New South Wales Supreme Court CITATION : Challenger Management Investment Limited & 1 Or v Beryl May Davey & 1 Or [2002] NSWSC 430 FILE NUMBER(S) : SC 11141/01 HEARING DATE(S) : 29/04/2002 - 01/05/2002, JUDGMENT DATE : 5 June 2002 Challenger Management Investment Limited (First Plaintiff) PARTIES : Permanent Trustee Australia Limited (Second Plaintiff) Beryl May Davey (First Defendant) Gladys Mary Crees (Second Defendant) JUDGMENT OF : Cripps AJ First and Second Plaintiffs: P. Walsh COUNSEL : First and Second Defendants: A. Jungwirth First and Second Plaintiffs: O'Hara & Company SOLICITORS : First & Second Defendants: Jackson Smith Solicitors CATCHWORDS : no catchwords Real Property Act 1900 (NSW) LEGISLATION CITED : Contracts Review Act 1980 (NSW) Trade Practices Act 1974(Cth) CASES CITED : Commercial Bank of Australia v Amadio (1983) 151CLR447 DECISION : (1)That the cross claims of Beryl May Davey and Gladys Mary Crees be dismissed; (2)Judgment for the plaintiff; (3)That the plaintiff is entitled to possession of the whole of the land contained in Certificate of Title Folio Identifier 31/16944, being the property situated at 3 Hardy Avenue Riverwood and the property being the whole of the land contained in Certificate of Title Folio Identifier 34/16944, being the whole of the property situated at 9 Hardy Avenue Riverwood; (4)That the Registrar issue writs of possession in respect of the said lands and the premises; (5)That the first and second defendant's pay the plaintiffs costs of the proceedings IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION Acting Justice Cripps 5 June 2002 11141/01 Challenger Managed Investments Ltd & Permanent Trustee Australia Ltd -v- Beryl May Davey & Gladys Mary Crees JUDGMENT 1 HIS HONOUR: Beryl May Davey is and was at all material times the registered proprietor of the whole of the land contained in Certificate of Title Folio Identifier 31/16944, the property at 3 Hardy Avenue, Riverwood. 2 Gladys Mary Crees is and was at all material times the registered owner of the whole of the land contained in Certificate of Title Folio Identifier 34/16944 being the property situated at 9 Hardy Avenue Riverwood. 3 On or about 14 August 2000, Challenger Managed Investments Limited (Challenger), in it's capacity as trustee of the Howard Mortgage Trust, at the request and direction of Beryl Davey and Gladys Crees loaned to Mid West Ice Wholesalers Pty Ltd (Mid West), the sum of $210,000.00 to be repaid in full by 1 September 2003. 4 The loan was secured by mortgages over the land of Beryl Davey and Gladys Crees. 5 Beryl Davey and Gladys Crees guaranteed (as parties to the deed of loan) the performance by Mid West of its obligations under the deed of loan. Mid West defaulted, and on 28 February 2001, Challenger caused to be served on Beryl Davey and Gladys Crees a notice in accordance with s 52 (2)(B) of the Real Property Act 1900 (NSW). 6 Neither Beryl Davey nor Gladys Crees complied with the notice served on them and on 20 April 2001, Challenger took proceedings in the Supreme Court claiming possession of the properties subject to the mortgages and seeking orders that the Registrar issue writs of possession of the subject properties. 7 In their defence Beryl Davey and Gladys Crees denied Challenger was entitled to the orders referred to above and in a cross claim alleged: (1) That the enforcement proceedings taken by Challenger were unconscionable; (2) That the mortgages referred to above were unjust within the meaning of the Contracts Review Act 1980 (NSW); and (3) That Challenger acted unconscionably within the meaning of the relevant provisions of the Trade Practices Act 1974 (NSW). 8 The unconscionable conduct alleged against Challenger was that it was not consistent with equity and good conscience for Challenger to pursue its remedies against Beryl Davey and Gladys Crees. 9 Beryl Davey and Gladys Crees sought declarations that the mortgages cease to be binding and/or enforceable against them. The particulars supporting the three claims referred to above were that Mrs Davey and Mrs Crees were in a position of special disadvantage vis a vis Challenger, which was known or ought to have been known to Challenger, and that Challenger would be acting unconscionably and contrary to equitable doctrine and the provisions of the legislation referred to above to enforce its entitlement under the mortgages referred to above. 10 Mid West was a company owned and controlled by Glen Crees (the son of Gladys Crees) and Lyn Davey (the daughter of Beryl Davey). Glen Crees and Lyn Davey have lived in a de facto relationship for a number of years. They sought to borrow money to establish a business in Leeton to be conducted by Mid West. They persuaded their respective mothers to guarantee repayment of the loan from Challenger and to mortgage their properties as security. 11 After the transactions referred to above were entered into, Beryl Davey and Gladys Crees became shareholders and directors of Mid West. I have approached this case upon the basis that at the time of guaranteeing the performance of Mid West's obligation, both cross claimants were volunteers in the legal sense. That is to say, when they gave the guarantees and executed the mortgages over their properties, they were not, and had no reason to suppose that they would become, shareholders and directors of Mid West. 12 In the cross claim no relief has been sought with respect to the guarantees although it would seem that if the mortgages were to be set aside as being unconscionable the same consequence would follow with respect to the obligations under the deed of loan whereby the cross claimants guaranteed the performance of Mid West's obligations. 