Maggio and Mrs White could obtain from IMB based on the valuation. Either on that occasion or subsequently Mr MacDonald communicated with him that the maximum sum, namely $240,000, was "OK". 43 I was not able to accept either Mrs White's recollection or Mr Grogan's as reliable with respect to the contents of their conference. In Mrs White's case I considered that she has developed somewhat fixed beliefs concerning the course of events. Thus in recounting the contents of her interview with Sharyn Roebuck Mrs White was emphatic that she had supplied no personal information for inclusion in the loan application form. For reasons which I set out below I cannot accept that is so. This made me cautious in accepting Mrs White's version of the conference with Mr Grogan. 44 In the absence of a contemporaneous note, even accepting that the matter of the Maggio/White transaction was brought to Mr Grogan's attention around mid 1993 when Aubrey White contacted him, I consider it unlikely that he was able to recall the detail of discussions with any confidence. I am reinforced in this view by the circumstance that his recollection of events contained in his affidavit of 10 December 1997 was consistent with the view that when he conferred with them he was unaware that the valuation of the premises had come in substantially less than the sum which had been contemplated. For the reasons I have set out above, I consider it likely that the conference took place on 18 December 1992 at a time when Mr Grogan was aware of the Houlahan valuation and of the revised amount to be sought by way of loan from the IMB. 45 It was Mrs White's account that the conference with Mr Grogan was one concerned with the outstanding requirements of the IMB and about when settlement was likely to occur. In cross examination, dealing with a guarantee executed by Mr Maggio on 20 November 1992 and its suggested effect on the serviceability of the loan, Mr Grogan observed "I didn't consider it affected serviceability and at that stage it was just an application, it was no more than a conference to go through the proposal and an application." (T.188) 46 It was Mr Grogan's evidence that in the ordinary course he would have had a further conference with Mr Maggio and Mrs White. At that second conference the security documentation would have been explained to the clients and they would have been asked to execute it in his presence. This did not happen because of the wish of Mr Maggio and Mrs White to have settlement take place during the Christmas break at a time when his firm was closed. It is common ground that the documents were executed in the presence of Ms Roebuck as witness and that Mr Grogan did not confer with Mr Maggio and Mrs White again. I consider the probabilities strongly favour the view that at the one conference Mr Grogan had with Mrs White and Mr Maggio the focus was on the requirements of the IMB and the timetable for prompt settlement of the matter should their application be approved. I do not accept that the solicitor advised Mrs White concerning the legal effect of the mortgage and the consequences of default. Nor do I accept that he explained to Mrs White that she was both jointly and individually responsible for meeting the loan repayments. The Meeting with Sharyn Roebuck 47 Following the conference with Mr Grogan, Mrs White and Mr Maggio attended a meeting with Sharyn Roebuck. As I have noted I am satisfied that this meeting took place on 18 December 1992 and that at this meeting Ms Roebuck completed the IMB's Loan Application form. That application included a representation that the purpose of the loan was to refinance an existing mortgage over the premises which secured a debt owed by Mr Maggio and Mrs White to Meridian. 48 There was an issue as between Mrs White and the IMB concerning the conduct of the interview during which the loan application was completed. Mrs White recalled attending a meeting with Ms Roebuck and Mr Maggio on the day of her conference with Mr Grogan. In her affidavit sworn 4 August 1997 she said this: "My recollection of the meeting with Sharyn Roebuck and Mr Maggio is that I signed some documents, had a short discussion of no consequence and left. I do recall opening accounts for each of my children with the IMB on that day. There is still $5 in each account. I have been shown a loan application to the IMB Building Society signed by myself and Mr Maggio. This would appear to be a document I signed at the meeting with Mr Maggio and Sharyn Roebuck. During that meeting, Sharyn Roebuck did not ask me any questions concerning my personal details including the name of my employer and the purpose of the loan. I was simply presented with some documentation and signed it. I do not recall Sharyn Roebuck completing the loan application whilst I was there with her and Mr Maggio. I did not read the loan application prior to signing it. I recall at the time that I wanted to get home to take the children Christmas shopping and was in a rush." (para 26) 49 The loan application form set out details relating to both Mr Maggio and Mrs White including their respective employment history and a statement of their assets. In a section of the application headed "Financial Position" a notation recorded "$240,000 Meridian to be paid out". The application contained an assertion that Mrs White's current employer was Mansfield and Co. Mrs White was described as being employed by that company as a computer consultant. It was said she had been so employed for one and a half years. The purpose of the loan was recorded as "to refinance an existing mortgage(s)." 50 In evidence given before me Mrs White asserted that during her meeting with Sharyn Roebuck she had not been asked any questions concerning her personal details. To the extent that information personal to her was included on the loan application form, Mrs White suggested that it had been furnished by Mr Maggio or that Ms Roebuck had taken it from documents which had been supplied to the IMB. Mrs White was insistent that she had provided no personal information herself. 51 Ms Roebuck said it was her invariable practice to address questions directly to each person from whom she was taking a loan application. She rejected the proposition that she would have completed the application, insofar as it related to Mrs White, upon the basis of material contained in documents. Ms Roebuck was a careful and impressive witness. I had no hesitation in accepting her evidence as to the conduct of the meeting in preference to the evidence of Mrs White in cases where the two conflicted. This view, it seemed to me, was supported by the contemporaneous documents. Thus, the loan application records Mrs White's previous employment history as including "temporary pre-school assistant Cheltenham". In evidence Mrs White agreed that she had been employed as a pre-school assistant at Cheltenham. It was not suggested that any document to which Ms Roebuck may have had access contained this detail. Mrs White was asked where this information had come from and she replied "I don't know, I am sorry, no" (T.34). Although she asserted in a general way that Mr Maggio was familiar with her history I took her to suggest only faintly that Mr Maggio might have been aware of this aspect of her employment history. Indeed, as the cross examination continued Mrs White conceded that Ms Roebuck may have asked her questions but that she had no recall of the same. Mrs White's understanding of the transaction 52 In an affidavit sworn on 23 September 1999 Mrs White asserted that at the time she signed the various documents evidencing the transaction on 29 December and 31 December 1992, it was her understanding that the loan from the IMB was for a commodity deal in the Philippines. She understood that there were no risks associated with the transaction. She understood that she was not to be responsible for repaying the loan. It was her belief that the deeds to her home would be returned to her in six months from the date of the transaction. She said that had she been advised that she was jointly and individually liable to the IMB for repayment of the loan and that, in the event Mr Maggio failed to make repayments, there was a real risk that her home would be sold by the IMB she would not have participated in the transaction. For reasons which I set out below I am unable to accept this latter assertion. 