New South Wales Supreme Court CITATION : Davies & Ors v Camilleri & Anor [2000] NSWSC 904 FILE NUMBER(S) : SC 11969/98 HEARING DATE(S) : 15/05/00, 16/05/00 JUDGMENT DATE : 12 September 2000 Arthur Edward Davies - first plaintiff Kathleen Elizabeth Davies - second plaintiff PARTIES : Barbara Andrew - third plaintiff Elizabeth Anne Camilleri - first defendant Graham Keith Barnett t/a MacKellar Crain & Barnett Solicitors - second defendant JUDGMENT OF : Bell J at 1 C Newlinds- 1st, 2nd and 3rd plaintiffs COUNSEL : S Dowling - first defendant GA Sirtes - second defendant Maurice May & Co - 1st, 2nd and 3rd plaintiffs SOLICITORS : Meyer Clapham - 1st defendant Mallesons Stephen Jaques - 2nd defendant CATCHWORDS : Possession - enforcement of mortgage security - defences of unconscionability and under Contracts Review Act - breach of implied terms of solicitor's retainer - professional negligence - solicitor. LEGISLATION CITED : Contracts Review Act 1980 Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; Blomley v Ryan (1956) 99 CLR 362; Idameneo No 9 v Bankesi (1991) ASC 56047; West v AGC (Advances) Ltd (1986) 5 NSWLR 610 @ 626; Hogan v Howard Finance Ltd (1987) ASC 55-594; CASES CITED : Collier v Morlend Finance Corporation (Victoria) Pty Ltd (1989) NSW Conv R 55-473; Roberts v Goldenberg (1997) ANZ Conv R 55-809at 56,364.5; Citicorp Australia Ltd v O'Brien (1996) 40 NSWKLR 398; Gellert v Bellamy [1999] NSWCA 123; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 @ 560; Astley v Austrust Ltd (1999) 73 ALJR 403. DECISION : Judgment for plaintiffs against first defendant; Judgment for first defendant/cross-claimant against second defendant/cross defendant; Plaintiffs' claim against second defendant stood over generally. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BELL J Tuesday, 12 September, 2000 11969/98 - Arthur Edward DAVIES & Ors v Elizabeth Anne CAMILLERI & Anor JUDGMENT Introduction 1 HER HONOUR: The plaintiffs, Arthur Edward Davies, Kathleen Elizabeth Davies and Barbara Andrew, are retirees. In April 1997 they lent the sum of $250,000 to the first defendant, Elizabeth Camilleri ("Mrs Camilleri") on the security of a first mortgage over her home at 49 Deepfield Road, Catherine Field ("the premises"). The second defendant, Graham Keith Barnett, is a solicitor ("the solicitor"). He acted for the plaintiffs and Mrs Camilleri in relation to this transaction ("the transaction"). 2 In April 1997 the solicitor was contacted by Frank Pugliese, whom he understood to be a mortgage broker. Mr Pugliese informed the solicitor that he had a loan application from Mrs Camilleri. In due course Mr Pugliese submitted a written application apparently prepared on her behalf. The solicitor passed the application on to the plaintiffs who accepted it. 3 On 23 April 1997 Mrs Camilleri attended at the solicitor's office in company with Mr Pugliese. She executed a mortgage over the premises as security for the loan of $250,000 advanced by the plaintiffs. The first and second plaintiffs, Arthur Edward Davies and Kathleen Elizabeth Davies, advanced the sum of $100,000 and the third plaintiff, Barbara Andrew, advanced the sum of $150,000. The terms and conditions of the loan were set out in the annexure to the mortgage. They included that Mrs Camilleri would repay the principal sum (or so much thereof as should remain unpaid) on 23 April 1998. Interest was to be paid on 23rd day of each month. 4 The day after Mrs Camilleri signed the mortgage Mr Pugliese called to the solicitor's office and collected the loan funds. The solicitor handed to him a bank cheque in the amount of $250,000 which was payable to Mrs Camilleri or bearer. The evidence does not disclose what Mr Pugliese did with this sum. In the event the interest payments on Mrs Camilleri's loan fell into arrears and the principal was not repaid when it fell due. 5 By these proceedings the plaintiffs claim an order for possession of the premises together with judgment for the first and second plaintiffs against Mrs Camilleri in the amount of $135,215.83 (with interest) and judgment for the third plaintiff against Mrs Camilleri in the sum of $196,372.26 (with interest). The plaintiffs also bring a claim against the solicitor (i) for indemnity in respect of any loss they suffer, should Mrs Camilleri successfully defend their claim and in the event that Mrs Camilleri's defence fails (ii) for damages to compensate them for any loss associated with the enforcement of their security. 6 Mrs Camilleri raises defences to the plaintiffs' claim pursuant to s 7 of the Contracts Review Act, 1980 and upon the ground that the plaintiffs' reliance upon the mortgage as against her is unconscionable. She brings a cross-claim against the solicitor. By this claim she contends that the solicitor breached the implied terms of his retainer to her. She also claims against him in negligence and for breach of fiduciary duty. Background factual material 7 In order to consider the defences pleaded by Mrs Camilleri it is necessary to set out the evidence touching on her background and on her understanding of the practical and legal effect of mortgages. It is also relevant to have regard to her prior investment experience with Frank Pugliese. 8 Mrs Camilleri was aged thirty three years at the date of the transaction. She was a widow raising two children, William who was then aged twelve and Chacely who was aged ten. She was in receipt of a social security pension. 9 Mrs Camilleri was born and raised in Sydney. She attended the Horsley Park Primary School and subsequently Miller High School. She completed Year 10 and obtained her School Certificate. After leaving school she worked for about eighteen months as a cashier/shop assistant at the Coles Supermarket, Fairfield. Thereafter she worked as a shop assistant at Sussans for about two years. 10 Her father died in July 1982. She was considerably affected by this. She left Sussans and did not engage in full time employment again after that time save for a relatively brief period when she worked for a firm called "Transpet". This latter employment involved cleaning kennels and tending dogs together with an amount of general administrative and clerical work. 11 Around 1983 Mrs Camilleri commenced a relationship with William George Johnstone. The two of them shared an interest in racing pigeons and dogs. William Johnstone was the father of her two children. In May 1990 she and Mr Johnstone exchanged contracts on the premises. The purchase price was $260,000. Both were able to contribute substantial capital sums towards the purchase. Mrs Camilleri had received an award of compensation following a motor vehicle accident in 1980 and Mr Johnstone had the proceeds of the sale of another property available to him. It was necessary for them to borrow $46,000 to complete the purchase of the premises. They negotiated with the St George Building Society for a loan. They engaged a solicitor, Barbara Green of Herman, Morgan and Green, to act for them with respect to the purchase. 12 Prior to settlement Mr Johnstone was killed in a motor cycle accident. The St George Building Society declined to approve the loan following Mr Johnstone's death. Mrs Camilleri made an application to the Commonwealth Bank. Her application was successful. Staff at the bank informed her of her obligations pursuant to the proposed loan agreement. Mrs Camilleri understood that the bank would take a security over the premises by way of mortgage. She understood that, in the event that she failed to make repayments in accordance with the loan agreement, she stood to lose her home. 13 Mrs Camilleri's loan repayments were $360 per month. Her sole source of income was the single parents' support pension. She found it difficult to meet the repayments. She was conscious that if she failed to make regular payments she might lose the premises. She made it a priority to ensure her repayments were made. 14 Around August 1994 Mrs Camilleri met Cathy and Eddie Tremolada. They shared a mutual interest in breeding show dogs. In February 1995 Cathy Tremolada told Mrs Camilleri that Eddie's brother, Gary, worked for a man named Frank Pugliese who was a financial planner and adviser. Mrs Tremolada said: "Frank has some very good ideas for people who want to invest money and get a good return". Thereafter Cathy and Eddie Tremolada when speaking with Mrs Camilleri raised the topic of investing with Gary Tremolada on a number of occasions. Around June 1995 Mrs Camilleri said that she would like to talk to Gary. In August 1995 Gary Tremolada called to visit Mrs Camilleri. During the course of this meeting the following exchange took place:- "GT: Eddie has mentioned that you have some money you might want to invest with the company. Cathy and Eddie have money invested, his father and brother have money invested. My mother is a pensioner and she has money invested which helps her to live comfortably. She is in the same boat as you. EC: Any how would you know that? GT: Eddie has told me some things about you. EC: Can I lose my money? GT: No, because the company has indemnity insurance. The only problem is because it is a high interest, you may have to wait a little bit longer for your money but no longer than two weeks. The money will be used in project development and construction sites. If you jump on it real quick, there will be a return of ten percent at the end of three or six months. EC: I will think about it and let you know." 15 Following this initial meeting with Gary Tremolada, Cathy and Eddie Tremolada told Mrs Camilleri that they had invested money with Frank and Gary and that they were getting returns every three to six months. 16 Mrs Camilleri had $10,000 in cash at her home. This sum represented both her savings and the proceeds of the sale of her deceased husband's tools. In early September 1995 Eddie Tremolada suggested to Mrs Camilleri that it was unwise for her to have her money sitting at home. He said that she might as well earn ten percent on it. Mrs Camilleri agreed and asked Eddie to arrange for Gary to visit her. Following this discussion Gary Tremolada called to see her. During the course of this meeting Mrs Camilleri asked again whether she was at risk of losing her money. Gary Tremolada reassured her that there was no risk because the company for which he worked had indemnity insurance. Mrs Camilleri described the following exchange during this meeting: "EC: I've saved this money for seven years and I don't want to lose it because it is my dog money. GT: Yes, Eddie mentioned that you want to buy a dog from Germany and you are pretty full on with the dogs. My mother does more than this. You don't have much of a loan on your home do you? EC: Why? GT: Because you could do what my mother has done. I have done it too. Why have your house sitting there not earning any money for you. My mother has two properties. She has $350,000 tied up in the investment". 17 Mrs Camilleri handed the $10,000 to Gary Tremolada at this meeting. Within a week she received a telephone call from Frank Pugliese. He told her that Gary Tremolada worked for him at the AMA Group. He said that Gary had spoken of her financial situation and that he had determined to pay her interest on the investment "up front". This was something the AMA Group did not do for everyone. 