New South Wales Supreme Court CITATION : Steele-Smith & Ors v Liberty Financial Pty Ltd & Anor [2005] NSWSC 398 HEARING DATE(S) : 23 & 31 March, and 8 April, 2005 JUDGMENT DATE : 28 April 2005 JURISDICTION : Equity Division JUDGMENT OF : Palmer J DECISION : Judgment for Defendants on Statement of Claim; judgment for the Cross Claimants on the First Cross Claim; judgment for the Cross Claimant on the Second Cross Claim. CATCHWORDS : FRAUD - UNCONSCIONABLE CONDUCT - Allegations that mortgages procured by fraud and unconscionable conduct - no evidence to support allegations - no evidence of any loss. Bankruptcy Act 1996 (Cth) - s.116 LEGISLATION CITED : Contracts Review Act 1980 (NSW) - s.6(2) - Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 - Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 CASES CITED : - Mahlo v Westpac Banking Corporation Ltd [1999] NSWCA 358 - Octapon Pty Ltd v Esanda Finance Corporation Ltd - NSWSC 3 February 1989, Cole J. Doreen Steele-Smith - First Plaintiff/First Cross Defendant to 2nd Cross Claim Tony Steele - Second Plaintiff/Second Cross Defendant to 2nd Cross Claim Maxwell Developments Pty Ltd - Third Plaintiff/Third Cross Defendant to 2nd Cross Claim PARTIES : Liberty Financial Pty Ltd - First Defendant/First Cross Claimant to 1st Cross Claim Liberty Funding Pty Ltd - Second Defendant/Second Cross Claimant to 1st Cross Claim Vestecorp Financial Services Pty Ltd - Cross Defendant to 1st Cross Claim/Cross Claimant to 2nd Cross Claim FILE NUMBER(S) : SC 4778/04 Trevor Steele (litigant in person) appeared by leave, pursuant to Power of Attorney, for the First and Second Plaintiffs COUNSEL : J.W. Stevenson SC, R. Beasley - First and Second Defendants/First and Second Cross Claimants to 1st Cross Claim Ms K. Sainsbury - Cross Defendant to 1st Cross Claim/Cross Claimant to 2nd Cross Claim Dibbs Barker Gosling - First and Second Defendants/First and Second Cross Claimants to 1st Cross Claim SOLICITORS : Hunt & Hunt - Cross Defendant to 1st Cross Claim/Cross Claimant to 2nd Cross Claim LOWER COURT JURISDICTION : Introduction 1 Each of the Plaintiffs, Mrs Doreen Steele-Smith, Mr Tony Steele and Maxwell Developments Pty Ltd, has separately entered into a number of loan transactions with the Second Defendant, Liberty Funding Pty Ltd ("Liberty Funding") secured by a mortgage over real estate. 2 In very general terms, the Plaintiffs claim that the loan agreements and the mortgages were procured by fraud or unconscionable conduct or other wrongdoing and should be set aside. The thrust of the Plaintiffs' complaint is directed to alleged misconduct on the part of a Mr Peter Mahommed, a director of Vestecorp Financial Services Pty Ltd ("Vestecorp"). Vestecorp carries on business as a financial broker. The Plaintiffs say that Mr Mahommed was an employee of the Defendants and that they are answerable for his conduct. 3 The Plaintiffs have not joined Vestecorp as a defendant but it has become a party to the proceedings by way of a Cross Claim against it filed by the Defendants 4 I have been somewhat imprecise in outlining the case alleged by the Plaintiffs because its legal character is very difficult to discern from the document which is entitled "Statement of Claim". The Plaintiffs are not legally represented. Each of them has given a Power of Attorney in favour of Mrs Steele-Smith's son, Mr Trevor Steele, authorising him to prosecute these proceedings on the Plaintiffs' behalf. Mr Steele is not a lawyer. 5 In the course of case management directions hearings in this matter I explained to Mr Steele on several occasions the difficulties and dangers involved in presenting what is essentially a fraud case without legal assistance. I have informed Mr Steele that legal assistance is available on a pro bono basis. I think it a fair summary of Mr Steele's position to say that he remained at all times determined to have nothing whatsoever to do with lawyers and insisted that he would present the Plaintiffs' case himself. 6 I have endeavoured to afford to Mr Steele, on behalf of the Plaintiffs, such assistance as is proper to enable him to avoid the pitfalls of legal technicality and procedure while being careful not to deprive the other parties of their legal rights. As is often said, an unrepresented litigant is not to be given any advantage in court over a legally represented litigant. Identifying the Plaintiffs' claims 7 The first task is to identify the nature of the case alleged by the Plaintiffs. This is exceedingly difficult to do by a reading of the document entitled "Statement of Claim". The document does little else than assert that Mrs Steele-Smith and her son, Tony Steele, are pensioners, that all loan transactions between them and the Defendants were fraudulent, and that the Defendants had a duty to verify the Plaintiffs' ability to honour their borrowing commitments. 