53 Mrs White left school at the age of eighteen years. She commenced employment with a firm of stockbrokers working as a clerk. She remained in that employ until she was twenty five years old. She left work at that age to start her family. She did not return to the work force until 1978. At that time she commenced working two days per week as a factory hand. In 1980 she left the work force again to have her fourth child. In 1983 she resumed part time work as a factory hand. 54 In 1985 Mrs White obtained casual employment with Lowes as a sales assistant. She continued in this employment until 1994. By that time she had acted as the Manager of the Macquarie Lowes store for a period of about two months. She had been the Assistant Manager of that store. She had also been responsible for the management of the Lowes Chatswood store on Sundays for some time. While acting as Manager of a store she was responsible for till balancing, banking and cash register clearances. At the Macquarie store she was in charge of a staff of up to ten people. 55 Mrs White left Lowes around 1994 and commenced employment with the Katies chain. She started as a cashier. She came to occupy the position of being second in charge of one of the Katies' stores. 56 Mrs White knew that the premises had been the subject of a mortgage to secure the advance by the ANZ Bank in 1984. She understood that in the event that payments were not maintained to the ANZ Bank, action might be taken to sell the premises. 57 In the proceedings on 28 September 1999 Mrs White was cross examined concerning her assertion that she had asked Mr Maggio whether there was any risk associated with the proposal that she put up her house for six months and receive $20,000 in return. Abadee J asked her: "Q. Did you mean "is there a risk of my house being …. A. The deal … Q. …. Being taken? A. Yes, I would have been worried about that. Inatey: Q. The other risk, I suppose, is that you were foreshadowing, apart from that very important one, the risk that the commodities deal wouldn't go ahead or would fail in some way; I suppose that was another problem? A. Yes. Q. And if that were to happen and your house was mortgaged then the possibility, the real possibility was that you would lose your house, wasn't it? A. Yes, but I was assured that I wouldn't because of David Mansfield's accountancy practice". (T.27) 58 I accept that Mrs White believed that the funds obtained from the IMB would be used in connection with a commodities deal in the Philippines. I also accept that she believed the assurances given to her by Mr Maggio as to the absence of risk attending the proposal. Equally, I am satisfied that Mrs White understood that the transaction involved the execution of a mortgage over the premises and that she understood in general terms that, in the event of default in making repayments under the terms of the loan agreement, the IMB might seek to exercise a power of sale over the premises. She was not troubled by this because of her belief in the assurances given by Mr Maggio. The IMB's claim and Mrs White's cross-claim against the IMB 59 The IMB claims it is entitled to possession of the premises by reason of the borrowers' default in making repayments due under the loan agreement. Provision is made under the mortgage for the IMB to enter upon and take possession of the premises. A notice complying with s 57(2)(b) of the Real Property Act 1900 has been served on Mrs White and the requirements of the notice have not been complied with. No issue was raised in these respects. 60 Mrs White seeks to meet the IMB's claim by contending that the mortgage is not enforceable against her because it would be unconscionable for the IMB so to do. Alternatively she invites this Court in the exercise of the discretion conferred upon it by s 7 of the Act to refuse to enforce the mortgage. These matters are pleaded in the second further amended first cross-claim. As Mr Lowenstein, who appeared on behalf of the IMB, noted that only paragraphs 3(a) and 3(b) of the cross-claim were supported in submissions. This was consistent with the conduct of the proceedings. The principal focus of which was the second cross-claim brought by Mrs White against the solicitors. 61 Section 7(a) of the Act permits a court, if it considers it just to do so, to grant relief to a party to a contract if it finds the contract to have been unjust in the circumstances relating to it at the time it was made. In determining whether a contract is unjust the court is to have regard to the public interest and to all the circumstances of the case; s 9(1). Section 9(2) sets out a number of considerations which the court is to take into account (to the extent that they are relevant to the circumstances of the case) in determining whether a contract is unjust. 62 The principal ways in which Mrs White's claim for relief under the Act are put are: 1. She was not afforded an opportunity by the IMB, or by its agent, the solicitors, to obtain any independent legal advice (or any legal advice) prior to executing the mortgage. 2. The IMB did not itself, or by its agent, the solicitors, advise Mrs White as to the risks associated with the transaction including the real risk that the property would have to be sold to repay the loan even though it knew, or ought to have known; (i) Mrs White was not receiving any of the monies advanced under the loan agreement; (ii) it was likely that the only way the IMB would be able to recover the funds advanced pursuant to the loan agreement was by the sale of the premises; (iii) that Mr Maggio had, on or about 20 November 1992, jointly borrowed $250,000 from McAlpine Superannuation Fund and this would detrimentally affect his ability to service the proposed loan posing a real threat of default. 63 I will deal firstly with the contention that Mrs White was not afforded an opportunity by the IMB to obtain independent legal advice. 64 In oral submissions Mr Wilson, who appeared for Mrs White, realistically accepted that I would find that during the course of the interview Ms Roebuck had been informed that the purpose of the loan was to refinance an existing mortgage. He submitted that I would find that Mrs White had not really paid any attention to what was said during the course of that meeting. Mr Maggio had made the representation that the purpose of the loan was to refinance an existing mortgage. Mrs White was in what he described as a very difficult situation because she had earlier supplied Mr Maggio with the deeds to her home and was thus somewhat vulnerable. 65 I understood Mrs White to maintain that, notwithstanding the assertion contained in the IMB loan application, she had not been aware that the IMB was being invited to advance the loan upon an understanding that the funds would be applied to discharge an existing mortgage. Ms Roebuck insisted that she would have sought confirmation of the purpose of the loan application from the applicants. I accept Ms Roebuck. In coming to this conclusion I have regard both to the quality of Ms Roebuck's evidence and to the content of some evidence given by Mrs White before the Guardianship Board in 1994. 66 Mrs White's sister approached the Guardianship Board sometime in 1994 arising out of concern that Mrs White was evincing no readiness to take proceedings against the IMB or the solicitors in connection with the transaction. The transcript of the proceedings before the Board on 7 December 1994 is in evidence. It records the following exchange between Mrs White and the Presiding Member: "Presiding Member: What did you understand to be the arrangement with IMB? Mrs White: We got the loan to pay out an existing mortgage. Presiding Member: Did you have a mortgage on the house at that stage or …. Mrs White: (inaudible). Presiding Member: So what existing mortgage was being talked about there? Mrs White: That was just what was written up in the contract (T 4/5)." 