18 Mrs Camilleri left her money with the AMA Group for about eighteen months. The initial investment was for a period of three months. This was renewed for a further three month period and finally for a further twelve months. She received an interest payment "up front". She received later returns on the investment during its currency. In all she received around $2,500 in interest payments. This represented a sixteen percent return on her investment. In February 1997 she told both Gary Tremolada and Frank Pugliese that she wished to withdraw her funds. There was some delay before the principal was returned to her, but this was not of any great order and, all in all, the investment experience had proved a satisfactory one from Mrs Camilleri's point of view. 19 In January 1997 Gary Tremolada called at Mrs Camilleri's home and said to her: "You know Liz, you could do more with the money that you have tied up in this house. My mother has done a similar thing with Frank and I. Let me just draw you a simple diagram to show you how it works". Gary Tremolada drew a diagram with a rectangle at the top of the page containing the word "house" and the sum "$350,000". An arrow leading from the rectangle set out the cost of borrowing $175,000 at ten percent (a further calculation upon the basis of a loan advance of $150,000 was also made) against the earnings to be made assuming that sum to be on-lent at an interest rate of twenty four percent. It was Mrs Camilleri's evidence that she did not absorb the contents of the diagram. She had not been interested in any such proposal. I will return to this aspect of her evidence in due course. 20 Around 14 February 1997 Frank Pugliese and Gary Tremolada called to Mrs Camilleri's home ("the February meeting"). During this meeting Mrs Camilleri recalled that Frank Pugliese said: "We thought that we should come out and see you to talk about some other investment opportunities that we could help you with in the future. You know that we could help you to make your house work for you and earn money. You could use your house to lend money to people for home mortgages. It is very safe because of the indemnity insurance. The money would be broken up into parcels and everything would go on to first home mortgages. Our indemnity insurance is combined with a solicitor's indemnity insurance which makes it stronger. What that means is that it is a stronger insurance. But you have nothing to worry about because you won't lose it. Three-quarters of the value of the house is $250,000.00. This is the best way to do it. It will give you money to live on. This will be $36,000.00 for the year. You will be paid up front and the mortgage will be paid for the year up front so will the interest. EC: What about the pension? FP: After it has been done for a year, I will show you how to work it out for tax purposes. You can use the firm's accountant and along with the money that is already invested. The money is coming from a lender within the AMA Group who I already have dealings with." (paragraph 30, statement made on 28 May 1999) 21 During the course of the February meeting Mrs Camilleri also recalled Gary Tremolada saying: "My mother has two properties invested and she has been doing it for four or five years and has never had a problem". 22 During the February meeting Mrs Camilleri asked "should I get my own solicitor?". Mr Pugliese told her there was no need to do so and that they always used the same solicitor who was familiar with these investments and was able to cut through a lot of red tape. Following the February meeting Mrs Camilleri received a letter dated 19 February 1997 on the letterhead of the AMA Group. The letter was titled "Investment Approval Number 19706". Its opening paragraph provided: "Further to your instructions, we are pleased to confirm that we have arranged approval for a loan investment facility in the sum of $250,000 as requested. The loan offer is being provided through AMA Group Pty Limited and ITEC Holdings Pty Ltd." The letter went on to note that the investment account would be administered by the AMA Group Pty Limited and to set out: " Purpose of loan: Offset investment facility. Guarantee: AMA Group Pty Limited guarantee capital and interest due on this loan investment. Loan Amount: $250,000 cost at 9.25% + $23,125 per annum (paid directly by AMA Group Pty Limited) Principal Investment: $250,000 return on 12% per term rate = $60,000 per annum (net return: $60,000 - 23125 = $36,875 per annum or $3072 per month). Interest payment: Monthly in arrears (or as directed) Roll over terms: 6 months plus 6 months. Investment period: Commencing March 1997 maturing March 1998 (indicative) Cost: All costs in relation to this facility are covered by the investment inclusive of legals." 23 Attached to the letter of 19 February 1997 was a pro forma approval letter to be signed by Mrs Camilleri. Mrs Camilleri did not sign and return the approval. 24 On 13 March 1997 Frank Pugliese arranged for a firm of valuers to inspect Mrs Camilleri's property and prepare a valuation. Mrs Camilleri was aware of the valuation. She said that Mr Pugliese had offered to have a friend who was a valuer call to her house and value it for her at no cost. She had agreed to this proposal out of interest. She denied that she understood that the property was being valued with a view to it being offered as a security. 25 Sometime in March 1997 Mrs Camilleri received the sum of $18,000 being her share in the proceeds of the sale of her mother's home. On or about 24 March 1997 she used this sum to pay out the balance owing on her mortgage with the Commonwealth Bank. The premises were now unencumbered. 26 Around this time (March 1997) Mrs Camilleri received a phone call from Gary Tremolada. He said to her: "I really think that you should consider mortgaging your place and investing money with Frank. The return is so much higher." 27 In a statement made on 28 May 1999 ("the first statement") Mrs Camilleri said that she told Gary Tremolada that she needed more time to think about it (referring to the telephone discussion set out above). In a supplementary statement made on 12 May 2000 ("the second statement"), Mrs Camilleri said that this telephone discussion was the first time that she understood Gary Tremolada to be suggesting that she mortgage her home and that she thought this was a different proposal to the one Frank Pugliese had spoken about at the February meeting. Again, this is a matter to which I will return. 28 Following Gary Tremolada's telephone call of March 1997 Mrs Camilleri received several telephone calls from Frank Pugliese seeking to arrange for her to go with him to the solicitor's office. 29 In early April 1997 Gary Tremolada spoke to her by telephone. He said "I've heard you've paid off your home. You should really put some thought into that investment". Mrs Camilleri said to him "I've only just done what I wanted to do I want to think about it". 30 On or about 21 April 1997 Frank Pugliese rang Mrs Camilleri at home. In the first statement she set out the conversation in these terms: "FP: I've got a lender on the other side. If we don't act now, we'll lose him. EC: I've got to have time to think. FP: It's really hard to get an appointment with Graham. He squeezed me in. I've got an appointment with Graham on 23 April 1997 and if we don't go we'll lose the investor. You have the deeds to the house don't you. EC: Why? FP: We need them to show proof of ownership of the house. You will have to take them to Graham's office to cut through the red tape." 31 Following this telephone conversation Mrs Camilleri rang Eddie Tremolada to seek his advice about whether she should get her own solicitor or use the one Frank Pugliese had suggested. Eddie advised her to use the solicitor proposed by Frank Pugliese and he volunteered that he would accompany her to the meeting. 32 On 23 April 1997 Frank Pugliese collected both Mrs Camilleri and Eddie Tremolada (and his infant son, Aaron) and drove them to the city to see the solicitor. 33 In her first statement Mrs Camilleri set out this account of the discussion which took place during the course of the drive: "FP: The investment is completely safe. You can get your money out at any time. You'll get the interest up front and the mortgage will be paid up front. You can pull out after one year or keep reinvesting." 34 In her second statement Mrs Camilleri gave this further account of the conversation in the car: "EC: Tell me again what all this means? FP: It's more or less this. The group has got in $250,000 because of high interest and it is in a pool in the group. We need to break it up into parcels. You are putting your name and address on the parcels and we will pay you a fee for that." 35 In the course of her oral evidence Mrs Camilleri maintained that she understood the transaction to be one in which she was to lend her name and address to an arrangement whereby moneys held within the AMA Group would be broken up into parcels and lent to various borrowers. She said that she did not understand that she was borrowing any sum of money nor that she was offering her house by way of security. 36 After Mrs Camilleri paid out her home loan the Commonwealth Bank sent her an envelope containing her certificate of title, mortgage and discharge of mortgage. 37 Prior to the conference on 23 April, Frank Pugliese sent to the solicitor a document titled "Application for Loan" on behalf of Mrs Camilleri. Mrs Camilleri's evidence, which I accept, was that she had not seen this document and was unaware of its contents. The application for loan contained the assertion: "Liz Johnstone is an Australian champion breeder of German bloodline Rottweiler. From this operation she generates an income of $20,000 per annum. Mrs Johnstone will be developing and building two new homes, one will be sold. She will live in the second home and will let her existing property at $400 per week, as well as, pre-paying one year's interest upfront. If the loan is rolled over again for twelve months, interest will be paid up front on roll over. As you can see Mrs Johnstone will very comfortably pay the interest on her loan, and leaves the lender with no risk of default. The profit on the development has been estimated to be in the order of 25%, which equates to approximately $81,200 gross profit after twelve months' building period. We also understand that the home to be sold already has a keen buyer." The conference with the solicitor on 23 April 1997 38 The conduct of the conference between the solicitor and Mrs Camilleri on 23 April 1997 is matter of considerable importance to the resolution of the issues raised by this case. There was a measure of common ground as between Mrs Camilleri (and Eddie Tremolada who gave evidence on her behalf) and the solicitor concerning the conduct of it. I will set out the facts as I find them in broad outline at this juncture and return to a more detailed analysis of aspects of it in due course. 