8 Documents appended to the Statement of Claim, in the form of letters signed by Mrs Steele-Smith, Mr Tony Steele and Mr Trevor Steele, assert, in broad terms, as follows: – at the relevant times of the transactions, Mrs Steele-Smith was in advanced stage of dementia and physically in poor health; – Mrs Steele-Smith was induced to borrow large sums of money by the Defendants' employee, Mr Peter Mahommed, by promises that the borrowed monies would be invested and that she would be financially secure for the reset of her life; – at the relevant times, Mrs Steele-Smith's sole source of income was a war veteran's pension; – Mr Tony Steele was, at the relevant times, suffering from a long-standing and severe intellectual disability as well as a severe physical disability; – Mr Tony Steele was induced to borrow money from the Defendants for the purpose of investing in "no risk" investments which would provide him with security for the rest of his life; – Mr Tony Steele had been on a disability pension for twenty years; – the monies which Mr Tony Steele borrowed from the Defendants were, in fact, kept by the Defendants; – Mr Tony Steele was compelled by the Defendants to sell the units which he owned at 1/151 Bowman Street, Swansea, and 2/2 Mankilli Street, Blacksmiths, both of which had been mortgaged to the Defendants. 9 As far as one can make out, the claims made on behalf of the Plaintiffs may be distilled into the following allegations: – the Defendants breached a duty which they owed to the Plaintiffs to "check and verify" the Plaintiffs' financial ability to honour the commitments which they had undertaken pursuant to the mortgages which they had given to the Defendants; – the Defendants, by their employee, Mr Peter Mahommed, induced the Plaintiffs to borrow funds from the Defendants on the false promise that the borrowed funds would be invested and would make the Plaintiffs financially secure; – the Defendants, by their employee, Mr Mahommed, unconscientiously took advantage of the intellectual and physical incapacities of Mrs Steele-Smith and Mr Tony Steele to induce them to enter into the mortgage transactions with the Defendants; – Mr Tony Steele has not received the benefit of any moneys lent to him. 10 The relief claimed by the Plaintiffs is to the following effect: – the mortgages given by each of the Plaintiffs to the Defendants should be set aside; – the mortgages should be declared void and other relief should be granted, under the Contracts Review Act 1980 (NSW); – the loan funds should be paid to the Plaintiffs unconditionally and without obligation to repay them; – the Defendants should pay to the Plaintiffs damages for stress, pain and suffering. The defence 11 Despite the difficulties in the formulation of the Statement of Claim, the Defendants have, in their Defence, discerned the essential facts alleged against them and have pleaded accordingly. The Defendants admit that: – Liberty Funding entered into four loan and mortgage transactions with Mrs Steele-Smith, two loan and mortgage transactions with Mr Tony Steele, and two mortgage and loan transactions with the Third Plaintiff, Maxwell Developments Pty Ltd ("Maxwell Developments"); – the application for each loan was submitted to Liberty Funding by Vestecorp. 12 The Defendants deny that: – Mr Mahommed was their employee; – they had any duty to check and verify the Plaintiffs' ability to honour their obligations under the loan transactions; – any of the Plaintiffs was induced to enter into any of the loans and mortgage transactions by fraud or unconscionable conduct; – any of the Plaintiffs has suffered loss by reason of the transactions. Cross Claims 13 By a First Cross Claim filed against Vestecorp, the Defendants allege, in summary that: – on 18 February 2002 Liberty Financial entered into an agreement with Vestecorp whereby Vestecorp was appointed as an independent contractor for the purpose of referring loan applications to Liberty Financial ("the Introducer Agreement"); – it was Vestecorp's duty under the Introducer Agreements to act in good faith and with due care, skill and diligence and to use its best endeavours to ensure that all information provided by it to Liberty Financial in connection with loan applications was accurate; – Vestecorp undertook, under the Introducer Agreement, not to engage in any misleading or deceptive conduct or to make any misrepresentations in relation to a loan application; – if Liberty Financial or Liberty Funding incurs any loss arising directly or in connection with a breach by Vestecorp of its obligations under the Introducer Agreement, Vestecorp is liable to indemnify in respect of such loss; – if any of the Plaintiffs' allegations against the Defendants are established whereby either of them suffers loss, Vestecorp is liable to indemnify for such loss. 14 Vestecorp denies that it is liable to indemnify the Defendants or either of them under the Introducer Agreement. 