67 Mrs White said that the answers she gave to the Board on that occasion were truthful. Mr Wilson submitted that I would find Mrs White's evidence to the Guardianship Board was based on knowledge which she had subsequently acquired concerning the representations which had been made on her behalf to the lending bodies. I consider that a most strained construction to place upon it. 68 Mrs White impressed me as a woman of reasonable intelligence. She was able to follow the thrust of cross examination and to resist propositions with which she did not agree. The course of her business dealings with Mr Maggio reveals a marked level of financial naivete. Notwithstanding this assessment I am of the view that Mrs White understood the contents of discussions which took place in her presence with Ms Roebuck. I find that she knew that in order to get the loan monies it was necessary to represent to the IMB that an existing mortgage over her property was to be paid out. This is consistent with her evidence before the Guardianship Board and with the contents of the loan application. Despite her demonstrable faith in Mr Maggio Mrs White had, on each occasion when she advanced substantial sums to him, drafted a memorandum which recorded the terms of the same. I do not consider it likely that Mrs White would sign a loan application without having read it. 69 I return to the submission that the contract should be set aside as unjust for the reason that the IMB failed to afford Mrs White an opportunity to obtain independent legal advice prior to proceeding with it. In written submissions Mr Wilson put it this way: "The transaction was improvident. The IMB may not have known this at the time but it had the means of knowing this through Grogan. In this circumstance, it was incumbent on the IMB to offer some advice or explanation to White of her obligations under the security documentation." 70 Mr Wilson relied on Goldsborough v Ford Credits (unreported) NSWSC, Young J, 10 November 1989, in this respect. Indeed it was his submission that as the mortgage was improvident it was incumbent on the IMB to ensure that Mrs White received independent legal advice. For this he relied on passages in Teachers Health Investments Pty Ltd v Wynne (1996) ASC 56-356. 71 I consider there were circumstances surrounding the application for finance known to Mr Grogan such as to put him on notice, in his capacity as Mrs White's solicitor, of the desirability of speaking with her privately about the transaction. I deal with this below. However, it does not seem to me that the IMB through its agent is to be fixed with knowledge that the loan was improvident. Mrs White was a party to representations made to Mr Grogan, as well as to the IMB, that the purpose of the loan was to discharge an existing mortgage to Meridian. On settlement a cheque representing the bulk of the advance was drawn in favour of Meridian. On the face of things Mrs White was proposing entering into a transaction which would place her in a position not worse than that in which she already stood. 72 I am not of the view that the IMB had actual or constructive notice that the proposed loan was improvident. I do not consider that the IMB was under any obligation to ensure that Mrs White obtained independent legal advice concerning the transaction. The McAlpine Loan 73 On 20 November 1992 the McAlpine Superannuation Trust advanced the sum of $250,000 to Alfie and Marie Giuliana. This loan was secured by first registered mortgage over the Giuliana's property located at 17 Tudor Place, Cherrybrook. The purpose of the loan was said to be the re-finance of a mortgage from Messrs Raso and Petracca in the amount of $232,001.36 and to pay certain legal and broking fees. The balance, in an amount of $3,314.84, was paid out to Mr Maggio. The loan was further secured by an undated deed of guarantee executed by Mr Maggio ("the McAlpine guarantee"). Thus, as at 20 November 1992 Mr Maggio had assumed a contingent liability in an amount of $250,000 in respect of the loan to the Guilianas. The solicitors acted for Mr Maggio and the Guilianas in respect of this transaction. 74 Ms Roebuck said that had she been aware of Mr Maggio's contingent liability under the McAlpine guarantee she would not have recommended that the IMB approve the loan. Mr Inatey SC, on the solicitor's behalf, submitted that I would reject this aspect of Ms Roebuck's evidence. My attention was drawn to the fact that the IMB's Manual which sets out the guidelines for lending was silent on the question of how contingent liabilities might be taken into account in assessing applicants for loan funding. The pro forma loan application made no separate provision for recording contingent liabilities. 75 Ms Roebuck said that she would view an applicant/guarantor as being subject to a commitment. She believed the guidelines provided in those terms. 76 I accept that Ms Roebuck's understanding of the policy of the IMB, as at 1992, was that a contract of guarantee would be treated as if it represented an existing liability and would have been taken into account by her in assessing an applicant's suitability for loan approval. 77 Ms Roebuck did not have the authority to approve loans. In her experience officers within the IMB who held that authority would act upon her recommendation. I accept that is so. I find that had Ms Roebuck been made aware of the McAlpine guarantee she would have recommended against approving the Maggio and White loan. I consider the probabilities favour the view that Ms Roebuck's superiors would have acted on her recommendation. 78 The solicitors had a retainer to act for the IMB in relation to mortgage transactions. Their retainer did not extend to making assessments of the suitability of applicants for approval for loan funding or advising on the same. It was by no means clear that the solicitors were aware of Ms Roebuck's understanding of the significance of contingent liabilities to the assessment of an applicant's suitability for an IMB loan. 79 I do not consider Mrs White has made good her claim that the IMB failed to advise her as to the risks associated with the transaction as particularised in paragraph 3(b)(i)-(iii) of the second further amended first cross-claim. The IMB did not know that Mrs White was not receiving the benefit of any of the funds advanced pursuant to the loan. Mrs White was a party to an application which asserted the contrary. 80 Based upon the material presented in the application by Mr Maggio and Mrs White there was no reason for the IMB to conclude that it was likely that default would be made in making payments in accordance with the loan agreement. The IMB did not have actual knowledge of the McAlpine guarantee. 81 There is no evidence that the solicitors had actual knowledge that the loan funds were to be applied for a purpose other than that stated in the loan application. There is no evidence that they had actual knowledge that Mr Maggio was to be solely responsible for the repayment of the loan and that it was likely that he would default in this respect. It flows that I am not persuaded that the IMB is to have knowledge of either matter imputed to it. 82 The solicitors had actual knowledge that Mr Maggio had executed the McAlpine guarantee. His contingent liability under that agreement had the capacity to impact on his ability to service loan repayments. Is the solicitors' knowledge of the McAlpine guarantee to be imputed to the IMB? 83 Mr Lowenstein referred me to the decision of the Court of Appeal in National Home Loans Corporation Plc v Giffen Couch & Archer [1998] 1 WLR 207. That was a case in which the same solicitor acted for both the mortgagor and the lender. The solicitor had knowledge that the mortgagor had defaulted under a previous mortgage. The solicitor did not convey this to the lender. The Court held that the solicitor's retainer was to ensure the lender secured a valid and effective first mortgage over the property. The scope of this retainer did not require the solicitor to investigate the borrower's financial position. The Court held that the solicitor was, accordingly, under no duty to pass on to the lender information touching on the financial position of the mortgagor. 