39 On arrival at the solicitor's office, Frank Pugliese introduced Mrs Camilleri and Eddie Tremolada to the solicitor. He said "Liz, this is Graham Barnett who will be acting on your behalf". Eddie Tremolada and Mrs Camilleri sat at the desk opposite the solicitor. Frank Pugliese remained standing throughout the meeting. 40 Frank Pugliese conducted most of the discussions with the solicitor. Mrs Camilleri said very little throughout the conference. At no stage did the solicitor explain to Mrs Camilleri that he also acted for the mortgagees. 41 Frank Pugliese said to the solicitor in her presence words to the effect: "Liz is borrowing this money for the extensions on her home". Mrs Camilleri said nothing to the contrary nor did she query the assertion. 42 During the course of the conference Mrs Camilleri handed over the certificate of title and the discharge of mortgage relating to the premises. 43 The solicitor told Mrs Camilleri that she was borrowing $250,000 at an interest rate of 9.25 percent. 44 Before Mrs Camilleri executed the mortgage Mr Pugliese said to her words to the effect "this is the legalities of what I explained to you in the car" and the solicitor replied "oh good". 45 Mr Pugliese stood next to Mrs Camilleri turning the pages of the mortgage as she signed it. She did not read the document before signing it. Mr Pugliese's action in turning the pages did not admit of her reading it as she signed it. 46 The solicitor queried the proposal that interest was to be paid in advance for the term of the loan. He suggested that an account might be set up in Mrs Camilleri's name and the sum allocated to interest placed on deposit in that account for her benefit. 47 Towards the conclusion of the conference the solicitor produced his memorandum of fees and Mr Pugliese took it saying that he would attend to that matter. 48 Frank Pugliese said to the solicitor "is it all right if I come around at 4 pm this afternoon to pick up the cheque?" This was said in Mrs Camilleri's presence. Nothing further was said in relation to the arrangements with respect to the payment of the loan funds. The solicitor did not obtain written instructions as to the disposition of the loan funds. 49 The solicitor held the loan funds in his trust account. After the mortgage was executed he purchased a bank cheque in the amount of $250,000 which was payable to "Elizabeth Camilleri or bearer". The solicitor handed that cheque to Frank Pugliese on an occasion following the conference with Mrs Camilleri. 50 By letter dated 1 May 1997 the solicitor wrote to Mrs Camilleri enclosing a copy epitome of mortgage. In the first statement Mrs Camilleri described her response to receipt of the solicitor's correspondence (including the epitome of mortgage) in this way: "I remember thinking to myself, what have I done? Who are these lenders? I thought the money was coming from AMA. I did not understand that the document I signed was a mortgage. I thought I was a lender not a borrower. I did not realise that what I had signed was a mortgage until I received this document in the mail. I called Eddie Tremolada immediately and we had a conversation to the following effect: EC: I have just got this mortgage in the mail. I thought I was lending the money to AMA. ET: Don't worry Liz it will be alright. Mum's done this and Gary keeps an eye on everything. EC: Where would my deeds be. Who would have them. I want to get out of it. ET: No, they already would have registered the mortgage by now and they said everything was paid up front for one year. Don't worry." 51 It was Mrs Camilleri's evidence that she made unsuccessful efforts to contact Frank Pugliese over the next two weeks. Finally she succeeded in speaking with him by telephone. She told him that she wanted her deeds back and that she wanted to pull out. Mr Pugliese told her that "you can pull out now, but it will be much easier if you just wait for six months. The term of the loan arrangement was for one year, but I will let you out after six months if you want." Mrs Camilleri said that she would ring him around November and that he could get things organised for that date. 52 About a month after signing the documents, Mrs Camilleri had a discussion with Cathy Tremolada who informed her that Frank Pugliese was in a bit of trouble and that his cheques were bouncing. Around this time Frank Pugliese telephoned Mrs Camilleri and said that Gary Tremolada would be calling that afternoon with her money. Later that day Gary Tremolada arrived at Mrs Camilleri's home and handed her two cheques totalling around $36,000. Mrs Camilleri told him that he could have the cheques back, she was not interested in cheques that bounced. Gary Tremolada put the cheques in his pocket and left. Mrs Camilleri telephoned Frank Pugliese a number of times over the next few weeks. She repeatedly asked when she could get her money back. Mr Pugliese told her not to worry, that he was just waiting for another investment to mature and that he would then give her money. About two months later Gary Tremolada came to the house and gave Mrs Camilleri an envelope containing $5,000 in cash. This was the only money which Mrs Camilleri received in connection with the arrangement. 53 In October/November 1997 the first plaintiff telephoned Mrs Camilleri. He informed her that her payments were behind. Following this telephone conversation Mrs Camilleri rang Frank Pugliese and said to him: "What the hell is going on. You told me it was paid one year up front. You've been writing bounced cheques and now Mr Davies is ringing me at my home. This doesn't sound good Frank." 54 Mrs Camilleri telephoned the solicitor to inquire if the payments were behind. He confirmed that was the case. In the course of this telephone discussion Mrs Camilleri said to him "but in the office you said that the interest was paid up front for one year". 55 I now turn to the conflict in the evidence concerning critical aspects of the conference between Mrs Camilleri and the solicitor. Credit Issues 56 I was invited by Mr Newlinds, who appeared for the plaintiffs, and Mr Sirtes, who appeared for the solicitor, to reject the evidence both of Mrs Camilleri and Mr Tremolada. Generally it was submitted that the account concerning the breaking up of money by the AMA Group into parcels was an implausible one. It was notable that this account first appeared in the second statements made by Mrs Camilleri and Mr Tremolada. Both Mr Newlinds and Mr Sirtes invited me to prefer the evidence of the solicitor in any instance in which it was in conflict with that of Mrs Camilleri and Mr Tremolada. It was submitted that the solicitor made a number of concessions against interest in the course of his evidence. 57 To the extent that Mrs Camilleri and Mr Tremolada maintained in the course of their evidence that they understood that Mrs Camilleri was merely allowing her name and address to be used in connection with the breaking up of parcels of money for the AMA Group, I was not able to accept them. I considered aspects of Mrs Camilleri's account in this respect frankly incredible. The rejection of this important aspect of the evidence of both witnesses naturally inclined me to circumspection with respect to the balance of their evidence. 58 I should note that despite a number of significant concessions made by the solicitor I did not accept the submission that I should in all cases of conflict prefer his evidence to that of Mrs Camilleri and Mr Tremolada. As to some matters it is necessary to observe that I was not able to accept the solicitor. 59 The solicitor swore an affidavit in connection with the proceedings on 1 September 1999 ("the first affidavit"). In paragraph 3 he stated: "I knew Frank Pugliese for approximately three years prior to the transaction with Elizabeth Camilleri." In a second affidavit sworn on 25 February 2000 ("the second affidavit") the solicitor clarified the extent of his knowledge of Mr Pugliese: "My first dealing with Frank Pugliese was in December 1993 when he referred a mortgage application to a broker, AAA Mortgages, with whom I had prior dealings. AAA Mortgages forwarded an application to me. A client of mine, Mr Stanley Doctors, lent money to Ms Maria Tremolada. I now understand that Ms Tremolada is the mother of Eddie and Gary Tremolada. I had no direct dealings with Frank Pugliese at this time. The next dealing I had with Mr Pugliese was in late March or early April 1997 as set out in paragraph 6 of my earlier statement". In evidence in chief the solicitor indicated that paragraph 6 of his second affidavit "may not be correct". He was asked "exactly which part of paragraph 6" to which he replied "when I said I had no direct dealings with Mr Pugliese at this time." The solicitor went on to accept that Mr Pugliese "appears now to have been involved in this mortgage between Tremolada and Doctors". In the course of his cross examination the solicitor agreed that he had been prompted to recall the earlier meeting with Frank Pugliese when he became aware that Mrs Camilleri proposed calling Maria Tremolada to give evidence of attending a meeting with himself and Mr Pugliese. The solicitor was asked whether he accepted that he had met Mr Pugliese and a client of his in late 1993 or early 1994. He said "it appears that I did because I have seen a document but I do not recall the meeting". His attention was then directed to the first affidavit in which he had stated that he had known Frank Pugliese for three years. To this he responded "well I didn't recall it when I did the second statement". I considered the solicitor's evidence on this topic to be somewhat unsatisfactory. In particular I found his evidence that he did not recall knowing Mr Pugliese when he made his second affidavit unconvincing. 60 The solicitor was also cross examined concerning a statutory declaration sworn by him in connection with an application for a rebate of stamp duty. It is not necessary for me to recite the detail of this application, it is sufficient to note that I did not accept the solicitor's explanation concerning circumstances in which the statutory declaration came to be executed by him. 61 For the reasons I have given I have not found myself able to resolve the areas of conflict in the evidence concerning the conference on 23 April 1997 by an acceptance of the solicitor's evidence in preference to that of Mrs Camilleri or Mr Tremolada or vice versa. Instead I have looked to the broad area of common ground as to the conduct of the conference and against that background I have weighed the evidence as to matters in dispute largely by reference to considerations of internal consistency. "Liz, you are really the lender" 62 Both Mrs Camilleri and Mr Tremolada gave an account that Frank Pugliese had said words to the effect "Liz, you are really the lender" during the course of the conference in the solicitor's office. The matter is significant. Had it been said, it put the solicitor on clear notice that the purpose of the loan was not as stated in the loan application. The solicitor denied that any such comment was made. 63 Ms Dowling, who appeared for Mrs Camilleri, submitted that I would accept Mrs Camilleri and Mr Tremolada since both had given an account of a remark of this character in their first statements. The solicitor did not recall the contents of the conference and his denial had to be viewed in this light. 