15 By a Second Cross Claim filed against the Plaintiffs, Vestecorp alleges that Vestecorp was the agent of the Plaintiffs in submitting the loan applications to Liberty Financial whereby, if Vestecorp is liable to either of the Defendants on the First Cross Claim, the Plaintiffs are liable to indemnify it. The absence of evidence from Mrs Steele-Smith The Plaintiffs called only three witnesses: – Dr Seth Manners, a general practitioner who has been the treating doctor of Mrs Steele-Smith and Mr Tony Steele for at least twenty years; – Mr Tony Steele; and – an accountant, Mr Allan McKeown. 16 Despite my informing Mr Trevor Steele on a number of occasions in the course of case management hearings that if Mrs Steele-Smith were not called there would be no evidence as to critical allegations in the case, Mr Trevor Steele continued to assert that he would not call her. It was made clear to Mr Trevor Steele that if Mrs Steele-Smith were to give evidence at all, a witness statement or affidavit by her would have to be served on the other parties. No such affidavit or witness statement was ever served. 17 At the commencement of the hearing, Mr Trevor Steele informed the Court that Mrs Steele-Smith was too ill to attend Court because "in the past two weeks she [had] been in and out of Belmont Hospital on five occasions" . He did not provide any doctor's certificate to this effect. 18 Dr Manners was asked if he knew anything of Mrs Steele-Smith's present medical condition. He gave this evidence: "A. I haven't seen her this week but I did last week and I understand that is correct. She has had several admissions or trips to the Belmont Hospital after falls which has caused an increase in her back pain but I have not personally examined her in the last week. So as to her presence here today, I can't really comment upon. Q. You are not able to say whether she is in a position to come to court or not? A. No." 19 In the light of this evidence and of the repeated assertions of Mr Trevor Steele for a considerable time before commencement of the trial that Mrs Steele-Smith would not be called to give evidence, I cannot be satisfied that Mrs Steele-Smith would have given evidence but for a very recent medical condition preventing her from doing so. 20 My inability to feel any degree of satisfaction that Mrs Steele-Smith's failure to give evidence has been adequately explained is highlighted by the fact that it must have been clear to Mr Trevor Steele for some time before the commencement of the trial that if Mrs Steele-Smith were to give evidence at all she would be confronted in cross examination by a body of evidence which starkly contradicted the allegations which had been made on her behalf. I will come to that evidence shortly. 21 The evidence of Mrs Steele-Smith is essential to the case which she seeks to make against the Defendants. Because of her failure to give evidence, she has adduced no admissible evidence of the following essential elements to her case: – what was said to her by Mr Mahommed in order to induce her to enter into the transactions; – whether she relied upon anything which Mr Mahommed said to her in entering into the transactions; – what loss she has suffered, if any, bearing in mind that all of the loans which both she and the other Plaintiffs received from the Defendants have been repaid in full. 22 In short, Mrs Steele-Smith has adduced no admissible evidence to rebut Mr Mahommed's evidence as to how the mortgage transactions came about and what he said to Mrs Steele-Smith prior to her entering into the transactions. 23 In the absence of Mrs Steele-Smith's evidence, the only way in which her case could possibly have succeeded – putting aside for the moment the issue of loss – would have been if the evidence of Dr Manners had proved that at the times of the relevant transactions Mrs Steele-Smith's physical or mental condition was such that she could not have assented to the transactions freely and with a sufficient degree of understanding. But the evidence of Dr Manners – which I accept without reservation as careful and impartial – was very far from establishing such a proposition. 