New South Wales Supreme Court CITATION : Robinson -v- Watts [2000] NSWSC 584 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50127/99 HEARING DATE(S) : 29.2.00, 1.3.00, 2.3.00 JUDGMENT DATE : 28 June 2000 PARTIES : Russell Milton Robinson -v- Maria Watts & Gary John Watts JUDGMENT OF : Hunter J COUNSEL : Plaintiff: M R Errington First Defendant: J Johnson SOLICITORS : Plaintiff: Gayle Meredith & Associates First Defendant: Wood Marshall Williams Solicitors CATCHWORDS : Contracts Review Act 1980 - third party mortgage - whether circumstances of mortgage unjust or unconscionable - enforcement by transferee - no notice by transferee of circumstances - indefeasibility of transferee's title - operation of s 7 Contracts Review Act 1980 and s 42 Real Property Act 1900 - whether underlying debt satisfied on transfer of mortgage - whether mortgagor in position of material inequality - whether mortgagor a volunteer. Real Property Act 1900 (NSW) LEGISLATION CITED : Law Reform (Miscellaneous Provisions) Act 1965 (NSW) Contracts Review Act 1980 (NSW) CASES CITED : Garcia -v- National Australia Bank [1998] 194 CLR 395 Commercial Bank of Australia Ltd -v- Amadio [1982] 151 CLR 447 DECISION : Judgment for the plaintiff. Cross claim dismissed. - 1 - REASONS FOR JUDGMENT 1 Judgment was given against the second defendant in these proceedings, Gary John Watts (Watts), on 17 December 1999. The proceedings continued against Maria Watts seeking enforcement of her obligations under a Real Property Act mortgage dated 15 April 1998 (the mortgage), registered under the provisions of the Real Property Act 1900 (the R.P Act) in favour of Surfers Paradise Investments Pty Ltd (Surfers) over property of which Maria Watts was registered proprietor, situated respectively at St Ives and Wyoming. Watts' liability was as guarantor under the mortgage. He was the de facto husband of Maria Watts - a relationship which had existed for many years prior to the events giving rise to these proceedings. 2 The mortgage was transferred by Surfers to Leonardus Gerhardus Smits (Smits) by transfer dated 13 May 1998. That transfer was duly registered under the provisions of the R.P Act. Smits transferred the mortgage to the plaintiff Russell Milton Robinson (Robinson) by transfer dated 1 May 1999 which was also duly registered. 3 Notice of the assignment of debt was given to Maria Watts by Robinson by notice dated 16 September 1999, although of no particular legal significance, having regard to the registration of the transfer of mortgage. 4 Another aspect of the transfer of mortgage to Robinson is the fact that he required and obtained an indemnity from Smits against loss on the transfer of mortgage. However, the evidence is clear that, on the transfer of mortgage, Robinson had no knowledge of the events surrounding the giving of the mortgage by Maria Watts. The taking of an indemnity from Smits was on the advice of his solicitor. 5 The property was subject to a first mortgage in favour of Sandhurst Trustees Pty Ltd who, on 14 February 2000, obtained a writ of possession of the property. Maria Watts does not dispute that she executed the mortgage as mortgagor, nor does she dispute the transfer of the mortgage to Smits and then to Robinson. 6 The circumstances in which the mortgage was given have their genesis in a contract of sale dated 18 August 1997 (the contract), between Surfers as vendor and Zonebar Pty Ltd (Zonebar) as purchaser for the sale of land at Slacks Creek in Queensland (the Slacks Creek property) for the price of $5,000,000. The object of the acquisition of the Slacks Creek property was for development by Zonebar. 7 The purchase price was payable as to $4,700,000, subject to certain adjustments, on "Completion", with $300,000 being payable by the earlier of 13 December 1998, or seven days after Zonebar received a certificate of practical completion of the proposed development of the subject property. Smits and Watts, as directors of Zonebar, guaranteed performance of the contract by Zonebar. 8 Disputes between the parties to the contract led to a deed of settlement dated 15 April 1998 (the deed of settlement), the same date which the mortgage bears. The deed of settlement recited that Surfers had purported to terminate the contract on 24 September 1997, a step which Zonebar disputed and which led to the institution by Zonebar of Supreme Court proceedings in Queensland. Those proceedings were settled as recited in the deed of settlement in the following way: "(g) ... following discussions which have taken place between the parties it has been agreed that in consideration of [Surfers] agreeing to reinstate the Contract: (i) the parties will agree to the Contract being amended in the manner and to the extent provided in clause 5; (ii) [Surfers] and Zonebar will proceed to Completion; (iii) Zonebar and [Surfers] will procure their respective solicitors to sign the Consent Order dismissing the Appeal and the Notice of Discontinuance discontinuing the Supreme Court Action; (iv) Zonebar and the Guarantors will release [Surfers] from all claims whatsoever relating to dealings between them and [Surfers] up to the date on which this deed becomes effective; (v) [Surfers] will release Zonebar and the Guarantors from all claims whatsoever relating to dealings between [Surfers] and them up to the date on which this deed becomes effective." 9 Under the deed of settlement provision was made for "reinstatement" of the contract as follows: "4 REINSTATEMENT OF THE CONTRACT 4.1 Reinstatement Without any admission that it was not entitled to terminate the Contract, [Surfers] agrees to Zonebar's and the Guarantors' request to, and does, (a) withdraw its purported termination of the Contract referred to in clause 2(c); and (b) reinstates the Contract. 4.2 Acceptance of Reinstatement Zonebar and the Guarantors accept the reinstatement of the CONTRACT as provided in clause 4.1. 4.3 Conditional Reinstatement Reinstatement of the Contract is subject to the provisions of clause 9." 10 The contract was amended in the following way: "5 AMENDMENTS TO THE CONTRACT The parties agree that the Contract is, subject to clause 9, amended in the following manner : (a) Item Q of the Items Schedule is amended by deleting the wording appearing alongside that Item and inserting in its place the following words: "On or before 15 April 1998". (b) Special Conditions 5 and 8 are deleted. (c) The following Special Condition 12 is inserted into the Contract: " 12. Notwithstanding any other provision of this Contract, the parties agree that the balance purchase money payable by th e Purchaser upon Completion shall be the sum of $4,990,000.00 $5,020,000.00. 6. COMPLETION (a) At completion: (i) Zonebar and the Guarantor Leonardus Gerhardus Smits will pay to [Surfers] and/or to its mortgagees and/or to the Office of State Revenue (for land tax) and/or Logan City Council (for rates and charges) amounts aggregating $4,990,000 $5,020,000.00. (ii) [Surfers] and/or its mortgagees must deliver to Zonebar the documents referred to in sub-paragraphs (b) to (g) inclusive of clause 4 of the Standard Commercial Conditions forming part of the Contract. (b) Within fourteen (14) days after Completion, [Surfers] must deliver to Zonebar the documents referred to in sub-paragraph (h) to (k) inclusive of clause 4 of the Standard Commercial Conditions." 11 The provisions of cl 9 (referred to in cl 4.3) of the deed of settlement were as follows: "9 WHEN DEED BINDING This deed shall not: (a) be of any force or effect; or (b) binding on any of the parties unless and until (i) it has been executed by each of the parties; AND (ii) completion has been effected." 12 The effect of the amendment to "Item Q" was to provide for a date for completion of the sale, namely 15 April 1998. The original provisions for completion under the contract, in my view, are not entirely clear. Item Q provided as follows: "DATE FOR COMPLETION: See Special Condition 5" 13 Special Condition 5 provided as follows: "Completion shall be effected on or before the Latest Completion Date" That term was defined to mean 30 September 1997. Curiously however, "Completion" was also defined to mean "completion of this Contract by settlement of the within sale and purchase". Under Special Condition 4 of the contract, provision was made for the payment of the purchase price as follows: " 4. PAYMENT OF BALANCE PURCHASE PRICE 4.1 The balance of the Purchase Price shall be paid in the following manner: (a) the sum of $4,700,000.000 (plus or minus adjustments made pursuant to clause 15 and Special Condition 8.4 shall be paid on Completion.) (b) the sum of $300,000.00 shall be payable on whichever is the earlier of: (i) 30 December, 1998; or (ii) 7 days after the Purchaser receives a certificate of practical completion of the Proposed Development. 4.2 The provisions of clause 4 (of the Standard Commercial Conditions) are deemed to be amended to the extent that they would be inconsistent with Special Condition 4.1." 14 The use in this provision of the term 'balance of the Purchase Price" is somewhat mystifying as Item N of the Schedule to the contract identified the purchase price as $5,000,000. The reference to adjustments in Special Condition 4.1(a) deals with apportionment of earthworks costs (Special Condition 8.4) and the usual adjustments for rates and the like (clause 15). In my view, it is difficult to reconcile the provision of Special Condition 5, calling for completion by 30 September 1997, with the provisions of Special Condition 4, which, as to $4,700,000, called for payment on Completion, meaning "settlement of the [subject] sale and purchase" and for the payment of $300,000 by the latest 30 December 1998. 