64 Mr Pugliese submitted an application for loan to the solicitor stating that Mrs Camilleri was planning to carry out developments to her property. It is common ground that he repeated that this was the purpose of the loan at the commencement of the conference. I consider that it is somewhat improbable, against that background, that Mr Pugliese would have stated in the solicitor's presence that Mrs Camilleri's role was that of lender. Had such a comment been made I expect the solicitor would have noted the discrepancy and made an inquiry. There is no suggestion that anything of that sort occurred. Given the reservations I have concerning the evidence of both Mrs Camilleri and Mr Tremolada, I am not persuaded that it is more probable than not that Mr Pugliese said words to the effect "Liz, you are really the lender" in the course of the conference in the solicitor's office. The content of the solicitor's advice 65 Mrs Camilleri and Edward Tremolada both gave an account that the solicitor had told Mrs Camilleri that she was borrowing $250,000 at an interest rate of 9.25%. The solicitor had otherwise not given any explanation of the terms and conditions of the transaction (although both recalled that the solicitor had raised an issue to do with the payment of interest "up front"). 66 Mrs Camilleri said the conference occupied some ten to fifteen minutes. She said that Frank Pugliese had been running late when he picked her up. She described the solicitor as hurrying them out of the door at the conclusion of the conference. Mr Tremolada also described Frank Pugliese as running late on the day of the conference. He described the conference as not taking longer than fifteen minutes. He said that the solicitor had said "we'll make this quick because I've got another client". 67 In the first affidavit the solicitor said: "The meeting on 23 April 1997 lasted about thirty minutes. In particular I said words to the effect: "You're entering into a mortgage where you're giving your property as security for the principal sum of money you're receiving. The clauses in the mortgage contract deal with default. You pay a higher rate of interest if you're late in paying. You could lose the property if you default in the interest payments or fail to repay the capital amount". I recall that she said jokingly in reply: "Then I'd get you"." 68 In the second affidavit the solicitor expanded the account earlier given as to his advice to Mrs Camilleri concerning the transaction. He said that, in accordance with his usual practice, he would have informed her of a number of matters which he set out in paragraph 12 of the second affidavit. In the course of cross examination the solicitor agreed that the advice given to Mrs Camilleri during the conference may not have been as full as the account given in the second affidavit. 69 Thus, in the solicitor's second affidavit he asserted (again, in accordance with his usual practice) that he would have said "Mrs Camilleri there's a cheque to be payable to you in the sum of $250,000. What would you like to be done with it?" He stated that Mrs Camilleri would then have given him instructions in relation to how the cheque was to be dealt with. In oral evidence the solicitor did not seek to maintain that such an exchange had occurred. 70 Both Mrs Camilleri and Mr Tremolada in the course of their first statements recalled Mr Pugliese saying prior to the execution of the mortgage document words to the effect that it was just the legality about which he had spoken to Mrs Camilleri in the car. In the course of his cross examination by Ms Dowling the following was put to the solicitor: "Q. The only thing that you said to Mrs Camilleri about the mortgage was that she was borrowing $250,000 at 9.25% and when you got that far Mr Pugliese said words to the effect of "This is the legalities of what I explained to you in the car" and you said, "Oh good", that is what happened, isn't it? A. Yes, I recall that being said. Q. And you were comforted by what Mr Pugliese said because you assumed that he had explained to Mrs Camilleri what she was going to be entering into? A. Well, it led me to believe that she knew why she was in my office, to sign the mortgage, but that was not the only thing I said. I did go on to say that she could lose her house." 71 Mrs Camilleri and Mr Tremolada denied that the solicitor had informed Mrs Camilleri that she stood to lose her house in the event of default. Mrs Camilleri denied saying to the solicitor "well, then I'd get you". 72 In the course of his cross examination the solicitor asserted that Mrs Camilleri had twice said to him "well, then I'd get you". This was a detail in somewhat different terms to the version of this exchange which he had given in the first affidavit. It is an important matter and I had some difficulty in understanding how it might be that the solicitor had failed to refer to the repetition of this phrase at the time he prepared the affidavit. 73 I accept Mrs Camilleri's evidence that in conversations with Mr Pugliese prior to the conference with the solicitor on 23 April, she had been reassured that there was no risk to her associated with the investment proposal because both the AMA Group and the solicitor had indemnity insurance. Had the topic of default and the associated risk of loss of her home been raised during the course of the meeting on 23 April, it might be expected that Mrs Camilleri would have raised her belief that the indemnity insurance would protect her. None of those who gave evidence concerning the meeting suggest that the topic of indemnity insurance arose in the course of the conference at all. 74 The solicitor said that Mrs Camilleri did not say very much during the conference. Indeed, it was his evidence that she did not ask a single question. I consider it probable that the conference was a short one. The solicitor's concession that he said "oh, good" when Mr Pugliese said he had explained the legalities to Mrs Camilleri in the car seems to me to lend support to this view. I note that the solicitor's diary was tendered to show that he had not recorded any appointment following that allocated to Mrs Camilleri on 23 April 1997. The diary appeared to record very few appointments and I found it of little assistance in resolving this issue. 75 I am satisfied that it is more likely than not that the solicitor did not explain the terms and conditions of the mortgage (other than those relating to the principal sum being borrowed and the interest rate) believing that Mr Pugliese had done so. Importantly I do not accept that the solicitor explained the consequences of default to Mrs Camilleri nor do I find that she said to him "then I'd get you". Mrs Camilleri's understanding of the transaction 76 It was Mrs Camilleri's evidence that both prior to and during the conference on 23 April 1997 she did not know that it was proposed that she execute a mortgage over her home. She understood that she was to be paid a fee by the AMA Group Pty Limited of $36,000 in return for permitting her name and address be used in connection with a scheme which involved the breaking up of parcels of money within the AMA Group. It was her account that had she understood that she was signing a mortgage offering her home as security she would not have proceeded with the transaction. Mrs Camilleri maintained that the earlier discussions in which Gary Tremolada and Frank Pugliese had spoken of investment proposals involving mortgaging her house or "making her house work for her" were quite separate in her mind to the transaction which she entered on 23 April 1997. I am not persuaded that is so. 77 As I have noted Mrs Camilleri's first statement did not contain reference to the assertions said to have been made by Mr Pugliese that the AMA Group needed to break up the sum of $250,000 in to parcels and that she was required to put her name and address to the parcels in respect of which she would receive a fee. Edward Tremolada also made two statements. His first statement was made on 28 May 1999 and a second statement was made on 11 May 2000. In his first statement Eddie Tremolada said that in the course of the car trip to the solicitor's office Frank Pugliese said "Liz you will be lending the money to other people on a first mortgage basis". Mrs Camilleri responded asking "I can't lose my house can I?" It was Eddie Tremolada's recollection that Mr Pugliese had gone on to say: "No because we've got an indemnity policy that covers the AMA Group up to ten million dollars in case one of the borrowers of your money defaults on payment. But you know we've never had any problems with our borrowers, we check them out and we make sure they have the security and they can make the repayments". 78 In her second statement Mrs Camilleri gave the account concerning the breaking up into parcels of the sum of $250,000. Mrs Camilleri did not suggest that the contents of her first statement as to the things said by Mr Pugliese in the course of the car trip were wrong. Relevantly in the first statement Mrs Camilleri recalled that Mr Pugliese had reassured her that her investment was completely safe. "You can get your money out at any time. You'll get the interest up front and the mortgage will be paid up front". 79 It was in his second statement that Edward Tremolada gave the account of Frank Pugliese saying (during the course of the car trip) "AMA already has the money in group. We have a parcel of money within the group that we need to put your name on it so that we can on-lend on a first mortgage basis". 80 In her second statement Mrs Camilleri did seek to correct two aspects of the contents of the first statement. She said that the account of her telephone conversation with Eddie Tremolada after she received the epitome of mortgage in the mail was to the following effect. "I have just got this mortgage in the mail. I thought I was lending money for AMA" and not "I have just got this mortgage in the mail. I thought I was lending the money to AMA". She also said that when Eddie Tremolada told her in September 1995 that his mother had two properties and some $350,000 tied up in investments and inquired of her "why have your house sitting there not earning money for you" she had not understood what he meant. I do not accept either of these "corrections" as accurate. I considered the first statement to be a more reliable recounting of events. 81 Mrs Camilleri conceded that she may have asked "I can't lose my house can I?" during the course of the car trip. I am satisfied that she did. I do not accept that Mrs Camilleri had paid no heed to the diagram drawn by Gary Tremolada at the January 1995 meeting. In the first statement Mrs Camilleri gave a detailed account of the contents of the February meeting. The proposal outlined by Mr Pugliese on that occasion was consistent with the scheme illustrated by Gary Tremolada the previous month. In the February meeting Mr Pugliese told Mrs Camilleri that three quarters of the value of her house was $250,000 and that one year's income on that sum would be $36,000. 