84 It seems to me that the IMB's retainer of the solicitors was of like scope to that with which the Court was concerned in National Home Loans Corporation. The evidence established that the IMB assessed the suitability of applicants for loan funding and did not look to the solicitors to do so. It follows for the reasons explained in National Home Loans Corporation that the solicitors were not under a duty to inform their client, the IMB, of the McAlpine guarantee. I consider the IMB is not to be fixed with knowledge of the McAlpine guarantee. 85 A number of other matters were particularised in Mrs White's claim against the IMB which were not pressed in submissions. I will deal with those shortly. 86 In paragraph 3(c) of the claim it is contended that there was a material inequality of bargaining power as between Mrs White and the IMB. The only matter relied upon as evidencing that material inequality is that Mrs White was an individual with limited experience in commercial matters and the IMB is an institutional lender. I do not consider that these circumstances without more support a claim for relief under the Act. 87 As to particular (d) it is contended that the provisions of the mortgage were not the subject of negotiation between Mrs White and the IMB. The deed of loan and mortgage were in standard form. No provision is identified as unjust. The circumstance that the contract was in standard form does not, without more, to my mind give rise to a basis for relief under the Act. 88 Next Mrs White contends that the IMB failed to disclose to her an unusual circumstance, namely, that there was no evidence of a mortgage to Meridian on the title of the premises. It is submitted that the IMB directly, or through its agent the solicitors, should have known that this was a suspicious circumstances indicative of fraud on the part of Meridian and/or Mr Maggio. I see little to commend this submission in the case advanced against the IMB. 89 Mrs White was a party to the representation to the IMB that there existed a mortgage over the premises in favour of Meridian. On settlement, in accordance with the instructions of Mr Maggio and Mrs White, a cheque was drawn representing the bulk of the proceeds of the loan monies in favour of Meridian. Mr Grogan considered that in the absence of a registered mortgage it was not necessary for him to take any further step by way of ensuring that his client, the IMB, might obtain an enforceable security by way of a registrable first mortgage on settlement. I accept that is so. 90 I do not find that the IMB knew of circumstances of suspicion surrounding the mortgage to Meridian nor that it should have knowledge of any suspicious circumstances imputed to it. 91 Mrs White agreed to mortgage the premises in order to obtain loan funding to be invested on her behalf by Mr Maggio in an overseas commodities deal. She was a party to making a false representation to the IMB as to the purpose of the loan in order to obtain approval of her application. Mrs White believed, wrongly, that she stood to make a substantial return over six months from the commodities deal. That the contract may not have been in the interests of Mrs White does not make it unjust for the purposes of the Act; West v AGC (Advances) Ltd (1986) 5 NSWLR 610 per McHugh JA at 621. Having regard to the circumstances relating to the contract at the time it was made and in the light of the considerations set out in s 9(2) I am not of the view that it would be just to grant relief to Mrs White pursuant to the provisions of the Act. 92 Mrs White also pleaded her claim against the IMB upon the basis that she had executed the mortgage as the result of unconscionable conduct on the part of the IMB. The conduct identified was the IMB's failure by itself, or by its agent, Mr Grogan, to disclose unusual features of the application for finance and the mortgage transaction in circumstances where it ought to have known that such disclosure would have caused Mrs White not to proceed with the loan and the execution of the mortgage. This aspect of her claim was not pressed in submissions. For the reasons already given, I consider that it cannot succeed. 93 For these reasons there will be verdict and judgment in favour of the IMB with respect to its claim against Mrs White and her cross claim against the IMB will be dismissed. Mrs White's claim against the solicitors 94 Mrs White claims against the solicitors in contract, tort and for breach of fiduciary duty. The claims in contract and tort in each case contend that the solicitors failed to carry out their duties in acting for Mrs White with reasonable care, skill and diligence. 95 Mrs White pleads that the terms of the solicitor's retainer to act on her behalf were: (a) to advise, assist and act for her in relation to an application for mortgage finance from the plaintiff; (b) to advise, assist and act for her as mortgagor in relation to the granting of a first registered mortgage to the IMB over the premises. 96 A draft fee note dated 4 November 1992 prepared by the solicitors in respect of their professional fees in acting on behalf of Mr Maggio and Mrs White described their instructions as being to act for Mr Maggio and Mrs White "regarding submission of loan application". Mr Grogan provided advice to Mr Maggio and Mrs White concerning the submission of their loan application to the IMB. He advised as to the level of income that would be needed to obtain approval from the IMB for a loan of $360,000. He also advised as to the maximum loan which might be approved on the security of premises valued in the amount of $290,000. The solicitors were also retained on behalf of Mr Maggio and Mrs White to act for them in connection with the mortgage and loan agreement. The evidence did not suggest that the solicitors' retainer extended to the provision of advice as to the financial wisdom of the transaction; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398. Breach of retainer/ Negligence 97 Central to the submissions advanced on behalf of Mrs White as to both the solicitors' breach of retainer and/or negligence was the contention that Mr Grogan should have sought to interview Mrs White separately from Mr Maggio and that he should have advised her to obtain independent legal advice. 98 Considerable reliance was placed on the decision in Gellert v Bellamy [1999] NSWCA 123. It was submitted that there were a number of suspicious features of the transaction which ought to have alerted a reasonably competent solicitor to the possibility that Mr Maggio was exercising some undue influence over Mrs White. Put another way, there was a stark potential for Mr Maggio to be taking advantage of Mrs White just as the Court had found in Gellert. Mr Maggio and Mrs White were jointly borrowing funds but the whole of the security was being put up by Mrs White. The initial referral from FMC represented that the property was jointly owned. It was said that the purpose of the loan was to re-finance an existing mortgage, however, the initial application related to a loan of $350,000. Ultimately it was said the outgoing mortgagee would be content with $240,000. 99 Mr Inatey responded that this is a case far removed from the facts of Gellert. Mrs White was a party to representing to the solicitors that the purpose of the loan funds was to pay out an existing mortgage over her property. Mr Maggio was putting himself forward as a co-borrower upon whom Mrs White could depend in the event that she was unable to make the loan repayments. As Mr Inatey put it: "White's submissions here, in effect, require Grogan to reject the instructions of his client and make his own inquiries as to her bona fides and as to the real reasons why the money was being borrowed. There is no basis to extend the obligation of solicitors to such matters." 