15 The deed of settlement did not facilitate clarification of this ambiguity by omitting any reference to Item N of the schedule to the contract which identified the purchase price as $5,000,0000 and by omitting any reference to Special Condition 4. I think the obscurity in the operation of the deed of settlement should be resolved by construing clauses 5 and 6 of the deed of settlement as impliedly amending Item N and Special Condition 4 of the contract to provide for a completion date of 15 April 1998, with payment of the altered purchase price of $5,020,000 on that date. Notwithstanding that construction, it appears that Surfers agreed to defer payment of $300,000, a portion of the purchase price until 31 December 1998, in return for the mortgage. With those matters in mind I sought clarification from Smits of the commercial background to the deed of settlement as follows: "HIS HONOUR: Q. Mr Smits, I wonder if you would just take me through in simple terms the commercial rationale of what went on in mid April 1998, starting with the nature of the property in Queensland, the parties and terms of acquisition of the property and so on? A. Yes, your Honour. Perhaps I should go back a little bit, your Honour, to the date of the contract. The contract was entered into on, I think, about 18 August 1997, and there were difficulties in relation to the completion of it. Q. In what form? A. In terms of getting the finance to complete the contract. Q. What was the purchase price? A. The purchase price was I think 5 million. Q. And was most of that being borrowed by the purchaser? A. The purchaser was merely a shelf company, a shelf company acquired exclusively for the purpose of the acquisition, and the deposit was funded by myself. That was, I think, a 5 percent deposit, from memory, and then we were having - experiencing difficulties raising the finance to complete the purchase. Disputes developed with the vendor. The vendor purported to rescind the contract. That went to the Supreme Court of Queensland which upheld that (sic) the position of the vendor. Then an appeal was lodged against that decision. That appeal was never determined and in between the lodgement of that appeal and 15 April 1998, being the settlement date, there were negotiations with the vendor to determine the basis upon which the contract could be reinstated and completed. The overall arrangements as between myself on the one hand and Mr Watts on the other hand, through our various vehicles, was that I would have 75 percent equity and responsibility and that he and his entities would have 25 percent equity and responsibility. In February of around - about mid February of '98, Colonial State Bank indicated that they would make the funds available, which would enable the settlement to proceed and then substantial additional funds were required to be injected to enable that transaction to be completed. It was not only the moneys which were - the 5 million which was required because in mid-March there was another property, which is immediately adjacent to the main property, which was being purchased by a company called Danuni and the structure of those two companies was virtually the same. Q. Which two companies? A. Zonebar, the purchaser of the main holding, and Danuni the purchaser of the small triangle which sat on top of the development site. Overall, it was about 40,000 square metres. It was zoned industrial or service industry. Applications were pending or being lodged for particularly DAs for portions of the site and there were a lot of negotiations going on with interested tenants and potential purchasers and all of those things happening. Q. What was it to be, a shopping centre? A. No, it was contemplated that the frontages to the site would be used for motor vehicle industry related uses, including a dealership, a number of retailers, a service station, a car wash. There was a lube. And that was on sort of the frontage to the side, which was like a right angle. One part of it was facing the Pacific Highway and the other part of it was facing a service road off the Pacific Highway, and then in the centre of the site it was intended to put a BBC Warehouse, like one which we have many of in New South Wales, and then to have a number of small industrial warehouse type developments or standing areas for cars at the rear of the site, and then there was a residual area of 2.6 hectares. Q. How was the project intended to generate a profit to the purchasers? A. By letting up or selling the components. That would have made each one of those components saleable at a particular cap rate to produce a particular yield, and depending on how it was done that could have either been sold into superannuation funds or there is a multiplicity of ways, your Honour. Q. Yes? A. But all of those calculations had been done in feasibilities, et cetera, which Mr Watts had prepared for me. (T86:19- T87:50) ... Q. So at the time of the mortgage with which we are concerned, what was the situation in terms of the acquisition and financing of that property? A. Well, we needed to raise the moneys by borrowings from Colonial, borrowings from Tendiris and myself, and there were - so the balance of the purchase price was required. There was money required for the stamp duty. I am talking about mid-March really, because that is when the other property, the little one that was own (sic) by Danuni, that required $425,000 to settle in March. In mid-March that obligation arose and Mr Watts was unable to raise any funds to contribute to that settlement. I had to fund that $425,000 myself because we had both guaranteed that contract. Q. How do we get to the $300,000 with Surfers Paradise? A. When we did all of the calculations, which included the payment of stamp duty on the main contract, which was $200,000, the payment of legal and consultancy costs, which were around about another $100,000, the $425,000 and the 5 million, less the deposit, which was required to complete, we were short. We didn't have enough money to settle. We were short $300,000. Q. Was that contemplated in the deed of settlement? A. No, it is not expressly mentioned in it. Q. So in order to accommodate that, the mortgage, amongst other things, was arranged for the securing of the $300,000 outstanding under the contract to Surfers? A. Mmm. I had to put in my component and more in cash because Mr Watts couldn't raise his share so-- HIS HONOUR: Anything arising, Mr Johnson? JOHNSON: Yes, your Honour. Q. Mr Smits, under the original purchase contract, the consideration was expressed to be I think 5 million, is that right? A. I think that's right. Q. And that was payable in two lots, $4,700,000 ascribed in the contract and $300,000 on the earlier, of 30 December 1998 or seven days after the purchaser received a certificate of practical completion of the proposed development? A. Yes. Q. By the deed of settlement, the contract dated 18 August 1997, was in fact reinstated subject to some variations? A. I think that's right, yes. Q. So under the deed of settlement, by its terms, the $300,000 was not payable until 30 December 1998? A. I think that's correct." (T88:1-T88:56) 16 This understanding of the commercial arrangement makes some sense of the terminology adopted in the mortgage, in particular the definition of "Debt" as meaning "the sum of $300,000 owing by the Debtor to the Mortgagee, being part of the purchase price payable by the Debtor to the Mortgagee pursuant to a contract dated 18 August, 1997". I read that reference as one to the contract as varied by the deed of settlement. "Debtor" was defined to mean Zonebar. The repayment provision of the mortgage was as follows: "3.1 The Debtor and/ or Mortgagor must repay the Loan and any Outstanding monies owing to the Mortgagee on or before the Repayment Date" "The Repayment Date" was defined to mean 31 December 1998. There appears to be no definition of the "Loan" in the mortgage, other than a definition in the incorporated memorandum of "the loan" as meaning: "the amount of any monies or accommodation called the loan and referred to in this mortgage (or where no such expression is used, the loan moneys and or other financial accommodation or credit facility or consideration referred to in or otherwise initially advanced or provided by the mortgagee pursuant to this mortgage)". 17 That definition does not sit comfortably beside clause 3.1 of the mortgage which calls for the repayment of "the Loan and any Outstanding Moneys", the latter expression being defined to mean: "(a) all or any interest which has accrued but which is unpaid; and (b) any other Secured Moneys owing by the Debtor and/or the Mortgagor and /or the Guarantor to the Mortgagee." 18 In turn, the expression "Secured Moneys" was defined to mean "the Loan and principal moneys and all interest and charges". In my view where the term "Loan" is used in clause 3.1 it is a reference to the debt as defined in the mortgage, namely, the sum of $300,000 being part of the purchase price under the contract as varied. 19 There was no loan to Maria Watts. The only loan was represented by the deferment for some seven months of the payment of a portion of the purchase price under the varied contract. One consequence of that view of the nature of the mortgage lies in the entitlement of Maria Watts to a discharge of the mortgage upon payment of that portion of the purchase price for and on behalf of Zonebar. 20 That aspect of the mortgage may have some significance, as the evidence disclosed that the consideration paid by Smits to Surfers for the transfer of the mortgage was treated by Surfers as payment in satisfaction of Zonebar's liability to pay the outstanding balance of the purchase price. The evidence of Smits on the subject matter was as follows: "Q. In relation to Mrs Watts, it is correct, is it not, that prior to her signing the mortgage on 14 April 1998 and its subsequent delivery to Surfers Paradise Investments Pty Ltd, she had no liability to Surfers Paradise Investments Pty Ltd in respect of the contract for the purchase? A. That is correct. Q. It is equally correct that at that time when she signed the mortgage, or at the time of its delivery to Surfers Paradise Investments Pty Ltd, no amount of money was advanced to her? A. I'm sorry, I don't quite understand the question. But no, I think is the answer to that. Certainly not advanced by any of the parties to these transactions. Does that answer your question? Q. Nothing was advanced by Surfers Paradise Investments Pty Ltd? A. No. Q. Nothing was advanced by you? A. No. To her that is. Q. To her? A. Yes. Q. It is correct also that at no time did you write directly to Mrs Watts setting out the basis of the arrangement that you contemplated to be entered into by her in relation to, or leading to this mortgage being signed? A. That is correct. Q. In fact, the mortgage was only to secure a limited amount of $300,000 owing by Zonebar Pty Ltd under the contract for purchase dated 18 August 1997 and other incidentals? A. Plus incidentals, yes. Q. Being a liability that each of yourself and Mr Watts were already liable for to Surfers Paradise Investments Pty Ltd? A. Yes. Q. In your affidavit you make reference to a payment to Surfers Paradise Investments Pty Ltd, do you remember that? A. Could you just be a little bit more specific about which one? Q. Do you remember making a payment to Surfers Paradise Investments Pty Ltd to satisfy or go towards the outstanding amount of $300,000? A. Yes. Q. You transferred to Macgillivrays trust account, you say on 15 April 1998, an amount of $287,725? A. Yes. Q. Was