82 In the course of her evidence Mrs Camilleri was asked: "Q. What did you understand was meant by this expression, "we could help you to make your house work for you and earn money", what did you think that meant? A. I had no idea, your Honour, I had no idea. It's not until we travelled in the car that I said to Frank, I said, "Frank, simply as you can, tell me what all this means" and Frank said, "It's like this", he said, "There's $250,000 in the AMA Group". He said, "We need to break it up into parcels so that we could get more interest on these breaking up of packages and we need a name and an address to go to that" and I thought he was doing me a favour by putting my name and address to this and for that he would pay me a fee and then I thought, well, once I get to the solicitor's office I'll understand more then. Q. Did you consider that there was any link between the suggestion that your house could be made to work for you and the proposal that you make your name available to this scheme? A. No, I didn't. I did - the only time that I knew what was said was when Gary Tremolada rang me and said that he suggested that I should mortgage my house, that was the only time that I knew what was being said, because I knew what a mortgage was and that's the only time I ever heard that and I thought that that was a different deal compared to what I heard previously. NEWLINDS: Q. So when you say in your statement that you thought you were a lender, not a borrower, that's not the case? A. Well, that's the way it was to me. Q. On what you've just explained to her Honour, you didn't think you were lending money to anyone? A. Well, the breaking up of parcels, its got my name on it to be lent out. Q. But you weren't lending money to anyone if what you just said is what you thought? A. I thought I was lending money for AMA." 83 In her evidence Mrs Camilleri asserted that she understood she was receiving a fee of $36,000 solely for the use of her name and address in connection with this scheme. She said she had not understood that she was exposed to any risk in connection with the transaction. The pages on the document that she signed as she understood it, related to the parcels that were being broken up. When asked whether the sum of $36,000 seemed a large fee in the light of the absence of risk Mrs Camilleri replied: "Well your Honour, I have not been in the work force and I have not, I am not real goods at maths and I don't really know percentages and all that sort of thing, so I don't really think it was". 84 I accept that Mrs Camilleri's education was a relatively limited one and that she is a commercially unsophisticated person. However, I did not consider her to be unintelligent or entirely out of touch with the realities of life. 85 It was Mrs Camilleri's evidence that she had taken her title deeds to the meeting with the solicitor because it was necessary to prove her address. She had expected the deeds to be returned at the end of the meeting. I do not accept this account. I note that before going to the conference Mrs Camilleri opened the envelope which had been sent to her by the Commonwealth Bank and removed the mortgage but left not only the certificate of title but also the discharge of mortgage. I consider that Mrs Camilleri knew that she needed to show that the premises were unencumbered. 86 I am satisfied that Mrs Camilleri went to the meeting on 23 April 1997 believing that she was to take up an investment opportunity which involved "making her house work for her" being a proposal such as that outlined to her by Frank Pugliese in the February 1997 meeting. 87 I am reinforced in this view by a consideration of Mrs Camilleri's conduct in the period following receipt of the epitome of mortgage. On her own account Mrs Camilleri complained to Eddie Tremolada who told her that the mortgage would have been registered and that it was effectively too late. She endeavoured to speak to Mr Pugliese but was not able to make contact with him for two weeks. When she did she took up his offer of pulling out of the arrangement after six months, she said she would ring him around November and he might get things arranged for then. 88 When Mrs Camilleri first became aware that interest payments were not being paid she responded by contacting Mr Pugliese. On this occasion her opening words were "What the hell is going on?". She also telephoned the solicitor telling him she wished to find out if the payments were behind. The response on this occasion was rather more forceful than that described on learning that the premises had been mortgaged. Had Mrs Camilleri not known that the document she executed at the solicitor's office was a mortgage I would have expected her response to learning that fact to have been somewhat less muted. Unconscionability 89 Ms Dowling contended that at the time of executing the mortgage document Mrs Camilleri was at a special disadvantage in her dealings with the plaintiffs such that the plaintiffs' reliance on the security was unconscionable. 90 Central to the principles governing unconscionability is a finding that one party to a contract unconscientiously took advantage of the position of special disadvantage in which the other party was placed. In Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 462 Mason J (as he then was) referring to the illustrations of special disadvantage discussed in Blomley v Ryan (1956) 99 CLR 362 observed: "It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in bargaining power of the parties and in order to emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party." 91 The matters of special disadvantage upon which Ms Dowling relied were firstly that Mrs Camilleri was poorly educated and financially unsophisticated. I do not consider that Mrs Camilleri's relative lack of education or sophistication about financial matters was such as to place her in a position of special disadvantage vis-a-vis the plaintiffs. 92 Secondly Ms Dowling placed reliance on the observation of Fullagar J in Blomley at 405 where his Honour spoke of " a lack of assistance or explanation where assistance or explanation is necessary" as an adverse circumstance such as to induce a court to set aside a transaction as unconscionable. In no small measure her submissions upon this footing depended upon a finding that Mr Pugliese had told Mrs Camilleri that she was really the lender. As I have noted I am not persuaded that this was said during the course of the conference. 93 In Amadio Mason J considered the question of knowledge by the stronger party of the special disadvantage of the other party: "[I]f A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of actual knowledge of the situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same (p 467)." 94 Given my rejection of the evidence that Mr Pugliese told Mrs Camilleri that she was really the lender in the presence of the solicitor it follows that I do not accept that the plaintiffs were on notice (through their agent, the solicitor) that Mrs Camilleri was giving security over her home in order to on-lend the funds on an unsecured basis to Mr Pugliese. 95 There were a number of features of the conference on 23 April which should have put the solicitor on notice of the need to speak privately with Mrs Camilleri in order to satisfy himself that she understood the nature and effect of the transaction. Had he done so (as the proper performance of his retainer to act for Mrs Camilleri required) I consider that the probabilities are that he would have come to learn that the transaction was not as had been stated. This did not happen. That may have consequences for the solicitor having regard to the cross claim brought against him by Mrs Camilleri. However, I am not persuaded that the solicitor's failure to carry out his retainer to act for Mrs Camilleri with due care and skill operates to fix the plaintiffs with knowledge of that which he might be expected to have come to learn had he done so. 96 I do not consider that reliance by the plaintiff upon their security is in the circumstances of this case unconscionable. The Contracts Review Act 1980 97 Rather more to the fore in the way Mrs Camilleri's defence was argued was a consideration of s 7(1) of the Contracts Review Act 1980 ("the Act"). That section, relevantly, provides that where the court finds a contract to have been unjust in the circumstances relating to the contract at the time it was made the court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of a number of things including refusing to enforce the contract or declaring the contract to be void. 98 Section 9(2) of the Act sets out a number of considerations to which the court is to have regard in determining whether a contract (or a provision of a contract) is unjust in the circumstances relating to it at the time it was made. Ms Dowling in written submissions relied upon the considerations set out in s 9(2) (a), (b), (e)(i), (f), (h), (i), (j). In dealing with these various considerations I bear in mind that in determining whether a contract was unjust for the purposes of the Act I am required to examine the position and take into account the interests of both parties to it; Idameneo No 9 v Bankesi (1991) ASC 56047 per Mahoney JA and West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 626 per McHugh JA. 99 Section 9(1) of the Act requires the court to have regard to the public interest and to all the circumstances of the case. The fact that a party to a contract may identify one or more circumstances that fall within paragraphs 9(2) (a) - (l) does not lead necessarily to relief pursuant to the Act; Hogan v Howard Finance Ltd (1987) ASC 55-594. 100 I approach a consideration of the grant of relief pursuant to the Act upon a basis that the plaintiffs are a group of individuals who, over the years, have lent sums of money upon the security of first mortgages to clients of the solicitor. The plaintiffs understood that Mrs Camilleri was seeking to borrow the sum of $250,000 for a twelve month term in order to develop her property. Mr Pugliese, in Mrs Camilleri's presence, confirmed that the purpose of the loan was as stated in the application during the course of the conference with the plaintiffs' solicitor on 23 April 1997. 101 It has not been suggested that any term of the contract was unjust. It is contended that the circumstances surrounding the contract at the time that it was made render it relevantly an unjust contract. 102 Ms Dowling placed reliance with respect to a number of the s 9(2) considerations upon what was said to be Mrs Camilleri's lack of education and low level of literacy. As I have observed, I found Mrs Camilleri to be a not unintelligent woman. The only evidence concerning her educational background is that she completed her school certificate at Miller High School. She impressed me as articulate. In the course of her evidence she gave an account of having "reading difficulties". Of these she said "it takes a long time for me to read and it takes a long time for it to absorb into my head". I did not take this to be an assertion that Mrs Camilleri was functionally illiterate. The evidence was to the contrary. When she received the copy of the epitome of mortgage (at a time when she was free of the demands of the children) she read the document. I accept that it would be necessary for Mrs Camilleri to read a document such as the mortgage over more than once in order to fully grasp its import. Nonetheless I was not inclined to the view that relief should be granted under the Act upon the basis that Mrs Camilleri's educational attainments and literacy level led to a material inequality in bargaining power, or an inability to reasonably protect her interests, or because relative to the position of the plaintiffs she was at some disadvantage. 