100 To my mind there were features of this transaction which should have put the solicitors on notice of the desirability of speaking with Mrs White privately. The elasticity in the discharge figure required to satisfy the outgoing mortgagee was such as to strongly point to this transaction being other than the refinance of an existing mortgage simpliciter. The absence of registration of any interest held by Meridian would have tended to reinforce such a view. Ultimately Meridian were prepared to accept $14,500 less than the discharge figure which had been conveyed to Mr Grogan by Mr Peters in their telephone call of 15 December 1992 (and this after the initial suggestion that the pay-out figure was $360,000). 101 It was apparent that Mrs White, a middle aged woman of limited commercial experience, was seeking to jointly borrow as much money as might be raised on the security of her family home. She was incurring a substantial joint liability with Mr Maggio in respect of which she was the provider of the sole security. Her income (as disclosed in the material available to the solicitors) was insufficient to service the loan repayments without the support of Mr Maggio. That the solicitors were at least conscious of such considerations was made clear in the course of Mr Grogan's evidence. In answering a question which was directed to why he had not considered it necessary to explain to Mr Maggio his obligations under the guarantee he observed: "Well my concern was to make sure Mrs White knew what was happening. Mr Maggio was a businessman, he apparently had been in some other commercial transactions before, but I wanted to be sure Mrs White knew what was going on." (T 154). 102 In these circumstances I am persuaded that the solicitors should have sought to confer with Mrs White in the absence of Mr Maggio in order to ensure that she was acting free of any improper influence. I consider their failure to make any attempt so to do to have been negligent. 103 It was further contended on Mrs White's behalf that the solicitors had breached the implied term of their retainer to advise her with due care and skill by their failure to explain to her the legal effect of the transaction. 104 The solicitors' retainer in acting for Mrs White required them to take reasonable steps to ensure that she understood the nature and effect of the loan agreement, guarantee and mortgage as legal documents and the consequences of default; Clark Boyce v Mouat [1994] 1 AC 428. The circumstance that the solicitors' office was closed over the holiday period does not to my mind relieve them of the obligation to explain the legal effect of the mortgage and loan agreement to their client. 105 I consider that the solicitors were in breach of their contract with Mrs White by their failure to explain to her the legal effect of the transaction and that they were negligent by their failure to take any step to seek to confer with Mrs White privately. 106 It remains to consider whether Mrs White has established that either the breach of the retainer or duty caused her loss. 107 I was invited to find that had Mrs White been advised as to her joint and several liability under the loan agreement and as to the IMB's power of sale in the event of default she would not have executed the mortgage. It was also submitted that had Mrs White been advised separately or sent to another solicitor to obtain independent advice, it is likely that the advice would have exposed the significant risks associated with the deal. Since Mrs White was proposing to enter the transaction for financial reasons I would consider it probable that she would accept advice that it was an unsound proposal. 108 By July 1993 Mrs White was aware that Mr Maggio was no longer making payments pursuant to the loan agreement. She knew that she had executed a mortgage over the premises. She was aware that in default of making repayments in accordance with the agreement action might be taken to sell her home. Notwithstanding these matters she continued to repose faith in Mr Maggio. On 6 December 1994 Mrs White wrote to the Guardianship Board saying: "I have continued to support this loan as I believe it to be completely honest. I have not been threatened in any way. It has taken longer (I think it should be) than originally planned but being done in another country against other languages is not an easy task. … I have faith in David and Paul's ability to get this off the ground and get my home and moneys lent back." 109 In her affidavit sworn on 23 September 1999 Mrs White states that had she been advised that she was jointly and individually liable to the IMB for repayment of the loan and that if Mr Maggio did not repay the loan there was a real risk that her home would be sold she would not have participated in the transaction. I accept that Mrs White as at the date of the swearing of her affidavit believed that to be the case. I am not persuaded that it accurately represented her state of mind as at December 1992. By December 1994 for Mrs White to have continued to entertain confidence in the overseas commodities deal speaks eloquently of her absolute trust and confidence in Mr Maggio. She was by then only too aware of her individual liability under the terms of the loan agreement and of the risk to her home. 110 I considered whether by December 1994 Mrs White was unable to face the reality of situation and that her letter to the Board evidences no more than her inability to acknowledge the unpalatable truth. On such a view the contents of the letter would not stand in the way of a conclusion that proper advice as to the effect of the transaction given before she committed herself to it might well have led to her refusing to go ahead with it. I am unable to find that the probabilities favour such a conclusion. Mrs White did not give evidence that this was the case. To the contrary she agreed that as at December 1994 she had remained optimistic about the commodities deal. I was left with the impression that Mrs White's trust in Mr Maggio had been well nigh unshakeable until some time after 1994. I am unable to conclude that the most thorough advice as to the effect of the transaction, including advice upon the joint and several nature of her liability and the consequences of default, would have dissuaded Mrs White from proceeding with the loan application. 111 In her affidavit sworn on 23 September 1999 Mrs White also asserted that had she been advised that "the loan was to refinance a mortgage and not for a commodities deal in the Philippines" she would not have participated in the transaction. I cannot accept this. As I have observed I am satisfied that Mrs White was aware of the deception being practised upon the IMB. This is significant in the view I take as to whether the solicitors' breach of duty in failing to seek to speak privately with Mrs White caused her loss. I feel impelled to conclude that in the event Mr Grogan had sought to speak with her privately (and done so), Mrs White would have maintained the device that the loan funds were to pay out an existing mortgage. 112 I am thus of the view that Mrs White has failed to establish that her loss flowed from either the breach of the solicitors' retainer or their negligence. Breach of Fiduciary Duty 113 The solicitors are said to have been in breach of their fiduciary duty to Mrs White in two respects; (i) they acted for both the IMB as mortgagee and Mrs White as mortgagor without obtaining Mrs White's informed consent to the double employment, (ii) they failed to advise Mrs White that they had acted for Mr Maggio in connection with the McAlpine guarantee and that the latter transaction was one which would detrimentally affect Mr Maggio's ability to service the proposed loan from the IMB and pose a real risk that he would default in payment of the proposed loan. 114 There was some issue both as to the date on which the solicitors commenced to act for the IMB in respect of the transaction and as to whether Mr Grogan informed Mrs White of the fact that he was also acting for the IMB. Mr Grogan said in evidence that he had not been instructed to act on behalf of the IMB until the date on which the Maggio & White loan was approved. This was 24 December 1992. Thus as at the date of his conference with Mr Maggio and Mrs White he did not consider himself to be acting for the IMB with respect to the subject transaction. This sits somewhat oddly with paragraph 25 of his affidavit in which he says: "I deny that I did not explain to Ms White, or that she did not otherwise appreciate, that I was also acting for IMB." 115 On any view of the evidence Mr Grogan's one conference with Mrs White took place prior to 24 December 1992. 