13 Beryl Davey and Gladys Crees allege they were in a position of special disadvantage in their dealing with Challenger and that that special disadvantage was known or ought to have been known to Challenger (Commercial Bank of Australia v Amadio (1983) 151CLR447). Each has alleged that she did not understand the transactions entered into and that no independent advice had been given. At the time of entering into the transactions Beryl Davey was 76 and Gladys Crees was 68. Both were pensioners. 14 Although both cross claimants claimed they had not signed a deed of loan it is clear that both had and that in doing so purported to guarantee Mid West's performance of its loan obligation. 15 After the second day of the hearing, counsel for Gladys Crees sought to adduce evidence that she had not only misunderstood the nature of the transaction she was entering into and had been given no independent legal advice, but the document she signed was the result of the aggressive behaviour of her son Glen and that it was signed under duress. An amendment was sought to advance that claim. If it had been allowed, it raised a possibility that Gladys Crees could be relieved of the obligations but not Beryl Davey. For reasons I gave at the time, I did not allow the amendment. I accepted the frank admission by Mr Walsh, for the plaintiffs, that probably he would be in no better position in the future than he was at the present hearing to counter Gladys Crees' allegation that she acted under the duress of her son. However, he maintained that until the amendment was sought, the defence of both defendants was simply whether unconscionable conduct had been established and that in turn directed the court fairly and squarely to the question of the nature and quality of the advice received by them before entering into the transaction. He pointed to the fact that the claim by Gladys Crees that she had signed the documents under duress did not emerge until she was compelled to acknowledge that the mortgage she had entered into was not, contrary to her sworn testimony, the first mortgage she had entered into guaranteeing the performance of obligations of her son Glen. 16 In their affidavits and in oral evidence in chief, the cross claimants maintained that they had entered into the transactions referred to above without the benefit of any independent legal advice. They did not deny they signed the relevant documents in the presence of Mr Grellman, solicitor, but denied he had given them any advice concerning the legal consequences of what they were doing. 17 So far as Mrs Davey is concerned, she appears to have very little recollection of what happened in August 2000, and has not denied that independent legal advice may have been given. Gladys Crees, however, is positive that Mr Grellman gave no advice of any kind and that she had no understanding of the consequences to her of entering into the transaction. 18 Mr Grellman gave evidence concerning the advice tendered. He said he received his instructions from Olliffe and McRae, the solicitors for Glen Crees and Lyn Davey. He had no connection with Lyn Davey and Glen Crees and no connection with Challenger. He was approached because he was the city agent of Olliffe and McRae. 19 Mr Grellman saw the cross claimants on two occasions. The first was on 26 August 2000 when he told them that the documents about which he was to tender advice had not been received and he asked them to return the following day. He has given evidence that on 27 August 2000 he advised them of the consequences of entering into the transaction. In particular he told them that by signing the guarantees they were guaranteeing the payment of the principle loan by Mid West and they were indemnifying the lender. He also said they were standing "in the shoes" of Mid West and if there was any default by Mid West they would become liable. He told them that the Mid West had no legal requirement to pursue other guarantees before it took enforcement against them and that their homes were at risk by reason of the mortgages and guarantees given. He emphasised that even selling their property may not necessarily be the end of the matter if there was still a shortfall. He told them they were undertaking a significant risk by guaranteeing the performance of Mid West and entering into the mortgages. 20 On the occasion he gave them advice, he said he thought neither cross claimant was taking any benefit from the transaction. As I have mentioned, neither had a financial interest in Mid West until some time later. He said he spent 50 minutes explaining documents to them and neither said anything leading him to the belief that they did not understand the advice given. He said he recalled that Beryl Davey was to depart from the state the following day and that Beryl Davey and Gladys Crees said that there was some urgency in them signing the documents. 21 Mr Grellman was extensively cross-examined to suggest that he never gave the advice he deposed to or anything like it. Although not put to Mr Grellman it was obvious that if he had not given the advice he said he gave, the notes he produced, as a contemporaneous summary must have been fabricated. I do not think that they were. There was nothing in Mr Grellman's demeanour or in the background circumstances suggesting that he was other than truthful. I accept his evidence. 22 The cross claimants swore affidavits that no advice was given. Both were cross-examined. Both admitted that they were asked to produce the deeds of their houses but neither would agree that she understood the legal consequences of the transactions entered into. 23 In the case of Beryl Davey, although denying in her affidavit that she received any advice, she admitted under cross-examination that it was possible that she received the advice asserted by Mr Grellman but that she did not remember it. I took the view that Beryl Davey was honest in her recollection when giving evidence in the witness box. 24 On the other hand, Gladys Crees maintained under cross-examination that she distinctly remembered that she had received no legal advice concerning the transactions she was entering into. She said she clearly remembered Mr Grellman doing nothing other than pointing to documents and saying, "sign here, sign here, sign here". She denied that the meeting took place over a period of 50 minutes and she denied that she had any understanding of the legal consequences of entering into the transaction. 