103 Ms Dowling placed greatest reliance upon the considerations identified in s 9(2)(i) & (j)(iii) of the Act: (i) The extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this act, and whether or not that party understood the provisions and their effect; (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this act: … (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for on behalf of any other party to the contract. 104 I deal firstly with consideration of whether the provisions of the contract and their legal and practical effect were both explained to Mrs Camilleri and understood by her. I consider that Mrs Camilleri attended the conference with the solicitor understanding that her home was to be used as security in connection with an investment proposal. I accept that she did not read the mortgage document before executing it. The first page of the document is headed "Mortgage" in bold black type. Her signature appears above the typed words "signature of mortgagor". It is a formal document in terms of its layout and appearance and I am satisfied that Mrs Camilleri knew that it was a mortgage. It does not necessarily flow from this that Mrs Camilleri understood the legal and practical effect of the transaction. 105 Mrs Camilleri had executed a mortgage in favour of the Commonwealth Bank to secure a home loan. She understood the consequences of default in relation to her obligations under that agreement. I consider that there was a distinction in Mrs Camilleri's mind between the mortgage securing the home loan and the subject transaction. Mrs Camilleri knew that should she fail to pay her home loan repayments she might lose her home. She knew that it had been difficult to obtain a loan of $46,000 given her low income. The process of obtaining the home loan was accompanied by a degree of formality. She had made an application which required her to set out details of her income and the like. Staff at the bank took her through the terms and conditions of the loan and made clear to her the risks associated with default. 106 In the course of the February meeting Mr Pugliese told Mrs Camilleri that using her house to lend money to people was very safe because of the indemnity insurance. The AMA's indemnity insurance was combined with the solicitor's indemnity insurance which made it stronger. She had nothing to worry about because she could not lose it (her house). There is no evidence as to the manner in which (if at all) the AMA group invested Mrs Camilleri's funds or of the nature of insurance cover held by the group. On any view the representation that an investment proposal of this kind might be immunised against loss by virtue of the solicitor's indemnity insurance was false. As was the representation that Mrs Camilleri could not lose her house. I accept that representations of this character were made to Mrs Camilleri prior to her execution of the mortgage and that she believed them. In this sense Mrs Camilleri had an imperfect understanding of the practical and legal effect of executing the mortgage. 107 In Collier v Morlend Finance Corporation (Victoria) Pty Ltd (1989) NSW Conv R 55-473 Hope JA discussed the relevance of the party against whom relief is sought having knowledge of the matter upon the basis of which the claim for relief is advanced. His Honour observed that knowledge of the vitiating factor is always relevant to the exercise by the court of its discretion pursuant to s 7 of the Act. He noted that it was not necessary in all cases for knowledge to be established to entitle a plaintiff to have the court exercise its discretion in his favour. In this respect his Honour instanced s 9(2)(i) observing that a defendant would not necessarily know whether or not the plaintiff understood the provisions of a contract and their effect. Equally, I note the observations of Meagher JA in that case that: "the circumstances would be rare indeed when a court should, in the exercise of its duty to make a just order, deprive an innocent party of the benefit of its contract". 108 Although I am satisfied that Mrs Camilleri did not understand the legal and practical effect of the transaction (for the reasons set out in paragraph 106 above) I am not of the view that it would be just in the circumstances of this case to grant relief to her pursuant to the provisions of the Contracts Review Act 1980 on this ground. 109 As to the matters to which attention is directed by s 9(2)(j)(iii) I think it is likely that Mr Pugliese exercised undue influence over Mrs Camilleri and that he used unfair pressure or unfair tactics on her. His representations to her that he had a lender available but that she must move quickly and that it was difficult to arrange an appointment with the solicitor, formed part of the unfair tactics. Similarly the representations that she was not at risk because of the indemnity insurance were unfair tactics. None of these matters were known to the plaintiffs, or to any person acting on their behalf. 110 At the conference on 23 April 1997 Mr Pugliese engaged in further unfair pressure or unfair tactics. He cut off advice from the solicitor concerning the effect of the transaction and stood by Mrs Camilleri turning the pages as she signed the document. 111 The question for me to determine is whether Mr Pugliese's unfair pressure or unfair tactics were engaged in to the knowledge of the plaintiffs or, more relevantly, to the solicitor as their agent. On the face of things Mrs Camilleri was seeking a loan to enable her to develop her own property. She acquiesced to that assertion when it was made orally in her presence by Mr Pugliese. The circumstance that Mr Pugliese said words to the effect "these are the legalities I explained to you in the car" and that he stood by Mrs Camilleri turning the pages of the contract does not seem to me of itself to operate to fix the plaintiffs with knowledge of any undue influence, unfair pressure or unfair tactics, such as to make this an appropriate case in which to grant Mrs Camilleri relief pursuant to the Act. 112 For these reasons I consider that Mrs Camilleri has not made good her claim to relief under the Act. There will be verdict and judgment for the plaintiffs accordingly. Mrs Camilleri's Cross Claim against the Solicitor 113 Mrs Camilleri brought a cross-claim against the solicitor. That claim is pleaded on three bases; breach of contract, negligence and breach of fiduciary duty. 114 It is common ground that Mrs Camilleri retained the solicitor to act on her behalf in relation to a loan to her of $250,000 by the plaintiffs. The retainer was oral. It is accepted that an implied term of the retainer was that the solicitor would advise Mrs Camilleri with all due professional care, skill and diligence. 115 On Mrs Camilleri's behalf, it was submitted that the solicitor's retainer to act for her in relation to the transaction contained implied terms (i) to take all reasonable steps to ensure that the client understood the nature and effect of the mortgage as a legal document and the consequences of default; (ii) where the circumstances raised (or ought to have raised) a doubt on the matter to take all reasonable steps to ensure that Mrs Camilleri was acting voluntarily and (iii) where the circumstances raised (or ought to have raised) a doubt on the matter to take all reasonable steps to ensure that the performance of the retainer was not affected by any conflict of interest. In this respect Ms Dowling relied on Roberts v Goldenberg (1997) ANZ Conv R ¶ 55-809 at 56,364-5. Generally, it was Ms Dowling's submission, that in advising Mrs Camilleri with all due professional care, skill and diligence the solicitor was required to give advice both as to the legal effect of the transaction and the financial effect of it. In the circumstances of this case, the solicitor, so it was submitted, was required to advise Mrs Camilleri that she should obtain financial advice before proceeding with the transaction. 116 On Mrs Camilleri's behalf expert evidence was led from Edward Spring Boyce, solicitor. Mr Boyce is a practitioner with extensive experience in the field of conveyancing and property law. He has been a partner with Hunt & Hunt since 1977. For many years he was a member of the Conveyancing Committee of the Law Society. He is a member of the Advisory Committee on property law accreditation to the Specialist Accreditation Board of the Law Society of New South Wales. Mr Boyce was a careful and impressive witness. He expressed the opinion that in 1997 a competent solicitor acting for Mrs Camilleri would have advised in relation to the following matters concerning the mortgage: (i) the term of the mortgage; (ii) the interest rate applicable to the mortgage and whether this rate could be charged during the term of the loan; (iii) the interest that would have to be paid under the mortgage if Mrs Camilleri elected to discharge the mortgage prior to the due date; (iv) the costs, registration fees and stamp duty to be incurred as a result of the transaction and who was to pay; (v) Mrs Camilleri's obligation in relation to insurance and rates and taxes under the provisions of the mortgage; (vi) the powers conferred on the lenders if Mrs Camilleri should default in paying interest and/or in repayment of the principal sum. 117 Mr Boyce considered that a competent solicitor would have explained these matters to Mrs Camilleri in the absence of Mr Pugliese. Further a competent solicitor would have asked if there were other issues relating to the transaction about which she required advice or information. In the event that Mrs Camilleri agreed that other persons might be present during the whole of the conference, it was Mr Boyce's opinion that a competent solicitor would be concerned to be satisfied that Mrs Camilleri was not placed under any pressure from others present and that she was able to respond to questions put to her by her solicitor and have those queries explained without interference or apparent pressure. 118 Mr Sirtes did not seek to challenge Mr Boyce's opinion as to the matters which a reasonably competent solicitor in 1997 would have covered in the course of a conference with a mortgagor client by way of explanation of the terms and conditions of the mortgage. 119 It was Mr Sirtes's submission that the solicitor's retainer was a limited one which entailed explaining to her the terms and conditions of the mortgage and nothing more. 120 It seems to me that the solicitor's retainer was to act for Mrs Camilleri in relation to the loan of $250,000 and the execution of the associated mortgage over the premises. It was a requirement of the retainer that the solicitor explain to Mrs Camilleri the effect of the mortgage as a legal document. In so doing it was necessary to for him to explain to her the matters which Mr Boyce set out in his report and which I note in paragraph 115 above. In carrying out his retainer it was incumbent on the solicitor ensure that Mrs Camilleri was acting voluntarily and free from any undue influence in the event that the circumstances raised a doubt about the matter. 