that intended to be an amount to satisfy the $300,000 exposure reflected in the mortgage signed by Mrs Watts? A. No. Q. What was the transfer for? A. It was intended to be the consideration for the transfer of the mortgage to myself and the mortgage debt. Q. To your knowledge, has the balance of the entirety of the contractual obligation of Surfers Paradise Investments Pty Ltd in relation to the contract been satisfied? A. No, as to the residual $300,000, that has not been paid by Zonebar to SPI. Does that answer your question? Q. Has anyone else paid that amount to Surfers Paradise Investments? A. No, no. Q. So there is still an amount outstanding to Surfers Paradise Investments Pty Ltd of $300,000? A. No, there is not, because as I explained to you I purchased the mortgage debt and the mortgage. Q. It might be that I am not a conveyancer. By purchasing that debt it extinguished any further obligation by Zonebar Pty Ltd to make a payment to Surfers Paradise Investments Pty Ltd? A. I transferred the obligation to somebody else. It didn't extinguish it. Q. So far as Surfers Paradise Investments Pty Ltd, it did not look to anyone else for payment of any monies under the terms of the contract entered into in 1997? A. No." (T77:7- T78:39) 21 The only interest that Maria Watts had in the successful development of the Slacks Creek property lay in the indirect benefit that may have been derived through Maria Watts improved financial position and through her interest as a beneficiary under the Watts' family trust, of which GJW Equity Pty Ltd (Equity) was the trustee. Equity held shares in Zonebar and in Danuni Pty Ltd (Danuni), the company which was involved in the acquisition of a property, associated with that the subject of the contract. 22 At one time Maria Watts had been a director and shareholder of Equity, but had ceased to be so prior to the events giving rise to these proceedings. In the period of her directorship she was recorded as having received modest fees as a director. 23 I doubt whether her role in Equity was anything more than nominal in the sense that I think her duties as director and secretary probably amounted to no more than formal ones involving the execution of annual statements and of minutes of meetings. She is recorded as having been appointed as director and secretary of another Watts' company, as to which I am satisfied she had no knowledge. 24 On 29 September 1991 notice of default pursuant to section 57(2)(b) of the R.P Act 1900 was given by Robinson to Watts and Maria Watts. By her amended defence and cross claim Maria Watts admits that no monies had been paid by her under the terms of the mortgage. However, she denies any obligation so to pay. 25 It has been argued on her behalf in these proceedings that the "Loan" or "Debt" within the meaning of the mortgage was satisfied by payment to Surfers by Smits of the consideration for the transfer of the mortgage to him. Alternatively, it is alleged, if the mortgage is enforceable against her, she is entitled to the benefit of s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 so as to limit her liability to one third of the subject indebtedness. Section 3 is in the following terms: " 3. (1) A person who, being surety for the debt or duty of another, or being liable with another for a debt or duty, pays that debt, or performs that duty, is entitled: (a) to have assigned to that person, or to a trustee for that person, every judgment, specialty or other security held by the creditor in respect of that debt or duty, whether or not that judgment, specialty or other security is taken at law to have been satisfied by the payment of the debt or the performance of the duty; and (b) to stand in the place of the creditor and to use all the remedies, and , if necessary, and on a proper indemnity, to use the name of the creditor in any proceedings to obtain from the principal debtor or any co-surety, co-contractor or co-debtor (as the case requires) indemnity for advances made and loss sustained by the person who paid the debt or performed the duty. (2) The payment of the debt or the performance of the duty by a surety is not a defence to any such proceedings referred to in subsection (1). (3) A co-surety, co-contractor or co-debtor is not entitled under this section to recover from another co-surety, co-contractor or co-debtor more than the proportion to which, as between those parties themselves, that person is justly liable." 26 This contention arises out of the nature of the mortgage: the fact that Watts and Maria Watts were each guarantors under the mortgage and that Smits and Watts were guarantors of Zonebar's obligation under the contract as varied by the deed of settlement. 27 An alternative argument is raised that "...as at 16 April 1998 no amount [was] due to Surfers... under the Contract dated 18 August 1997, and therefore there was no debt secured under the Mortgage as and from that date." That submission takes up the literal wording of the mortgage which defined the debt in the terms referred to earlier in these reasons. 28 However, I think the word 'debt', so defined under the mortgage, is intended to refer to a portion of the purchase price under the contract, as varied by the deed of settlement, and, upon the construction of that deed offered earlier in these reasons, I think it is clear that the $300,000 was outstanding, being part of the purchase price payable under the contract as varied. 29 Maria Watts also contends that the mortgage was unjust in the circumstances particularised in paragraph 11 of her defence, so seeking to invoke the provisions of the Contracts Review Act 1980 (the Act). Under an alternative defence, based upon the same particulars, she contends that, by reason of being in a position of special disadvantage at the time of the mortgage, as known to Surfers and Smits, it would be unconscientious for Robinson to rely upon the mortgage. By her cross claim Maria Watts seeks an order that the mortgage be set aside, varied, or declared void. 30 Maria Watts further alleges that she was induced to execute the mortgage, to her detriment, by a misrepresentation of Smits made in a "manner as to bind [Surfers]" that he would indemnify her from any liability under the mortgage. 31 It is useful to set out the particulars of the circumstances in which Maria Watts alleges that the mortgage was executed by her as set out in para 11 of her defence as follows: "11. In further answer to paragraph 1,2,3,4 and 5 of the Plaintiff's Contentions to the extent that it relates to the Mortgage, the First Defendant says that: (a) She is a person without any commercial expertise or experience. (b) She was ignorant of the contents of the Registered Memorandum Y667228 at the time of execution. (c) She had not seen the form of the Mortgage prior to its production to her at the offices of Peter La Fontaine for execution by her on or about 15 April 1998. (d) She was in a position of material inequality in relation to the execution of the Mortgage. (e) She was interviewed by Mr La Fontaine in the presence of her husband who was then, unknown to her, in a position of being liable as guarantor to [Surfers] at that time in respect of obligations under the terms of the contract dated 18 August 1997 being the Contract giving rise to the "Debt" described in Clause 2.1 of the Mortgage. (f) She was under the influence of her husband Gary Watts at the time of the execution of the Mortgage. (g) She was afforded no opportunity to obtain any truly independent advice in relation to her obligations under the Mortgage. (h) She was a volunteer in relation to the transaction that was to be secured under the Mortgage and received no benefit under the Mortgage. (i) Prior to the execution by the First Defendant of the Mortgage Leonardus Gerardus (sic) Smits orally represented to Peter La Fontaine, on behalf of the First Defendant, that he would indemnify her from any liability under the Mortgage ("the Representation"). (j) The Representation induced the First Defendant to execute the Mortgage. (k) The terms of the Representation were withdrawn and/or rejected by Leonardus Gerardus Smit (sic) after the execution of the Mortgage without the knowledge approval or consent of the First Defendant. (l) The handwritten endorsement of the Representation contained in the Mortgage as executed by the First Defendant was deleted without her knowledge approval or consent. (m) [Surfers] and Leonardus Gerardus (sic) Smits at or about the time of the execution of the Mortgage by the First Defendant knew or ought to have known that the First Defendant was acting under the mistaken belief that the First Defendant was indemnifying her in respect of liability under the Mortgage but refrained from alerting the First Defendant of the existence of the mistake. (n) [Surfers] and Leonardus Gerardus (sic) Smits had a duty to disclose to the First Defendant matters of an unusual nature surrounding the contract between Surfers Paradise Investments Pty Limited and Zonebar Pty Limited. (o) [Surfers] and/or Leonardus Gerardus (sic) Smits failed to disclose to the First Defendant the fact: (i) that Zonebar Pty Limited and Leonardus Gerardus (sic) Smits and Gary Watts Were (sic) in default under the Contract at the time; (ii) that Zonebar Pty Limited and Leonardus Gerardus (sic) Smits and Gary Watts Had (sic) been in default under the Contract for several months; (iii) that Leonardus Gerardus (sic) Smits and Gary Watts had already given a guarantee in respect of the contract. (p) [Surfers] and Leonardus Gerardus (sic) Smits at or about the time of execution of the Mortgage by the First Defendant knew or ought to have known that the First Defendant was acting under the mistaken belief that: (i) that Zonebar Pty Limited and Leonardus Gerardus (sic) Smits and Gary Watts were not in default under the Contract at the time; (ii) that Zonebar Pty Limited and Leonardus Gerardus (sic) Smits and Gary Watts had not been in default under the Contract for several months; (iii) that Leonardus Gerardus (sic) Smits and Gary Watts had not already given a guarantee in respect of the Contract. but refrained from alerting the First Defendant of the existence of the mistake. (o) (sic) Peter La Fontaine was not the normal solicitor who had provided advice in respect of conveyancing and other matter to the First Defendant (p) (sic) The Mortgage was a document that by its terms included an indemnity and direct personal liability in a form that was not reasonably necessary for the protection of the interest of [Surfers]. (q) She was unaware of the fact that the Mortgage was intended to be assigned by [Surfers] to Leonardus Gerardus (sic) Smits following the execution by her. (r) The terms of the Contract being the contract between [Surfers] and Zonebar Pty Limited dated 18 August 1997 were not disclosed to the First Defendant nor a copy available to peter (sic) La Fontaine at the time of the execution of the Mortgage by the First Defendant. (s) The terms of the Solicitors Certificate issued by Peter La Fontaine making reference to the Mortgage were not explained to the First Defendant so as to enable her to know and understand the significance of the fact that the Mortgage was intended to be assigned by [Surfers] to Leonardus Gerardus (sic) Smits at some time after the execution of the Mortgage by her." 32 It is not contended that any of those alleged circumstances were known to Robinson at the time of taking a transfer of the mortgage. The effect of s 42 of the R.P Act, and s 19 of the Act, are matters that are required to be considered in examining the effect of the circumstances in which the mortgage was executed by Maria Watts. 