116 On 8 December the solicitors wrote to the IMB referring to an appointment fixed for the following day for Mr Maggio and Mrs White to see a representative of the IMB's Chatswood branch. As at December 1992 the solicitors were performing all the Chatswood Branch's legal work. It was clear to the solicitors that in the event that the Maggio & White loan application was approved they would be carrying out the legal work in connection with it on behalf of the IMB. So much is apparent from Mr Grogan's evidence that he told Mr Maggio and Mrs White in the course of his conference with them that an early settlement of the loan would be facilitated by the fact that he was acting for all parties to the transaction. 117 It was Mrs White's account that she had not been informed during the course of the conference with Mr Grogan that he also acted for the IMB. In his first affidavit Mr Grogan set out an account of the conversation which had taken place during the course of his conference with Mrs White and Mr Maggio. It did not contain any reference to advice by him that he also acted for the IMB, or that it was likely that he would do so. The only reference to this topic appears in paragraph 25 which I have set out above. 118 In the course of his cross examination it was put to Mr Grogan: "Q. You didn't tell her that you also acted for the IMB? A. Yes I did. Well, I told her that I acted for all parties and for that reason we could get it through before the New Year and only for that reason. Q. Where does that appear in your affidavit? A. Well, it was … Q. This, this statement that you said to her "I act for all parties" can you show me in your affidavit where that appears? A. No it's not there, but there was a discussion with them as to wanting it settled before the New Year and the practical side of that, as to how it was to be done, what would need to be done, and I advised her that both of them, that as I was acting for all parties that was a possibility because I was the only solicitor who would be involved. " (T.149) 119 For reasons which I have set out above I do not accept that Mr Grogan's recall of the conference is an accurate one. However, as to this aspect I note that Mrs White says that discussion at the conference focussed on the IMB's lending requirements and the likely date of settlement. In the context of the latter I consider that the probabilities favour the view, consistent with Mr Grogan's evidence, that he made reference to the fact that an early settlement might be achieved because he was acting for all parties. 120 On Mrs White's behalf it is contended that on any view the solicitors did not take steps to obtain Mrs White's informed consent to their double employment. Informed consent may operate as a defence to a claimed breach of duty by a fiduciary. The onus is upon the fiduciary to establish the giving of informed consent. It was submitted that the failure to obtain Mrs White's informed consent to the solicitors acting both for her and the IMB with respect to the transaction constituted a breach of their fiduciary duty to her without more. A deal of reliance in this regard was placed on a passage in Finn, Fiduciary Obligations, Law Book Company, 1977 at paragraph 583: "If the same fiduciary acts for two different and unrelated beneficiaries in the same matter or transaction without the informed consent of both to the double employment, then this without more is a conflict within the rule. So where an adviser in sale is also the undisclosed adviser of the purchaser, he is automatically in breach of the rule." 121 Mr Wilson noted that in Farrington v Rowe McBride & Partners (1985) 1 NZLR 83 the New Zealand Court of Appeal held that a solicitor acting for a mortgagor had breached his fiduciary duty by failing to disclose the work undertaken by him on behalf of the mortgagee. The Court considered that the solicitor had "dual responsibilities" to mortgagor and mortgagee and that by failing to obtain the former's informed consent to the firm acting for both parties, he had breached his duty. In the circumstances of that case it was considered that the mortgagor should have been advised to consider taking independent legal advice. 122 Farrington was a very different case to the instant one. The defendant firm in that case had acted for the plaintiff in a personal injury claim. Thereafter the plaintiff sought their advice concerning the investment of the damages awarded to him. One of the partners of the firm advised him to invest the money in a land development company. The company subsequently went into liquidation. The plaintiff had not been advised that the land development company was the largest client of the firm and that members of the firm, their families and family trusts were involved with the company at the time the advice was given and the advance made. The Court there held that the solicitors were in breach of their fiduciary obligation to the plaintiff since they had failed to explain all material facts to him and had not obtained his informed consent to them acting for the company and for him. The plaintiff should have been advised to consider taking independent advice. Richardson J at p 90 observed: "But the acceptance of multiple engagements is not necessarily fatal. There may be an identity of interests or the separate clients may have unrelated interests. In some circumstances they may even be able and prepared to look after their own interests. Such cases seem straight forward so long as it is apparent that there is no actual conflict between duties owed in each relationship. However, the difficulty lies in determining in particular cases that there is no such conflict and the courts have often warned of the risks involved where the solicitor acts for both parties in a conveyancing transaction (see, for example, the English cases, Moody v Cox & Hatt [1917] 2 CH 71; Goody v Baring [1956] 2 All ER 11; Smith v Mansi [1962] 3 All ER 857; and Spector v Ageda [1973] CH 30). And the English Law Society has now ruled that subject to certain exceptions it is not professionally proper for the same solicitor or firm to act for both vendor and purchaser, or for both lessor and lessee (44 Halsburys Laws of England 94th Ed) paras 133 and 348). The English ethical rule does not extend to the common employment of the same solicitor by mortgagor and mortgagee although, as Cordery on Solicitors (7th Ed, 1981) p 165 observes, the solicitor may suddenly find that he has a duty to one client - such as to disclose the existence of an adverse valuation (Moody v Cox & Hatt) or that a proposed loan by one client to another is unwise, Newshul v Mellish & Harkavy (1966) 110 Sol Jo 792) - which if carried out would be contrary to the interests of the other client and the solicitor is then in a cleft stick." 123 I do not read Farrington as giving support to the proposition that a solicitor who acts for both mortgagor and mortgagee will be in breach of his or her fiduciary duty absent proof of the informed consent of both parties. In this respect I note that Richardson J referred to the passage in Finn which I have noted above and observed at p 92: "It may perhaps be going too far to conclude as stated in Finn, Fiduciary Obligations (1997) p 253 that if the same fiduciary acts for two different and unrelated beneficiaries in the same matter or transaction without the informed consent of both to the double employment then this without more is a conflict within the rule (see also Bowstead on Agency (14th Ed, 1976) pp 143-143). But certainly, consistent with the underlying principle, it must be sufficient that there be an actual opposition of interests. In that situation for the solicitor to accept the second engagement without the consent of each principal would be inconsistent with his separate duty to each client." 