121 I do not accept the submission that the contract between the solicitor and Mrs Camilleri expressly or by implication required him to render financial advice to her or to advise her to seek the same; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 per Sheller JA at 413/4. 122 I am satisfied that the conference was a hurried one and that the solicitor did little, if anything, more than to inform Mrs Camilleri of the amount of the loan and the interest rate. Thereafter Mr Pugliese said words to the effect "this is the legalities of what I explained to you in the car" and the solicitor took the matter no further. The solicitor agreed that an exchange in these terms had taken place. It was put to him that he was comforted by what Mr Pugliese had said because he assumed that an explanation had been given to Mrs Camilleri as to the transaction she was entering. To this the solicitor replied: "Well it led me to believe that she knew why she was in my office, to sign the mortgage, but that was not the only thing I said. I did go on to say that she could lose her house (T.194)." As I have noted above, I do not accept that the solicitor did explain to Mrs Camilleri that she could lose her house. In the course of his oral evidence the solicitor acknowledged that in some respects his explanation of the terms of the mortgage may have been less full than the account he had offered in the second affidavit. I find that was so. 123 The loan application contained the assertion that there was "no risk of default". The solicitor agreed that he did not advise Mrs Camilleri that that this assertion was incorrect. 124 The solicitor acknowledged that clients who are uneducated or commercially unsophisticated need more explanation of transactions than do commercially sophisticated clients. Equally he accepted that where the consequences of a transaction have the potential to be serious for a client a greater level of explanation and assistance is required. He agreed that he took no steps to satisfy himself that Mrs Camilleri had an understanding of the transaction. She had asked no questions during the conference. It appeared to the solicitor that Mr Pugliese wanted to control Mrs Camilleri at the conference. He accepted that her silence should have rung alarm bells for him. 125 There were a number of features of the transaction which ought to have alerted the solicitor to the circumstance that Mrs Camilleri may have been the subject of undue influence by Mr Pugliese. On the face of things Mr Pugliese was a mortgage broker. In this case he took it upon himself to retain the solicitor to act for Mrs Camilleri. Unusually, he told the solicitor that he would bring Mrs Camilleri to the conference. The solicitor in the course of his evidence conceded that this circumstance was out of the ordinary. The solicitor observed that Mr Pugliese appeared to be trying to control the conference. At a point when the solicitor sought to explain the terms and conditions of the transaction to Mrs Camilleri, Mr Pugliese interrupted and asserted that these were the legalities that he had already explained. By the end of the conference it was clear that it was Mr Pugliese who was going to attend to payment of the solicitor's fees and that the proceeds of the loan would be handed to Mr Pugliese. Mr Pugliese had not sought to have any provision made on settlement for payment of his fees. The solicitor agreed that ordinarily such an arrangement would be made. The solicitor's view was that Mr Pugliese was acting as Mrs Camilleri's financial adviser. Were that to be the case it might explain why Mr Pugliese might attend to the payment of the solicitor's fees, collect the bank cheque and attend, on her behalf, to the payment of the interest component of the loan. However, the solicitor did not make any inquiry to determine whether his belief was well founded. 126 The solicitor acknowledged that he should have interviewed Mrs Camilleri in the absence of Mr Pugliese. It seems to me that this was required of him in the circumstances of this case. At the very least it was necessary because of the possibility of a conflict of interest between Mrs Camilleri and Mr Pugliese. Mr Pugliese, as the mortgage broker, had an interest in the transaction proceeding and, thus, in obtaining his fee. Added to this were the matters I have outlined above which served to put him on notice of the possibility that Mr Pugliese was exercising undue influence over Mrs Camilleri. For these reasons the solicitor should have sought to confer with her privately. His failure so to do was a failure to carry out his retainer with due professional skill and care. 127 For these reasons I consider that Mrs Camilleri has made good her claim that the solicitor was in breach of the implied term of his retainer to carry out his services with due professional care and skill. In particular I consider he was in breach by his failure to explain the terms and conditions of the mortgage including the provisions relating to default and by failing to take reasonable steps to ensure that she was acting voluntarily and free of undue influence by Mr Pugliese. 128 Mrs Camilleri also pleaded her claim against the solicitor in negligence. The solicitor owed concurrent duties in contract and tort arising out of his professional relationship with Mrs Camilleri. He was in breach both of the duty he owed to act with due care and skill pursuant to his retainer and under the common law of negligence. The duty imposed by the latter may be more extensive than the obligations imposed by virtue of the contract. Thus, it has been recognised that circumstances may exist which require that a solicitor take some positive step to avoid a real and foreseeable risk of economic loss to his or her client. In Gellert v Bellamy [1999] NSWCA 123 Meagher JA (with whom Handley JA agreed) considered that there was ample evidence that the solicitor had been negligent in discharging his duty in the circumstances of that case: "[a]t no stage did he warn Mrs Bellamy of the danger she was in: any new change in Mr Barton's affairs for the worse (and they never changed for the better) and her house would go…" . 129 I consider that had the solicitor spoken with Mrs Camilleri privately it is likely that he would have come to learn that she understood she was embarking on a safe investment opportunity involving a return of $36,000 for no risk to herself. This would have revealed the very real potential for Mr Pugliese to be taking advantage of Mrs Camilleri, given her relative lack of commercial sophistication. Mrs Camilleri was a widow with two dependent children whose source of income was the social security benefit. She was proposing to offer the family home as security for an investment which she had been given to understand would give her a substantial and risk free return. In the circumstances of this case I consider that the solicitor should have advised Mrs Camilleri to obtain financial advice concerning the wisdom of the proposed investment scheme. His failure to seek to confer with her privately and to so advise were negligent for the reasons given in Gellert v Bellamy. 130 On the solicitor's behalf it was put that if he had failed in his duty to Mrs Camilleri I would nonetheless dismiss her claim because any such breach had not been productive of loss. It was submitted that Mrs Camilleri wanted to proceed with the investment opportunity offered to her by Mr Pugliese. On this view Mrs Camilleri would have maintained the lie (that the purpose of the loan was for development of her property) and she would have proceeded with the transaction regardless of any advice given to her by the solicitor. I do not accept that submission. 131 As I have noted, I consider that Mrs Camilleri entertained the false belief that the investment opportunity was one effectively not attended by risk because of the indemnity insurance. I accept that the first time Mrs Camilleri heard any suggestion that the purpose of the transaction was for her to borrow money in order to carry out extensions to her property was when Mr Pugliese said something to that effect at the commencement of the conference. In the event that the solicitor had spoken with Mrs Camilleri in the absence of Mr Pugliese I consider it almost inevitable that any meaningful discussion with her based upon the loan application would have revealed that the purpose of the transaction was otherwise than as stated. I also consider it probable that Mrs Camilleri would have asserted her belief that the transaction was a safe one in the sense that she was protected, not only by indemnity insurance held by the AMA Group, but by the solicitor's indemnity insurance. At that point the solicitor would, at the very least, have disabused her with respect to the latter belief. 132 Mrs Camilleri asserted in her first statement: "At no time did Graham advise me of what I was signing or that my house was at risk by signing this document. Graham did not advise me that the effect of the document I was signing was that my house was security for the loan. If I had understood the effect of the documents I would never have signed them, as I had just paid off my house (paragraph 44)." Retrospective reasoning of this type, after the occurrence of the calamitous event, needs to be viewed with caution. However, a consideration of the probabilities inclines me to accept that had Mrs Camilleri been made aware that the representation as to the solicitor's indemnity insurance was (at the least) unfounded and that by entering this transaction she was placing her home at risk that she would not have gone ahead with the transaction. In coming to this conclusion I bear in mind that the evidence favours a view that it was Mr Pugliese who was pursuing Mrs Camilleri and not the reverse. After the February meeting Mr Pugliese sent the loan approval letter inviting Mrs Camilleri to complete the letter of acceptance. She did not do so. Thereafter he telephoned her on a number of occasions encouraging her to go and see the solicitor. She took no action to do so. Ultimately Mr Pugliese arranged to collect her and convey her to the office. I think the probabilities strongly point to Mrs Camilleri refusing to proceed with the loan had she been given appropriate advice as to the risks associated with default. 133 The solicitor raises in answer to the cross-claim that the loss suffered by Mrs Camilleri was the result of her contributory negligence. This is particularised as; (a) entering into a speculative investment with Mr Pugliese and the AMA Group, (b) failing to act in a prudent manner in relation to her own affairs and (c) failing to meet the repayments due to the plaintiffs. 134 In submissions Mr Sirtes relied on the evidence that Mrs Camilleri had sat silently while Mr Pugliese falsely represented that the purpose of the loan was for extensions to the premises. This was not particularised but on a view might be encompassed by particular (b) above. 