33 As to those circumstances, I am satisfied that Maria Watts resented being called upon to provide the mortgage, being under some pressure from Watts to assist in the provision of security to enable the varied contract to proceed. 34 For practical purposes, I think Maria Watts should be treated as a volunteer under the mortgage, notwithstanding the possibility of benefits arising from the underlying transaction that may have gone her way had the development of the Slacks Creek property been successful in the hands of Zonebar and Danuni. 35 Notwithstanding those findings, I am satisfied that the circumstances in which the mortgage was given did not amount to unjust circumstances within the meaning of the Act nor give rise to unconscientious conduct of the kind considered actionable in the Commercial Bank of Australia Limited v Amadio [1982] 151 CLR 447 nor to unconscionable conduct as considered in Garcia v National Australia Bank [1998] 194 CLR 395. 36 I am also satisfied that Smits did not represent to her, through the solicitor, Peter La Fontaine (La Fontaine), that he would indemnify her from any liability under the mortgage. Her case of ignorance of the content of the mortgage and of the risks associated with the underlying transaction concerning the purchase and development of the Slacks Creek property does not measure up to her own evidence and that of La Fontaine. 37 Dealing first with the representation attributed to Smits. There is no doubt that Maria Watts was an unwilling mortgagor, in the sense that she was distressed by the request to provide a third party mortgage. She had some awareness of the risk associated with the development of the Slacks Creek property, and with this in mind sought to extract an indemnity from Smits in terms of La Fontaine's facsimile to Smits of midday on 14 April 1998, which was in the following terms: " RE: MARIA WATTS & HER ST IVES AND WYOMING PROPERTIES RE: MORTGAGE TO SURFERS PARADISE INVESTMENTS PTY LIMITED We refer to our phone conversation today and would be pleased to have your written confirmation that if the $300,000 in the mortgage is not repaid on or by 31 December 1998 that you will pay it together with any other money due under the mortgage and obtain a discharge of mortgage and withdrawal of any caveat at no cost to Maria Watts. Our client Maria Watts has executed the mortgage over the two properties on the distinct understanding that she will not personally be liable for any money and that her two properties are not at risk and that the mortgage is entered into as ancillary to a proposed development at 3431-3441 Pacific Highway Slacks Creek by Zonebar Pty Limited and Danuni Pty Limited in which she will have no interest." 38 Further evidence of this stand taken by Maria Watts is to be found in the manuscript endorsement on the mortgage in the following terms: "I, Leonardus Gerardus (sic) Smits of 748 Pacific Highway, Gordon New South Wales Solicitor, hereby indemnify the mortgagor from any liability under this mortgage SIGNED SEALED AND DELIVERED ) BY LEONARDUS GERARDUS (SIC) SMITS ) IN THE PRESENCE OF )" 39 On the mortgage as registered that endorsement is struck out. It is the evidence of Maria Watts, which I accept, that, at the time of execution of the mortgage on 14 April 1998, that endorsement was on the mortgage and had not been struck out. It was also her evidence that the words had been endorsed on the mortgage "after a telephone conversation that [La Fontaine] had with a Mr Smits during the meeting" at which she attended La Fontaine's office and executed the mortgage. 40 La Fontaine was called to give evidence in the circumstances considered in my ruling during the course of the hearing on 29 February 2000. As a consequence, counsel for Robinson, in calling La Fontaine, was given leave to question him in the form of leading questions. 41 There was adduced in evidence a file note of La Fontaine of 14 April 1998, noted as entered "11.12" in the following terms: "Gary & Maria Watts 14. 4. 98 t/Leo Smits 11.12 9499 4144 Secty Gwen -2nd mtge relates only to the $300, 000 to V - OK to write in Mtge I, Leonardus Gerardus (sic) Smits of 748 Pacific Highway Gordon NSW, solicitor hereby indemnify the borrower Mortgagor from under any liability under this mortgage" 42 The explanation of that file note was given by La Fontaine as follows: "Q. You are looking at the original of the document of page 289 in the bound volume, the tender bundle is a copy? A. Yes. Q. Is the original a note of something to do with a telephone conversation? A. Yes. Q. Can you recall the telephone conversation at all? A. Well, I can't remember at that time if I spoke to Mr Smits himself, or whether that was later. HIS HONOUR: Q. Do you recall the circumstances of making the call? A. Yes, it was because Mr Watts and Mrs Watts had - or Mr Watts had told me, and Mrs Watts agreed that that was her understanding, that Mr Smits had agreed that they wouldn't lose the matrimonial home and that it was up to, that the loan was $300,000. ERRINGTON: Q. The heading is "T/Leo Smits" with a telephone number, which we might assume is Mr Smits' number, then there is "STY Gwen"? A. That indicates it is more likely that I rang, because the "T" means I telephoned. It would indicate that Mr Smits was not available, and I spoke to his secretary Gwen and left that message, the following two notes about the second mortgage relates only to $300,000, and okay to write on the mortgage. She said, if I recollect, that she would ask Mr Smits and get him to get back to me. Q. So you think now, looking at it, that that is a note of some questions that you put to Mr Smits, by leaving them by telephone with his secretary Gwen? A. Yes. HIS HONOUR: Q. At the conclusion of that telephone conversation did you inform Mr and Mrs Watts that you had spoken to the secretary and left that message? A. Yes, they were there when I rang, yes." (T45:15 -T45:54) 43 It was following that telephone conversation that La Fontaine sent the facsimile of 14 April, quoted above. It was La Fontaine's evidence that the manuscript endorsement on the mortgage was in his handwriting and was inserted before Maria Watts executed the mortgage and inserted by him after his telephone conversation with Smits' secretary. It was also his evidence that he retained the mortgage documents as executed until he had resolved the matter of the requested indemnity from Smits. 44 According to La Fontaine he treated the mortgage and related documents as "executed subject to that fax" of 14 April 1998 which I have quoted above. La Fontaine's evidence was that following that facsimile he received a telephone call from Smits in which Smits responded to the facsimile of 14 April by saying that "there was no way" that he would accede to the request in that facsimile, but was prepared to extend the time of foreclosure until 30 June 1999. La Fontaine made that clear in terms of his facsimile to Smits of 14 April 1998 which was in the following terms: " Surfers Paradise Investments Pty Limited ("SPI"): Mortgages from Mrs Maria Watts I refer to your faxed letter of 14 April 1998 to me, and my subsequent discussions with you and Mr Gary Watts respectively. I have agreed that I will provide $300,000 in discharge of the payment of the deferred consideration due to [Surfers] on 31 December 1998 on the condition that I receive simultaneously a transfer of the full benefit of the mortgages executed by Mrs Maria Watts in favour of [Surfers]. Consequently, I am only prepared to arrange that funding and other funding for the purposes of the settlement on the basis that Mrs Watts will remain personally liable in accordance with the terms of the mortgages and that such mortgages will remain enforceable over the subject properties. As discussed with Mr Watts, I am prepared to undertake that I will take no steps to enforce the mortgages prior to 30 June 1999. Otherwise, it is expected that the mortgage liability will be retired out of realisation of Zonebar's assets before that date in accordance with the feasibility prepared and issued by Mr Watts. With respect to your comment to the effect that Mrs Watts has no interest in the proposed development, that is not acceptable as she is an object or beneficiary of the Watts Family Discretionary Trust which has a shareholding interest in Zonebar. That is the source of her potential entitlement from the development. Additionally, her husband has a material equity or interest in the project. If Mrs Watts does not accept, and you cannot confirm absolutely, the arrangements proposed above, I am not in a position to conclude the venture with the Watts Family." (Emphasis added) 45 The passage emphasised taken literally, could be construed as a transaction contemplating the extinguishment of the "Debt" within the meaning of the mortgage. It has not been suggested that Maria Watts relied upon such an interpretation. 46 There then followed two telephone conversations on 15 April 1998 between La Fontaine, with Watts at 10.55am for five minutes, and with Maria Watts at 11.11am for twelve minutes. It was La Fontaine's recollection of the conversations that he had passed onto Watts the effect of Smits' response to the proposed indemnity and during the course of which La Fontaine stated "that what [he was] worried about [was] that Maria....Watts understands the risks." 