25 In fact, Mrs Crees mortgaged her house on 13 March 2000 as security for an advance to her son Glen. She said in evidence and before being confronted with the mortgage that she had never given a guarantee or mortgage before in her life (except perhaps many years ago just after she was married). In answer to interrogatories she also denied that she had ever entered into any mortgage transaction. When confronted with this transaction she said she couldn't remember signing it and "you're getting me all confused". She said that she didn't mention it in her answers to interrogatories or when being asked questions earlier in her evidence because she didn't remember it. Later she said she did remember it but thought it was unnecessary to mention it. After further questioning she said the truth of the matter was she had forgotten all about it. She admitted that she was asked to hand over the deeds to her house but she did not understand that there was a risk that the house might be sold. It may be that Gladys Crees did not consciously intend to mislead the court and that the devastating prospect of losing her home caused her to recall past events through the prism of her own self interest or it may be that she has a poor memory. But however that may be I have no confidence that she accurately described what took place at the meeting with Mr Grellman. 26 I have already said that I treated both cross claimants as volunteers because at the time they received their advice they were neither shareholders, nor directors, of Mid West and Mr Grellman was unaware that it was proposed by their children that that should occur. 27 Accepting them as volunteers, and accepting Mr Grellman's advice concerning the advice given, I think that the only conclusion that I can reach is that I am not satisfied that Challenger engaged in any unconscionable conduct. 28 Mr Jungwirth did not concede that if I accepted the evidence of Mr Grellman and rejected the evidence of Beryl Davey and Gladys Crees, unconscionable conduct had not been made out. He submitted that Mr Grellman should have recommended them to go to another solicitor for confirmation that his advice was correct, that he should have made more inquiries as to who gave them the financial advice concerning the activities of Mid West and finally that he should have been "a little more proactive in gleaning from them by asking them whether they understood". 29 Mr Grellman was an independent legal adviser. He had had no dealings with Challenger, Mid West, Glen Crees or Lyn Davey beyond the indirect association arising from the borrowers solicitors referring the cross claimants to their city agent. I do not think it was any part of Mr Grellman's function to give them financial advice. As to the third, I would say no more than that the evidence that the women sat there passively derives from the evidence of the cross claimants, which is evidence that I have found unreliable. Mr Grellman said he had no independent recollection of any specific questions being asked but he was satisfied that both understood his advice. 30 In the light of my findings it is unnecessary for me to explore further submissions based on the assumption that no independent legal advice was given to Beryl Davey and Gladys Crees. 31 Mr Jungwirth submitted that Mr Maudsley should have been called to give evidence concerning the steps Challenger took to ensure that it was not taking unfair advantage of Beryl Davey and Gladys Crees. Challenger received documents indicating that both had received independent legal advice and both understood the nature of the transaction that they were entering into. In my opinion, no inference adverse to Challenger can arise by reason of its failure to call Mr Maudsley. 32 The relationship between Beryl Davey and Gladys Crees on the one hand and their children on the other did not give rise to a presumption in law of undue influence, but even if it did, both received independent legal advice and Challenger had no notice, actual or constructive, to the contrary. 33 In accordance with my findings I would not characterise the contracts entered into by Mrs Davey and Mrs Crees as being relevantly "unjust" within the meaning of the Contracts Review Act 1980 (NSW). A contract is not unjust simply because it is not, or might not be, in the parties financial interest to enter into it. If that were so, it would apply to almost all guarantees and mortgage transactions entered into by parents to facilitate loans to and advancement of their children. Further, in my opinion, no claim has been made out under s51AA of the Trade Practices Act 1974(Cth) 34 Accordingly, the orders I make are: (1) That the cross claims of Beryl May Davey and Gladys Mary Crees be dismissed. (2) Judgment for the plaintiff. (3) That the plaintiff is entitled to possession of the whole of the land contained in Certificate of Title Folio Identifier 31/16944, being the property situated at 3 Hardy Avenue Riverwood and the property being the whole of the land contained in Certificate of Title Folio Identifier 34/16944, being the whole of the property situated at 9 Hardy Avenue Riverwood. (4) That the Registrar issue writs of possession in respect of the said lands and the premises. (5) That the first and second defendant's pay the plaintiffs costs of the proceedings. ********** Last Modified: 06/12/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.