124 Mr Inatey submitted that the correct position is that "a fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other"; Bristol & West Building Society v Mothew 1997 2 WLR 436 at 450E. He submitted by reference to Lord Upjohn's formulation in Boardman v Phipps [1967] 2AC 46 at 124 that the question was whether there existed a real and sensible possibility of conflict; see, too, Beach Petroleum NL v Kennedy & Ors [1999] NSWCA 408, 48 NSWLR 1 at para 425. 125 In this case I accept that there was nothing about the transaction to suggest a real or sensible possibility of conflict between the interests of Mrs White and the IMB. I am not persuaded that the solicitors' failure to obtain Mrs White's informed consent to their acting both for her and the IMB constituted a breach by them of their fiduciary duty to her. 126 Secondly Mr Wilson contended that the solicitors were in breach of their fiduciary duty to Mrs White by reason of their failure to disclose to her their knowledge of the McAlpine guarantee. In written submissions he put it this way: "[The] failure to disclose the McAlpine transaction, demonstrates the actual position of conflict in which Grogan found himself by acting for all parties. Apprised of the knowledge of that transaction, it was his duty to advise both the IMB and White of its existence. But his duty of confidentiality to Maggio precluded any such disclosure". 127 For the reasons already given I do not consider that the solicitors were under a duty to disclose their knowledge of the McAlpine guarantee to the IMB. 128 The solicitors acted for both Mr Maggio and Mrs White as joint borrowers. It is said that their duty to Mrs White required disclosure of the fact that her co-borrower was subject to a contingent liability in an amount of $250,000. In the event he was called upon with respect to the guarantee his ability to service his repayments due under the joint loan agreement might be affected. 129 The breach alleged arises from a conflict of duty and duty. The solicitors owed a duty to Mr Maggio to keep confidential information as to his financial circumstances of which they were aware by reason of having acted for him with respect to the McAlpine guarantee. To Mrs White they owed a duty to disclose to her any material facts of which they were aware in connection with the transaction. 130 Mr Inatey submitted that the McAlpine guarantee was not a material fact and thus did not require disclosure (or place the solicitors in a position of actual conflict). In this regard he submitted that the transaction was to the knowledge of the solicitors one involving the re-financing of an existing debt. Mrs White was not jointly borrowing funds with Mr Maggio for the first time. She was seeking to replace an existing obligation with another and Mr Maggio was lending his support to the arrangement. 131 As Windeyer J observed in Lowy v Alexander [2000] NSWSC 661 most of the cases dealing with duty and duty conflicts in this area are concerned with solicitors acting for vendor and purchaser or mortgagor and mortgagee and "not with two persons who might be thought to be on the same side of the transaction such as joint borrowers". In that case (which raises some issues in common with those in the present case and which also concerns Mr Maggio - a matter to which I pay no regard) his Honour concluded that the solicitor was under an obligation to have afforded the plaintiff an opportunity to obtain independent legal advice. In that case as with the present case the plaintiff had been a party to keeping from the solicitor information as to the real purpose of the transaction. Nonetheless it was apparent that one of the joint borrowers was at greater risk on default. 132 Upon the solicitors' understanding of the transaction Mrs White and Mr Maggio were jointly proposing to borrow funds secured by mortgage over Mrs White's property alone. Mr Maggio was subject to a substantial contingent liability under the McAlpine guarantee. This had the capacity to affect his ability to meet repayments under the loan agreement. Information bearing on the capacity of Mr Maggio to meet his obligations under the agreement seems to me to be the sort of material information which requires disclosure; Clarke Boyce at 437. Notwithstanding that Mr Maggio and Mrs White were joint borrowers "on the same side of the transaction" I consider that the solicitors' did owe a duty to Mrs White to disclose this information. That duty was in conflict with the duty of confidence they owed to Mr Maggio. 133 Mr Inatey submitted that in any event the failure to disclose the McAlpine guarantee did not constitute a breach of the solicitors' fiduciary duty to Mrs White because it was not an intentional non disclosure. He relied on the observations of Millet LJ in Bristol v West Building Society at p 451: "Conduct which is in breach of this duty need not to be dishonest, but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of duty of skill and care. This is because the principal which is in play is that the fiduciary must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer. I shall call this the "no inhibition principle". Unless the fiduciary is inhibited or believes, whether rightly or wrongly, that he is inhibited in the performance of his duties to one principal by reason of his employment by the other, his failure to act is not attributable to the double employment". 134 In Bristol and West Building Society the solicitor who acted for both the mortgagors and the and the mortgagee submitted a report to the mortgagee society which wrongly asserted that the mortgagors were providing the balance of the purchase monies without resort to further borrowing. In fact the mortgagors were making arrangements for a modest second mortgage in connection with the purchase of the subject property. The solicitors overlooked that matter at the time of preparing their report. This was not a case in which there was an actual conflict since the mortgagors must have been taken to have authorised the solicitor to complete the report required by the Society truthfully. 135 In Stewart v Layton (t'as B M Salmon Layton & co) (1992) 111 ALR 687 Foster J found the solicitor to be in breach of his fiduciary duty to Ms Stewart by reason of his failure to disclose information as to the financial circumstances of his client, Mr Creighton. It was not suggested that the solicitor had failed to disclose this material because he made a conscious decision to favour the interests of Mr Creighton over those of Ms Stewart. His Honour considered the observations of Wootten J in Thompson v Mikkelson (unreported) NSWSC 3 October 1974 which had been cited by Burchett J in Wan v McDonald (1992) 33 FCR 491 at 511 to be particularly apt: "It seems to me that the practice of a solicitor acting for both parties cannot be too strongly deprecated. It is only because of the possibility that something may be wrong in a transaction, or may go wrong during its implementation, that the employment of highly trained professional people at professional scales of remuneration can be justified. To scrutinise a transaction to discover whether something is wrong in a way that may affect his interests, or to notice and deal with something that goes wrong during the transaction, is what a party employs such a person for. He is entitled to assume that that person will be in a position to approach the matter concerned with nothing [in mind] but the protection of his client's interests against [those] of the other party. He should not have to depend on a person who has conflicting allegiances and who may be tempted either consciously or unconsciously to favour the other client, or simply to seek a resolution of the matter in a way which is least embarrassing to himself." 