47 Of his telephone attendance on Maria Watts he said that, independently of his file note, he recalled the substance of the conversation in the following terms: "A. Yes. Well I went over again with her the risks, that the only way that the house could be secure, even though it had a mortgage on it, would be if Mr Smits said that he wouldn't call it up. He is now saying that he won't call it up before 30 June 1999, another 14 months, but that after that if the payments weren't made, then the house was at risk. It is all right to say that the Queensland development might work, it might make lots of money and everyone is happy, and this will get paid off and the house will be unencumbered, but there is no guarantee of that, so the house is at risk. You have to decide whether you put the house up or let the Queensland interest that Mr Watts was going to have, or continue to have in it foregone. Q. Did she respond to that? A. Yes, she said, "Well, you told me all that before and I know the risks. I know Leo Smits, what he has said, and I understand the house is at risk." Q. Was there anymore to the conversation than that? A. Well, more along similar lines. I repeated the risk and said, "You have got to be sure, it is the house, and that is probably the only thing you have got, apart from some of the speculative investments." Q. Did she respond to you? Did she respond again? A. Well she said, "I understand the risks, and I will go ahead." Q. Was that the end of the conversation, or was there more to it? A. Well, there may have been more along similar lines. I can't remember in detail." (T47: 36-T48:10) "Q. The conversation with Mrs Watts reflected on your file note of 15 April, are you able to tell his Honour exactly what you said to Mrs Watts in that conversation? A. Well I read - I can't remember if I read the letter out again-- HIS HONOUR: Q. Referring to Mr Smits' letter? A. Yes, Mr Smits' letter of 14 April. Then I went through the, trying to make it as simple as possible, the complicated set up, and went through the risks. If one of these things falls over, then the house is at risk. JOHNSON: Q. The house was at risk to whom? A. Of getting sold up. Q. By whom? A. Well, the way it was structured there could have been, it seemed to me it was like it could have been like dominoes. (T61:43-T62:03) ... Q. Did you advise her that it was appropriate to delete the handwriting that was on the mortgage that you had put on? A. No, I didn't delete it. I said, "It will be deleted if you agree to this." Q. Did you tell her the affect that that would have in respect of her position? A. Yes. Q. What was that affect? A. Well, there is no - that it is completely different to what it was yesterday. What it was yesterday, that is the 14th, that Smits was going to give a guarantee, which would mean that the house would not be at risk, presuming Smits had enough money. But then with that fax he said no, he is not going to. So the house is at risk, or more at risk. Q. When you say more at risk, unless the mortgage was handed over, it was not at risk in respect of the Surfers Paradise Investments transaction at all, was it to your knowledge? A. Unless it was handed over to me? Q. To Mr Smits or Surfers Paradise Investments? A. The mortgage? Q. Yes? A. Yes, that's right. Q. You did not consider it appropriate to get Mrs Watts to come in and see you by herself so you could see her away from her husband? A. I suggested that to her. Q. That was during this conversation in that file? A. Yes. (T63:44-T64:21) ... Q. As a result of the conversation, you then advised Mr Smits that the matter would proceed in a way contemplated by his letter of 14 April? A. Yes. Q. Did you do that in writing? A. Yes. Q. Did you send to Mrs Watts a copy of that letter before you sent it to Mr Smits? A. I can't remember if I faxed it or I read it out to her, to Mrs Watts. Q. Do you say it was prepared before you had the conversation with Mrs Watts then? That is your letter of 15 April? A. No, I think I dictated it onto the dictaphone while I was talking to her on the phone, and she heard me dictate it. (T65:16-T65:34) ... Q. In 12 minutes you were able then to tell Mrs Watts the complete factual position that she was in in (sic) relation to the transaction that she was effectively guaranteeing, is that what you are telling his Honour? A. Well not - I didn't go into the detail of all of the companies, all that serves to do is to confuse somebody who is not intimately knowledgeable about it. It was more a question of there is so many intangibles that we don't know about here, that there is all these unknowns, and she shouldn't sign it, because the house is definitely at risk. Q. In that 12 minutes you also discussed with her the complete legal position that existed? A. No, not the complex arrangements here, there and there and there. To say that if all of these things, if something goes wrong, then the house is at risk. Q. Just the house? A. That's what is security in the mortgage, and she is personally liable for it too. (T65:43 -T66:3) 48 The facsimile which La Fontaine dictated during the course of his telephone attendance on Maria Watts was that of 15 April 1998 in the following terms: " RE: MARIA WATTS AND HER ST IVES AND WYOMING PROPERTIES RE: MORTGAGE TO SURFERS PARADISE INVESTMENTS PTY LIMITED We refer to your fax of 14 April 19998. We have discussed the matter at length with Mrs Maria Watts who is aware of the factual and legal position and upon the basis of paragraphs 2, 3 and 4 of your fax [She] agrees therewith and otherwise we are instructed to withdraw the contents of our fax to you of 14 April 1998. Peter La Fontaine is quite satisfied that Mrs Watts is fully aware of the position and accepts it." 49 It was also La Fontaine's evidence that he forwarded by facsimile to Watts and Maria Watts the contents of Smits' facsimile to him of 14 April, quoted above. It is not clear from the evidence whether the full contents of that letter came to the attention of Maria Watts other than in the telephone attendance with La Fontaine. 50 The file note of that conversation was as follows: "Discussing whole setup & risks and consequences You have full knowledge of the developt & happy w (sic) it and will take the risk". 51 Maria Watts' evidence in relation to that telephone conversation and of the previous day's meeting with La Fontaine included the following: "ERRINGTON: Q. Is Springwood referring to in some way the interest in Queensland that Mr Smits and your husband were involved in? A. Yes. Q. You have attached to your affidavit a file note from Mr Lafontaine's file, do you remember doing that? A. Yes. Q. You got that after your solicitor's wrote to Mr Lafontaine asking him for a copy of the file? A. I actually phoned Mr Lafontaine myself. Q. So you rang Mr Lafontaine, and as a result of that he let you have a copy of the file? A. That's correct. Q. Did you personally look through the file? A. No, I didn't. Q. You gave it to your solicitor? A. When I got the copies I looked through the copies, yes. Q. Did you ever look through the copy? A. No, only when I went to the solicitor's, the barrister's office. Q. You know that there is more than one file note in Mr Lafontaine's file? A. Yes. Q. You have only attached one out of the file notes? A. Could be, yes. Q. You see, Mr Lafontaine telephoned you on 15 April 1998, that is the day after your conference in his office on 14 April 1998? A. He may have, I can't remember exactly. Q. Have you seen the file notes of Mr Lafontaine, setting out just such a telephone conversation with you on 15 April at 11.11? A. I honestly can't remember the phone call. Q. Do you remember that Mr Lafontaine telephoned you at 11.11 and spoke to you until 11.23? You may not be able to remember exactly the time, but for about 15 minutes on 15 April 1998? A. No. What day would that have been? Q. It would have been the day after the 14th? A. And what day of the week would that have been? Q. I don't know. A. I thought you may have had it written down. Q. The day after you went into his office? A. I thought I went to his office at the end of the week. I am trying to think what day, where I would have been. I don't remember the phone call I'm sorry. Q. Do you remember he discussed with you the whole set up, this is referring to the mortgage? A. I don't remember much about that day. I was a little bit upset . Q. This is the next day, not the day of the meeting, the day after? A. I was upset the next day. Q. He discussed with you the risks and consequence, do you remember that? A. Yes. Q. He told you that you would have full knowledge of the developments? A. No, no. Q. You said you were happy with it? A. No. Q. You said you would take the risks? A. No. I took the risk, but I wasn't happy with it, and he knew that. (T27:16-T28:42) (Emphasis added) ... HIS HONOUR: Q. Mrs Watts, I have some difficulty in recalling your evidence about any telephone conversation with Mr Lafontaine on or about 14 or 15 April? A. I do not recall the call, cannot. I have tried to go back, and I cannot think of it. I was very, very upset for those couple of days. Q. You have no recollection of any discussion with him on any subject matter? A. No, nothing. Nothing. I do not even remember the call, him making the call. Even seeing it in writing I can't get it to come back. I remember going to his office, and I remember most of the things that happened there. But a lot of things I don't, because I was very, very angry about going there that day. (T34:29-T 34:43) (Emphasis added) ... <FURTHER EXAMINATION IN CHIEF BY LEAVE JOHNSON: Q. Mrs Watts, you said in answer to his Honour's question that you were upset at the time of this meeting. Do you remember saying that? A. The meeting? Q. On 14 April? A. At Mr Lafontaine's office, yes I was. Q. Why were you upset? A. Because I only found out on the way there what I was going to sign. HIS HONOUR: Q. What was that? A. Some documents that involved the house. JOHNSON: Q. When you say you found out on the way there, logistically where was that? A. About Lindfield. Q. You were in a car? A. It was in the car. Q. Who else was in the car? A. Just Gary, my husband. Q. He told you why you were going there? A. I asked him why we were going there, and he said that Mr Smits wanted some money and we had to sign, put the house-- OBJECTION. EVIDENCE ALLOWED. HIS HONOUR: I will give you leave to further cross-examine if need be. WITNESS: A. We had to put the house up for $300,000, and that was the first time I had heard that amount mentioned. HIS HONOUR: Do you propose to address re-examination matters now? JOHNSON: Yes. <FURTHER CROSS-EXAMINATION BY LEAVE ERRINGTON: Q. You knew before you got to Mr Lafontaine's office that the purpose of the conference was related to putting the house up for $300,000? A. Yes. Q. The house being the St Ives property? A. Yes. Q. The reason you were upset was because you understood the house would be at risk if that happened? A. No. Q. Why be upset? A. My husband hadn't told me before why we were going there. Q. Was it of any concern to you whether there be any risk involved? A. Yes. Q. What was the concern? A. I wasn't told, I wasn't informed, and I didn't know what the business transactions were going to be. I was just told I had to go and sign some papers. Q. You were told, Mr Smits wanted some more money? A. Yeah. Q. That it was $300,000? A. Yep. Q. And that it involved putting the house up for $300,000? A. Yes. Q. You understood from that that the house was going to be lodged as security for the $300,000? A. I didn't think there was any danger of the house. What upset me is my husband hadn't told me the night before, or prior to leaving the house, why we were going there. Q. Just dealing with the conversation that you had, you knew $300,000 was going to be advanced in some way? A. No, I didn't know it was going to be advanced. Q. You knew Mr Smits wanted $300,000? A. No, I thought he wanted it as security. Q. He wants a security of $300,000? A. Yes. Q. Over your house? A. Yes. Q. That's why you were going to Mr Lafontaine's office? A. Yes. Q. You knew that before you got there? A. Yes." (T36:23 - T38:11) 52 In substance, I think the evidence of La Fontaine should be accepted. 