135 As I have noted, I am of the view that the solicitor was in breach of the implied term of his retainer to act with due care and skill. No question of contributory negligence arises with respect to the claim brought in contract; Astley v Austrust Ltd (1999) 73 ALJR 403. I consider that Mrs Camilleri's loss flowed from the failure of the solicitor to adequately advise as to the terms and conditions of the transaction and in particular to make clear to her the consequences of default. I am of the view that Mrs Camilleri has made good her claim for judgment against the solicitor in the amount of the sum to which she is liable by judgment in these proceedings to pay to the plaintiffs. No question of apportionment arises with respect to this claim. 136 I am also of the view that the solicitor was in breach of his concurrent common law duty to take reasonable care in acting on behalf of Mrs Camilleri. The liability in tort is in one respect more extensive than the liability in contract in that it embraces a duty to take some positive step to avoid a real and foreseeable risk of economic loss. I have found the solicitor was in breach of this latter duty. In the view I take Mrs Camilleri succeeds in her claim in contract and it is not strictly necessary to consider the issue of contributory negligence. 137 I am not persuaded that in any event the solicitor has established contributory negligence on the part of Mrs Camilleri in the circumstances of this case. I am satisfied that Mrs Camilleri was unaware of the contents of the application for loan document which had been submitted by Mr Pugliese. As I have noted, I accept that the first time she heard the suggestion that she was borrowing money to carry out extensions was when Mr Pugliese said so in her presence. Mr Pugliese was effectively in control of the conference. Mrs Camilleri trusted him and understood him to be a person with knowledge of business affairs. Her lack of commercial experience made her vulnerable to a person such as Mr Pugliese. Proper professional advice from the solicitor retained to act on her behalf is likely to have protected her from the folly of that trust. I am mindful that contributory negligence fastens on the conduct of the plaintiff and not the defendant. In Astley the majority observed that: " What is reasonable care depends on the circumstances of the case. In many cases it may be proper for a plaintiff to rely on the defendant to perform its duty. But there is no absolute rule. The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases the nature of the duty owed may exculpate the plaintiff from a claim of contributory negligence" (p 409). 138 I am not satisfied that the solicitor has established that Mrs Camilleri contributed to her loss by her failure to interrupt during the course of the conference and correct the false statement made by Mr Pugliese. 139 I am satisfied that Mrs Camilleri has made good her claim against the solicitor and that she is entitled to judgment against him in the amount of her liability to the plaintiffs pursuant to this judgment. Breach of Fiduciary Duty 140 Mrs Camilleri pleaded her claim against the solicitor upon the further basis that he was in breach of his fiduciary duty to her. On her behalf it was contended that upon the execution of the deed of mortgage on 23 April 1997, the solicitor held the sum of $250,000 on trust for the benefit of Mrs Camilleri to be paid to her or in accordance with her instructions. On or about that day the solicitor without her authority or direction had paid the trust fund to Mr Pugliese. 141 In the course of his cross examination the solicitor gave the following evidence: "Q. You gave him the cheque for the money, didn't you? A. It was made out to Mrs Camilleri. Q. And you did that without instructions from Mrs Camilleri, didn't you? A. Well, she was there when it was discussed that he would be picking up the cheque but no - but yes, I - yes, it was not a written instruction, yes. Q. You agree that there were no instructions? A. Yes." (T.191) 142 It was Mrs Camilleri's case that she did not understand that she was borrowing the sum of $250,000. She had given no instructions for such a sum to be paid to Mr Pugliese. She maintained this position notwithstanding that she agreed that during the conference the solicitor had told her that she was borrowing $250,000 at 9.25%. As I have noted above, I did not accept Mrs Camilleri's evidence on this aspect. I consider that she did understand that the investment opportunity involved her borrowing the sum of $250,000. Further, it is common ground that towards the conclusion of the conference Mr Pugliese inquired if it was all right for him to come around at 4 pm in order to pick up the cheque. Mrs Camilleri was present during this exchange and did not demur to the proposal. In my view she intended that the loan funds be paid to Mr Pugliese in order that he might put into effect the investment proposal. In the light of this finding I am not inclined to the view that the handing of the cheque to Mr Pugliese constituted a breach of the solicitor's fiduciary duty to Mrs Camilleri. The Plaintiff's claim against the solicitor 143 By second further amended statement of claim filed in court on 17 May 2000, the plaintiffs sought to claim against the solicitor in the event that their principal claim against Mrs Camilleri was successful. They pleaded that in such an event they may suffer loss and damage by reason that having exhausted their remedies against Mrs Camilleri a short fall may remain, precluding them from recovering the full amount of principal, interest, legal and other costs associated with enforcement of their security. The plaintiffs plead their claim against the solicitor as breach of the implied terms of his retainer and/or his duty of care in the following respects: "(i) he failed to advise the plaintiffs that the first defendant had not obtained any legal or other independent advice in relation to the transactions and as such it may be possible for her to defend any proceedings for enforcement of the security; (ii) he failed to advise the plaintiffs that he had taken no steps to satisfy himself that the first defendant understood the fact that the contract she was entering into involved a financial risk to her and as such it may be possible for her to defend any proceedings for enforcement of the security; (iii) he failed to advise the plaintiffs that in all the circumstances they should not proceed with the loans because there was a risk that the mortgage may be challenged based on the fact that the first defendant had received no independent legal advice in relation to the nature of the document she was signing and/or had received no financial advice as to the risk involved in the underlying transaction; (iv) he failed to advise the plaintiffs that the terms of the mortgage document prepared by him did not accord with their instructions in that it did not contain a requirement for the payment of one year's interest in advance; and (v) he failed to advise the plaintiffs that he was not going to ensure one year's interest was paid by the borrowers at settlement." 144 It is contended on the plaintiffs' behalf that had the solicitor brought to their attention that circumstances existed whereby Mrs Camilleri may have had a basis to challenge the validity of the mortgage, or had he advised the plaintiffs not to proceed, the plaintiffs would not have proceeded with the transaction. 145 The application for loan which had been submitted by the solicitor to the plaintiffs contained a representation that the borrower would pay twelve months interest "up front". During the course of the conference the solicitor advised that the interest should be paid monthly with the balance being held in an account so that Mrs Camilleri might have the benefit of the earnings on that sum in the interim. This evidence highlighted the potential for conflict for a solicitor acting for both mortgagor and mortgagee. It was contrary to the interests of the mortgagees for the solicitor to give such advice to the mortgagor. I accept there is force to the plaintiff's submission that in giving this advice to Mrs Camilleri the solicitor was in breach of his duty to the plaintiffs. However, I am not persuaded that this breach has been productive of loss. 146 In the course of his evidence the solicitor agreed that he was aware as at April 1997 that there were inherent dangers in acting for both sides to a transaction. Importantly, the following exchange occurred during the cross examination of the solicitor: "Q. So when as a solicitor acting for a lender you accepted in April 1997 it was not just enough to identify a piece of security that was worth sufficiently more than the amount being advanced and taking some sort of security on the words on a bit of paper, that was not enough? A. No. Q. You had to satisfy yourself as best you could, whatever other avenues might be open to challenge that security had been closed off? A. Yes, that's right. Q. So as to protect the lender from the challenges we find in this case? A. Yes." (T.151) 147 The solicitor went on to agree that as at April 1997 he understood that when acting for a lender in a transaction of this type he should at least have taken some steps to satisfy himself that the borrower had some understanding of the true nature of the transaction as opposed to the contract that she was entering. He agreed he had taken no steps to do that in this case. 148 A reasonably competent solicitor in April 1997 acting for both the mortgagee and the mortgagor would, in the discharge of his duty to the mortgagee, have been concerned to ensure that the transaction was not liable to challenge upon the basis of the provisions of the Contracts Review Act 1980, equitable principles of unconscionability or otherwise. I have concluded that Mrs Camilleri's defence upon these grounds has not been made good. Nonetheless, there were features about this transaction which exposed the plaintiffs to the risk of a protracted defence in the event of the need to enforce the security. So much is highlighted by the concessions made by the solicitor in the course of his evidence. I consider that the plaintiffs have established that the solicitor was in breach of the duty that he owed to them. I also accept that the probabilities favour the view that had the solicitor advised the plaintiffs that Mrs Camilleri may have had a basis to challenge the security or otherwise that they should not proceed they would not have done so. Mr Sirtes did not seek to contend the contrary. It is not clear that the plaintiffs have suffered any damage in consequence of the breach. In these circumstances, it is appropriate that the plaintiffs' claim as against the solicitor be stood with liberty to restore at a time when the plaintiffs are in a position to quantify their damages, if any. 149 I propose standing the proceedings over to permit the parties to bring in short minutes in conformity with these reasons. I will deal with the matter of costs on that occasion. ******** 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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