136 Mr Grogan was not able to recall whether he had considered disclosing the McAlpine guarantee to Mrs White. It seems to me that the risk of conflicting allegiances leading to a situation in which the solicitor may unconsciously seek a resolution in a way which avoids embarrassment to himself was illustrated by an answer he gave in cross examination on this topic: "A. Well no, there are other reasons in my mind why that matter wasn't disclosed, there's questions of confidentiality for a start, there was more than just the reason of the - I didn't consider the guarantee affected it, but there's also my client IMB at that stage, there's also my client Maggio viz a viz White (T 188)." 137 I do not find that Mr Grogan intentionally determined not to disclose the McAlpine guarantee to Mrs White. However, unlike Bristol and West Building Society there existed in this case an actual conflict between the duty to disclose the McAlpine guarantee and the duty not to breach Mr Maggio's confidence. In those circumstances the absence of an intentional non disclosure might be thought not to absolve the solicitors of breach of fiduciary duty. 138 Based upon the solicitor's understanding of the transaction (that the funds were being jointly borrowed to refinance an existing loan and not that they were to be invested in an overseas "deal" which would return a fixed sum to Mrs White at the end of six months) I would be inclined to accept Mrs White's submission that they were in breach of the fiduciary duty they owed to her by the failure to disclose the McAlpine guarantee. Mr Wilson submitted that it would flow from such a finding that Mrs White was entitled to equitable compensation for that breach. The measure of the compensation was said to be the payout figure under the mortgage to the IMB. In this respect it was submitted, firstly, that had Mr Grogan disclosed the McAlpine guarantee the IMB would not have approved the loan. Mrs White should be restored to the position that she would have been in had the breach not occurred. I do not accept this submission. The breach, if it be one, was the failure to disclose information touching on Mr Maggio's financial position to Mrs White. I do not find that the solicitors were under any duty to disclose the McAlpine guarantee to the IMB. 139 Secondly Mr Wilson relied upon the statement of principle of Lord Thankerton delivering the judgment of the Privy Council in Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at 469: "When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant". 140 In O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 the Chief Justice (with whom Meagher JA agreed) noted (at 276) that the authority of Brickenden had been left open by the High Court in Maguire v Makaronis (1997) 188 CLR 449. His Honour cited the judgment of Brennan CJ, Gaudron, McHugh and Gummow JJ in which reference was made to "the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty". Generally in discussing causation and equitable compensation the Chief Justice observed that the law in Australia accords with the passages from the judgment of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 432E-H noting his Lordship's ultimate conclusion at 439: "Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach". 141 In Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1 the court gave consideration to Lord Thankerton's formulation in Brickenden observing (at 91) that the principle "requires some adjustment to accommodate the case of solicitors failing in their duty to give advice or impart information because of a divided loyalty" and that "Brickenden is not, in our opinion, authority for the general proposition that, in no case involving breach of fiduciary duty may the court consider what would have happened had the duty been performed. The reasoning in Brickenden must now be understood in the light of the House of Lords decision in Target Holdings and the cases which have applied it (at 93)." 142 In the course of her evidence Mrs White was asked: WILSON: Q. Mrs White, I want you to assume that prior to the end of December 1992 Mr Grogan told you that on 20 November in that year he had acted for Mr Maggio in a matter where $250,000 had been borrowed on the security of the home of a Mr and Mrs Giuliano in Cherrybrook and in that transaction Mr and Mrs Giuliano had offered their home as security and were the mortgagors and borrowers and Mr Maggio had signed a guarantee in which he guaranteed to guarantee the obligations of Mr and Mrs Giuliano and in that guarantee Mr Maggio also agreed to be bound by the covenant in the mortgage and that might mean that he might also have been a borrower. Would that have made any difference to your decisions in December of 1992? A. Yes, it would have because it would have been hard for him to service my loan as well as the other loan. Q. Would anything follow from that answer? A. Well, I wouldn't have gone ahead with it if he couldn't have paid the loan back because he was responsible for my loan. 143 I am unable to accept that Mrs White would not have proceeded with the transaction had she been aware of Mr Maggio's contingent liability under the McAlpine guarantee. Mrs White understood that the whole of the proceeds of the loan would be invested by Mr Mansfield in connection with the overseas commodities deal. I understood the evidence she gave before Abadee J to be consistent with her belief that the proceeds of the loan had been paid to Mr Mansfield (28/9/99 T 29/30). As I have noted, it was Mrs White's evidence that during the first six months following settlement of the transaction she was given cheques drawn on Mr Mansfield's account with which to make loan repayments. This is consistent with the representations made to her by Mr Maggio that it was Mr Mansfield who was arranging the overseas deal. The evidence does not suggest that Mrs White considered that Mr Maggio would be meeting the loan repayments over the life of the loan from his own funds. I am satisfied that had she been told of Mr Maggio's contingent liability she would have considered it a matter of no moment at the time. 144 I do not consider that an adequate or sufficient connection has been made between the equitable compensation claimed by Mrs White and the breach of fiduciary duty to which she points. Mrs White's loss arises because she was duped by Mr Maggio into believing that she was investing in a safe scheme arranged the accountant, David Mansfield. Mr Maggio's capacity throughout the life of the loan to meet repayments under the joint loan was, in reality, not a consideration for Mrs White. In this sense on the view of Kirby J in his minority judgment in Maguire (at 483) Mr Maggio's financial circumstances was not "material". The loss would have occurred if there had been no breach. 145 For these reasons I am of the view that Mrs White's cross claim against the solicitors should be dismissed. 146 In the light of my findings with respect to the first cross claim there is no need to consider the claims made by the IMB in the third cross claim. That too will be dismissed. The parties may file written submissions with respect to the orders for costs on the third cross claim. ORDERS 1. Judgment for the plaintiff for possession of all that piece or parcel of land situate at and known as 114 Quarry Road, Ryde in the Municipality of Ryde Parish of Hunters Hill and County of Cumberland being lot 18 in Deposited Plan 23652 and being the whole of the land in Certificate of Title identifier 18/23652. 2. No writ of execution consequent upon this judgment is to issue without leave. Application may be made to me, duty judge or possession list judge on forty-eight hours notice. 3. Dismiss the first Cross-claim. 4. Dismiss the second Cross-claim. 5. Dismiss the third cross claim. 6. The defendant/first cross-claimant is to pay the plaintiff/ first cross-defendant's costs. 7. The second cross-claimant is to pay the second cross-defendant's costs. ********* Last Modified: 11/28/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.