53 What flows from that evidence is that Maria Watts was made aware of Smits' refusal to provide an indemnity and that he was only prepared to defer foreclosure for a period of six months should the debt remain unpaid: further, that she possessed a better understanding of the risks involved in the development of the Slacks Creek property at a level not matched by her evidence in these proceedings: that she professed an understanding to La Fontaine of the risks involved in providing the mortgage and gave instructions to La Fontaine to proceed with the mortgage and with the deletion of the proposed indemnity by Smits - La Fontaine having retained the security documents to that point: that her understanding of the risks was such as to leave her in a state of anger that appeared to have endured throughout 14 and 15 April, although, initially, that anger may have arisen out of the failure of Watts to inform her of the reason for their attendance at the office of La Fontaine on 14 April prior to departing in the car for that attendance. The continued state of anger should be seen as related to the resentment in being called upon to provide the mortgage and to the risk associated with the underlying transaction. 54 On that evidence one could not reasonably support the case of Maria Watts based on a representation that Smits would indemnify her in respect of her liability under the mortgage. I think her claim of ignorance of the nature of the mortgage transaction should be rejected. However, one is not restricted to the evidence that I have so far referred to in coming to that conclusion. I think the evidence of Maria Watts herself and further evidence of La Fontaine established her awareness of the risk she was undertaking in providing the mortgage and the nature of the documents she was called upon to sign. 55 I did not understand her to deny the substance of La Fontaine's evidence of his communications to her on 14 April during the course of her conference with him, at which the mortgage and other documents were executed. It was clear from that evidence that she was given the opportunity of taking independent advice from her usual solicitor who happened to be a Mr Robert Williams. 56 In her statement of evidence in chief Maria Watts described her circumstances in executing the mortgage as follows: "3. I attended this office at the request of Gary Watts my defacto (sic) husband and the Second Defendant in these proceedings. I had not been informed of the purpose of seeing Mr La Fontaine until approximately half way to his office. 4. A short while after attending the office I was introduced to a Mr Peter La Fontaine and I went to his office accompanied with my husband Gary Watts. My normal solicitor was and is Robert Williams my solicitor in these proceedings. 5. I say that I did not understand the documents which were produced to me during the conference with Mr La Fontaine. I attach as annexure "A" to this my Affidavit mortgage executed by me on the 15th April 1998 between myself as mortgagor and Surfers Paradise Investments Limited as mortgagee. 6. I further attach as annexure "B" to this my affidavit memorandum Y667228. 7. Prior to my execution of annexure "A" the contents of annexure "B" the memorandum was not explained to me. I did not understand the contents of this document nor had I seen annexure "B" prior to it being produced by Peter La Fontaine. 8. I attach as "C" to this my affidavit copy of mortgage document provided to me by Mr Peter La Fontaine on 26th November 1999. 9. I say that at the time of execution of the mortgage document the words which appear on the last page of that documents that is: I, Leonardus Geradus (sic) Smits of 748 Pacific Highway, Gordon New South Wales Solicitor, here by indemnify the mortgagor from any liability under this mortgage and SIGNED SEALED AND DELIVERED ) BY LEONARDUS SMITS IN ) THE PRESENCE OF ) Where (sic) not crossed out as they appear in annexure "A" to this my Affidavit. Mr La Fontaine inserted the words in the Mortgage after a telephone conversation that he had with a Mr Smits during the meeting. 10. At the time of execution of the mortgage document the mortgage document was identical to the document which is annexe (sic) to this my affidavit as annexure "C". 11. During the whole conference with Peter La Fontaine my husband Mr Gary Watts was present. 12. I did not consider that I was in a position to asked (sic) questions in relation to the documents which were presented to me and in particular the mortgage documentation. 13. I was not aware of any rights I may have had to change the documentation or to request a change (sic) documentation prior to me signing. Prior to signing the mortgage as set out in annexure "A" herein. (sic) and during the course of the conference I recall that Mr La Fontaine had a conversation with Mr Leonardus Smits on the telephone. During that conversation I observed Mr La Fontaine write on the mortgage the words set our (sic) in annexure "A" on the last page of the mortgage which I have referred to in paragraph 10 above of this my affidavit. I annex as annexure "D" hereto a copy of a file note provided to me by Mr La Fontaine on 26th November 1999 of that telephone conversation. 14. I would not have signed the mortgage if I had not been advised by Mr Peter La Fontaine of (sic) meaning of the words which were inserted on the last page of the annexure "A" that is that I was to be indemnified by Leonardus Geradus (sic) Smits 15. I was not aware of the terms of the Contract between Surfers Paradise Investments Pty Limited and Zonebar Pty Limited until after the commencement of these proceedings had not seen a copy of that document. 16. I would not have signed the Mortgage if I had been made aware that I would have been primarily liable for the debt of Zonebar Pty Limited under the contract referred to in the preceding paragraph and the distinction between a guarantee and indemnity and my rights against other "guarantors" was not discussed in anyway (sic) with me. 17. I have not had any involvement in the dealings relating to the activities of Zonebar Pty Limited and received no consideration for the signing of the Mortgage. In fact the giving of the security was contrary to arrangements which I had with Gary Watts, namely that the properties would be in my name and not joint and that I would not become liable for his commercial activities. 18. The Firm of Smits Leslie had acted for me in a refinance of the properties that were secured under the Mortgage in March 1998 and would have been aware of the ownership and financing structure. 19. At no time was I told that the Mortgage was intended to be assigned to Mr Smits. 20. I did not provide approval or consent to any person to delete the last paragraph of annexure "A" which is referred to in paragraph 10 above." 57 Maria Watts was 43 years of age at the time of the granting of the mortgage and was engaged as a sales representative for a major retail food organisation, for whom she had worked, with some interruptions, for a period of about fourteen years. 58 In her cross examination she agreed that in the months prior to the execution of the mortgage she had attended at the offices of Smits Leslie for the purpose of executing a first mortgage over the property the subject of the mortgage. 59 On the occasion of her execution of the mortgage, she claimed that she was unaware of its nature, as appears from the following: "Q. Whereas, the month later you executed the mortgage in favour of SPI being the second mortgage? A. I wasn't aware it was called a mortgage then. I was told it was called a caveat. To me it was a different thing." (T23:29) 60 Of the first mortgage she agreed that she was aware that it was given to secure the liability of both herself and Watts and that before executing it, its terms were explained to her by Mr John Leslie of the firm of Smits Leslie. In relation to her understanding of that mortgage, she gave the following evidence: "Q. You understood by that that your house at St Ives and your property at Wyoming would be at risk if the mortgage was not paid? A. That's correct." (T24:26 - T26:29) ... HIS HONOUR: Q. Mrs Watts, I understand you to say you couldn't remember whether you understood the mortgage documents in favour of the permanent trustee? A. No, I would have understood them at the time if it was explained to me. Q. I notice that Mr Leslie certified that he attended in giving this advice over a period of three quarters of an hour. Does that accord with your recollection? A. It could have been approximately that. Mr Leslie talks very quickly, and time could have been a little bit shorter." (T26:11-T26:21) 61 Maria Watts was questioned as follows in relation to her understanding that the mortgage she executed on 14 April 1998 was a caveat: "ERRINGTON: Q. You said a few moments ago that you thought that the document you executed in Mr Lafontaine's office on 14 or 15 April was a caveat? A. Mmm. Q. Is the reason that is not mentioned anywhere in your affidavit, because that is something you have just made up? A. No, it isn't. Q. You would agree that that's a pretty important distinction between a caveat and a mortgage, wouldn't you? A. I'm getting to understand that now. I'm not really au fait with the terminology of land purchases and caveats and things like that I'm sorry. Q. According to you, you were au fait with the term caveat back in April 1998, were you? A. I thought it was just an interest in the property. I didn't know it was a registered mortgage. I have since found out. Q. Who did you understand was getting an interest in the property? A. Leo Smits. Q. You understood Leo Smits was getting an interest in the St Ives property and the Wyoming property? A. Yes. Q. That was an exchange for a debt that as far as you knew involved Zonebar Pty Ltd? A. Not a debt. Q. A liability of Zonebar? A. Yes. Q. You say that you had no direct interest in the Zonebar debt or liability? A. No, I don't. Q. But you did understand that Mr Smits was getting an interest in your two properties? A. Yes. HIS HONOUR: Q. What did you understand a caveat to be? A. I thought a caveat was just an interest in the property, that you couldn't sell the property without fixing up whatever the problem was. Like if we decided to sell the property, we would have to pay Leo Smits $300,000 for the - if Springwood hadn't settled. But I thought Springwood was well on the way." (T26:23-T27:15) ... Q. Do you remember when you were at Mr Lafontaine's office on 14 April, he completed a solicitor's certificate? A. Possibly. Q. You signed it? A. Possibly. Q. Have a look at this document. (Shown). Have you seen that before? A. Yes, I have. Q. Is that your signature on the last page? A. Yes. Q. Did you see it in Mr Lafontaine's office on 14 April? A. I would say yes, because I have signed it on that date. Q. Any trouble understanding it? A. Do you want me to read through it all now? Q. At the time, did you have any trouble understanding it? A. At the time I probably wouldn't, otherwise I wouldn't have signed it." (T33:40-T34:03) 62 In re-examination she gave the following evidence: "Q. Did Mr Lafontaine explain to you a deed of equitable mortgage? A. Not that I can remember. Q. Do you know what a deed of equitable mortgage is? A. No, I haven't got a clue. Q. Did Mr Lafontaine explain to you a commercial bill acceptance facility? A. No, not that I can remember. Q. Do you know what a commercial bill acceptance facility is? A. No, I don't know what it is. Q. Did Mr Lafontaine explain to you a loan facility agreement between Zonebar, Mr Watts, Mr Smits and Danuni Pty Ltd? A. I vaguely remember something about that. I don't remember Danuni being in there, but it could have been. Q. What is Danuni? A. I don't know. Q. Did Mr Lafontaine explain to you the loan facility agreement and second registrable mortgage for Zonebar, Mr Watts, I think GJW and Danuni in favour of Mr Smits? A. I can't say for sure he did or he didn't. Q. Do you see item E on that page, it is a reference to a mortgage to which you are named? A. Yes. Q. You were asked some questions about an interview you had with Mr John Leslie, when he went through the mortgage with you. Did Mr Lafontaine go through that mortgage with you the same way that Mr Leslie went through it with you? A. I don't remember. He could have. I don't remember it being there, but it could have been. Q. You don't remember what being there? A. Whether the documents were there. He had a lot of documents there that day. Q. Did he go through all of the documents that he had with him there with you at that time? A. As far as I know he did. I just signed in the appropriate places whenever he asked me to sign. I started to shut down actually, it just got too much." (T38:27 - T39:17) 63 On the face of that evidence I think one should not place too much credence on Maria Watts' description of the mortgage as a caveat. I think she well understood the nature of the mortgage and what she was asked to sign on 14 April was a mortgage with the attendant risks that granting such security entails. 64 La Fontaine's evidence of the conference of 14 April was more expansive in respect of his explanation of the security documents to her than that of Maria Watts. 65 He provided a solicitor's certificate which certified that he had been provided with the following documents: "A. Deed of Equitable Mortgage…to be executed by GJW [Equity] and …Watts…in favour of … Smits …; B. A Commercial Bill Acceptance Facility and supporting Loan Securities and Guarantees…[of] Zonebar,…Watts,…Smits,…Danuni,…GJW in favour of Colonial State Bank (as Lender) in respect of the purchase of…[the Slacks Creek Property]... C. A Loan Facility Agreement and…Second…Mortgage…by Zonebar…(as the Borrower) …Watts,…Smits…and Danuni…(as Guarantors) in favour of …[another] Lender. D. A Loan Facility Agreement and…Second…Mortgage…by Zonebar…(as the Borrower)…, Watts, GJW and Danuni …(as Guarantors) in favour of …Smits (as the Lender) E. A Mortgage…to be executed by…[Maria] Watts…in favour of Surfers…and to be assigned in favour of …Smits as the Mortgagee." 66 He certified in the body of that certificate that he had given legal advice to Watts and Maria Watts explaining to them their respective obligations under those documents. He further certified that he had informed Watts and Maria Watts "in very clear terms" that he was not expressing any opinion or advising on any person's liability to make the required payments in relation to those documents, and further that he had informed them that they should seek independent financial advice if they were in any doubt on those aspects, before signing the security documents. He further certified that, following those explanations, Watts and Maria Watts had stated they understood his advice and did not have any doubts or questions about the matters referred to, did not want any independent financial advice and that the documents were being signed voluntarily. The certificate was countersigned by Watts and Maria Watts. 67 Of that certificate La Fontaine gave the following evidence: "Q. Is that a solicitor's certificate completed by you? A. Yes. Q. Is that your handwriting appearing on the certificate? A. Yes, except for where they have signed it, yes. Q. That is your signature on each of the four pages, the bottom of the first three pages and where you certify the information is true, signed dated 14 April 1998 on what is page 239 of the book in front of you? A. Yes. Q. Do you have any independent recollection of your interview with Mr and Mr Watts on 14 April? A. Yes. Q. Do you recall whether or not you had with you in the room when you were talking to Mr and Mrs Watts the documents set out as A, B, C, D and E on page 236 of the solicitor's certificate? A. Yes, I did. Q. You did? A. Yes. Q. Did you do anything about explaining those to Mrs Watts? A. Yes. Q. What did you do? A. Well, I went - firstly, I had to read it all because they brought them in, or Mr Watts did, and then I asked Mr Watts to explain somewhat what the relevance of Zonebar was and Nanoonee [sic] and then the documents became clearer and then I explained that all to Mr Watts. Q. When you had that conversation with Mr Watts was Mrs Watts present? A. Yes. Q. What was it that Mr Watts told you about the significance of Zonebar? A. Well, I can't remember that now. Q. But he said something to you, and how long did you spend explaining all this to Mrs Watts? A. Well, to the two of them, because it was Mr Watts I talking to and Mrs Watts was listening, and I would interrupt at times and say to her, "Well, are you clear on that?" Q. Did she give any response? A. Yes. Q. So she gave the response "yes", did she? A. Yes. Q. Was there anything in her manner that suggested she was not clear or raised any concerns in your mind about that? A. No. Q. How long did all this go on for, the explanation process? A. I can't quite remember. I think it was about 40 minutes. Q. And then were any documents signed? A. Yes, the documents in this that had to be signed, yes. (T42:50-T43:58) ... Q. Recital A is the Deed of Equitable Mortgage. Do you see that? A. Yes. (T51:46-T51:48) ... Q. Did you explain that document then to Mrs Watts? A. Yes, shortly. Q. Did you explain it to Mr Watts? A. Well I started to, but he was starting to tell me all about it. Q. About what? A. About the document, about the arrangement. Q. Not specifically the Deed of Equitable Mortgage, but the total arrangement? A. Yes, that's right. Q. Did he explain to you what the Deed of Equitable Mortgage was about specifically? A. I think so, in layman's terms. Q. Did you explain to Mrs Watts what the Deed of Equitable Mortgage was, and how it might impact on her? A. Yes. Q. How did it impact on Mrs Watts, that Deed of Equitable Mortgage? A. Well, I can't remember now. What it all basically means is that if anybody went - defaulted, well the house was at risk. (T52:1-T52:27) ... Q. Did you explain that document to Mrs Watts, that's the Colonial Bank Commercial Bill Acceptance Facility document? A. Yes. Q. Can you remember what the Commercial Bill Acceptance Facility was in this case? A. No. Q. Can you describe to his Honour what you understand to be a Commercial Bill Acceptance Facility is? OBJECTION. ALLOWED. WITNESS: Well, as far as I - well, it's just the same as a loan. (T53:14-T53:28) ... Q. If you move to recital C, there is reference to the loan facility agreement. That refers to a company called Tendiris Pty Ltd? A. Yes. Q. In the arrangements that were being entered into, what role did Tendiris Pty Ltd play? A. I can't remember. Q. How much was Tendiris Pty Ltd advancing? A. I can't remember. Q. When was the facility from Tendiris due for repayment? A. I can't recall. Q. Did you explain that document to Mrs Watts? A. Yes. Q. She was not a party to that document? A. No. Q. Move to recital D. There is a reference to a loan facility agreement with Leonardus Gerardus [sic] Smits? A. Yes. Q. How much was Mr Smits advancing? A. I can't recall. Q. When was that debt repayable? A. I don't recall now. Q. Mrs Watts was not a party to that document? A. No. Q. Did you explain that to Mrs Watts? A. Yes. Q. Move to recital E, that is the mortgage in favour of Surfers Paradise Investments Pty Ltd? A. Yes. (T54:10-T54:49) ... Q. Did you give any consideration to the preparation or the desirability of there being prepared a formal documentation to cover Mr Smits' involvement in this mortgage arrangement with Mr Watts? A. Yes. JOHNSON: Q. Did you discuss that with Mrs Watts? A. Yes, I said to her, "I don't like any of this". (T59:18-T59:25) ... Q. To the extent that you gave consideration and discussed with Mrs Watts the desirability of there being some other documents, what did you say to her? A. I said, "I'm not your normal solicitor, who is your normal solicitor?" She told me. I can't remember. And I said, "Look, you are really better off taking all these down to him and going through it with him. It is terribly complicated, involving things you have no control over that Gary might have, but it looks as though it is mainly Smits." Q. What do you mean "it looks as if it is mainly Smits"? A. Well, the documents substantially indicate that Smits pulls the strings. Q. Did Gary Watts have anything to say about that at the time, that is to you, I should say? A. I think he said, "A development is going to be all right and that means that all of this will be paid." And I said, "Well, how do you know that?" He said, "Well, I know how it's going that is why I'm backwards and forwards all the time", meaning to Queensland. Q. Did he show you any of the financial feasibilities for the project? A. No. Q. Did he tell you that the contract for purchase had in fact been the subject of litigation in the Queensland Supreme Court as to its performance? A. I knew that from one of the documents, but yes, he told me as well. Q. What did Mrs Watts say when you said that she should go and see her normal solicitor? A. I think something like "I know what I'm doing, I don't need to." (T59:54 - T60: 31) ... "Q. How long was the meeting on the 14th? A. With Mr and Mrs Watts? Q. Yes? A. I think from memory it was about 40 minutes or longer." (T66:50-T66:54) 68 What I think flows from my acceptance of that evidence is that the mortgage and associated security documents were explained to Maria Watts, that she was advised to take advice from her own solicitor, and that in, all probability, Maria Watts had a reasonable understanding of the general nature of the related documents and a good understanding of the mortgage and of the general nature of the risks arising out of the underlying transaction relating to the purchase and development of the Slacks Creek property. 69 Dealing with the particulars of her defence and cross claim, I think the evidence calls for the following responses: As to 11(a), (c) and (o) (where it second appears): I think those allegations were made out. As to 11(d) and (f), I think Maria Watts felt compromised and angered by the situation which had arisen as between Smits and Watts which required the provision of her property as security to cover Smits' provision of $300,000 towards the purchase price of the Slacks Creek property. As to (h), I think, in substance, Maria Watts was a volunteer, save for her indirect interest in the Slacks Creek venture through the trust administered by Equity. 70 As to (b), (e), (g), (i), (j), (k), (l), (m), (n), (o) where it first appears, (p) where it first appears, (p) where it second appears, (q), (r), (s): each were matters that Maria Watts has failed to establish and in relation to which I think the evidence has established that she had a reasonable working understanding of the risks involved in giving the mortgage without the indemnity sought from Smits and that, though angry at having to do so, she provided the mortgage, notwithstanding the caution against doing so by La Fontaine. 71 On the basis of those findings I am satisfied that entitlement to relief under the Act or in accordance with Garcia or Amadio has not been made out, and that Maria Watts' case of misrepresentation must fail. 72 Even if the circumstances in which the mortgage was given were unjust within the meaning of the Act, the form of relief would be limited by s 19 of the Act (relating to land instruments). 73 While there appears to be no authority directly in point, I am also of the view that s 7 of the Act must be read subject to s 42 of the R.P Act which is in the following terms: "42 Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: (a) the estate or interest recorded in a prior folio of the Register by reason of which another proprietor claims the same land, (a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act, (b) in the case of the omission or misdescription of any profit prendre created in or existing upon any land. (c) as to any portion of land that may by wrong description of parcels or of boundaries be included in the folio of the Register or registered dealing evidencing the title of such registered proprietor, not being a purchaser or mortgagee thereof for value, or deriving from or through a purchaser or mortgagee thereof for value, and (d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected: Provided that: (i) The term for which the tenancy was created does not exceed three years, and (ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years. (iii) (Repealed.) (2) In subsection (1), a reference to an estate or interest in land recorded in a folio of the Register includes a reference to an estate or interest recorded in a registered mortgage, charge or lease that may be directly or indirectly identified from a distinctive reference in that folio." 74 In my view, the estate or interest of Robinson under the transfer of mortgage from Smits, taken without notice of any of the circumstances attaching to the granting of the mortgage, by reason of the operation of s 42 of the R.P Act, cannot be cut down by resort to s 7 of the Act, and in particular s 7(1)(a) or (d). 75 Even if Robinson's interest was not acquired by a land instrument, I am unable to envisage circumstances in which that interest could be vitiated under s 7 of the Act by unjust circumstances, in which an antecedent and otherwise valid contract was entered into and of which circumstances he had no notice. 76 The case of Maria Watts based upon s 3 of the Law Reform (Miscellaneous Provisions) Act 1965, in my view, is not sound. Section 3 is concerned with the entitlement of a surety to seek recovery from a co-surety proportionately to their liability as co-sureties. It was not the position of Robinson, nor is it the position of Smits, although he has guaranteed the performance of Zonebar under the contract as varied, that any enforcement of their rights as transferee under the mortgage was an exercise of rights as a surety. Had the case been one concerning the enforcement of Smits' rights as transferee of the mortgage he would be seen as exercising rights under s 52 of the R.P Act 1900, which is in the following terms: " 52 Transfer of mortgage or lease transferee's right to sue (1) By virtue of every such transfer, the right to sue upon any mortgage or other instrument and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof. (2) Nothing herein contained shall prevent a Court from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages, in case the transferee shall hold the same as a trustee for any other person." 77 The payment to Surfers by Smits of the consideration for the transfer of the mortgage to him would not be characterised as payment by a surety. 78 In any event there is no warrant for the proposition that Robinson is limited by s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 in the amount he may recover against Maria Watts under a third party mortgage on the basis that the debt, the subject of that mortgage, was also subject to guarantees by Smits and Watts. 79 I think, for the same reason, the argument advanced on behalf of Maria Watts, that she is entitled to a discharge on the basis that the underlying debt was satisfied by Smits' payment to Surfers in the form of the consideration paid upon transfer of the mortgage to him, fails. 80 The machinery adopted by the parties in relation to the payment of the $300,000 balance of purchase price under the contract was somewhat unusual. A simpler arrangement would have provided for the payment by Smits of the balance of purchase money on behalf of Zonebar in return for, inter alia, a mortgage, such as the mortgage to secure repayment of that advance by Zonebar. Perhaps the machinery which was adopted was preferred as it gave Smits time to arrange payment. 81 The evidence of Smits in relation to his payment to Surfers on transfer of the mortgage and the emphasised portions of his facsimile to La Fontaine of 14 April 1998, each of which I have quoted earlier in these reasons, lend some support for the contention that the underlying debt, for which the mortgage was given, had been satisfied by Smits. For ease of reference, I repeat the relevant passage from that facsimile: "I have agreed that I will provide $300,000 in discharge of the payment of the deferred consideration due to SPI on 31 December 1998 on the condition that I receive simultaneously a transfer of the full benefit of the mortgages executed by Mrs Maria Watts in favour of SPI." 82 Clearly, on that basis, he intended that payment on transfer of the mortgage should go to satisfaction of Zonebar's obligation to pay the $300,000 balance of purchase money under the contract as varied. That gives rise to the question whether any appropriation by Surfers of that consideration to satisfaction of the outstanding balance of the purchase price had the effect of discharging the underlying debt for which Maria Watts gave the mortgage. 83 I think the answer to that question lies, not in the evidence to which I have referred, rather than in the operation of s 52 of the R.P Act. I think the answer provided by that section is that, by reason of the transfer having the effect of transferring all interest of Surfers in the underlying debt to Smits and conferring upon him the right to sue upon the mortgage to enforce any such interest, that preserved in Smits, on transfer, the right to enforce the mortgage, so long as the "Debt" remained unpaid on the repayment date. 84 I do not regard the "Debt" as having been satisfied by dint of Surfers appropriating the consideration paid by Smits on transfer of the mortgage towards satisfaction of the "deferred consideration" payable under the contract as varied. 85 Further, I think it is not open to Maria Watts, as mortgagor, to rely upon Surfers' appropriation of the consideration for the transfer of the mortgage to Smits to the outstanding contract price. Under the mortgage the requirements of cl 3.1 would not have been met by such an appropriation, in that the "Loan" could not be said to be paid by "Debtor and/or the Mortgagor... on or before the Repayment Date." 86 For those reasons the cross claim should be dismissed and there should be judgment for the plaintiff with costs. I do not understand there to be any dispute as to the entitlement of Robinson to payment pursuant to cl 3.1 of the mortgage. I direct the plaintiff to bring in short minutes in accordance with these reasons, providing for interest on judgment to the date of presentation of those short minutes which I direct be presented on 9.30am 30 June 2000 for the making of final orders. ************** Last Modified: 09/27/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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