24 I will return to Dr Manners' evidence shortly, in the course of the factual narrative. Findings of fact concerning Mrs Steele-Smith 25 The picture of Mrs Steele-Smith presented by Mr Trevor Steele was of a lady who, at the time of the relevant transactions, was elderly, frail, sick, dependent on a pension, unable to understand or deal with business transactions, and vulnerable to coercion. A considerable body of documentary evidence to the contrary was tendered by the Defendants. The evidence was produced by the process of issuing subpoenas to a variety of persons and institutions. None of this evidence was contradicted by the Plaintiffs. A considerable part of the evidence emerges from a Statement of Claim filed in proceedings 11540 of 2003 in the Common Law Division of this Court, in which Mrs Steele-Smith is the Plaintiff. The facts alleged in the Statement of Claim were verified by Mrs Steele-Smith in accordance with the Supreme Court Rules . 26 Having regard to the evidence tendered by the Defendants, I make the following findings of fact. 27 For a number of years prior to August 2001, Mrs Steele-Smith was the proprietor of four businesses which provided marketing and promotional services to an electricity utility, North Power, which later became Country Energy. 28 From May 1997 to August 2001, Mrs Steele-Smith was engaged by North Power to procure the design, manufacture and distribution of various goods promoting North Power. Between May 1997 and July 2001, Mrs Steele-Smith rendered invoices to North Power for goods and services provided by her businesses in a total amount of $5,085,076 and she received payments totalling $3,712,576. 29 From May 1997 until 28 March 2000, Mrs Steele-Smith was an undischarged bankrupt. How, in the face of s.116 of the Bankruptcy Act 1996 (Cth), Mrs Steele-Smith could have carried on a large business enterprise and received payments of about $3M directly into her own bank account while an undischarged bankrupt has not been explained. Nevertheless, banking records and invoices clearly show that this is what happened. 30 In August 2001, Country Energy, the successor in title to North Power, purported to terminate the services of Mrs Steele-Smith. Mrs Steele-Smith claimed that Country Energy was indebted to her for the balance of amounts invoiced to North Power, namely, $1, 372,500. On 24 June 2003, she commenced proceedings against Country Energy in the Common Law Division of this Court to recover the alleged debt, as I have earlier noted. 31 It is against this background that the evidence relating to Mrs Steele-Smith's capacity to enter into transactions with the Defendants must be seen. 32 A Memorandum of Transfer dated 27 February 2001 shows that Unit 1/151 Bowman Street, Swansea, was purchased in the name of Mr Tony Steele for $144,000. The evidence of Mr Tony Steele and Dr Manners makes it clear that Mr Tony Steele has for many years been incapable of working and has been receiving a disability benefit. Where the money to purchase this unit came from is not explained by the Plaintiffs. The Defendants suggest that the money came from the profits of Mrs Steele-Smith's business. It will be necessary to return to this point shortly. 33 On 22 January 2002, Mr Trevor Steele became registered as the proprietor of a business name, "Country Power Newspapers". 34 On 20 February 2002, Mrs Steele-Smith's husband of many years died. Dr Manners says, and I accept, that her husband's death caused Mrs Steele-Smith great emotional stress. 35 On 24 February 2002, Mrs Steele-Smith began receiving a war veteran's pension. 36 On 16 May 2002, Mrs Steele-Smith borrowed $23,000 from the Companion Credit Union of New South Wales. How this transaction came about and how the borrowed monies were used has not been explained by the Plaintiffs. 37 On 21 May 2002, Ms Denise Robinson, Mrs Steele-Smith's daughter, executed a Deed of Trust whereby she declared that she held one share in Maxwell Developments on trust for Mr Tony Steele. 38 On 6 June 2002, Mrs Steele-Smith borrowed $25,000 from the Commonwealth Bank of Australia. How this transaction came about and how the borrowed money was used has not been explained by the Plaintiffs. 39 There is no suggestion by the Plaintiffs that Mrs Steele-Smith's borrowings from the Companion Credit Union and the Commonwealth Bank had anything to do with Mr Mahommed and Vestecorp or that Mrs Steele-Smith was suffering from any mental or physical incapacity at the time of these borrowings. 40 Mr Mahommed's evidence is that, on 17 June 2002, Mr Trevor Steele rang him in response to an advertisement which Vestecorp had placed in the newspapers stating that private loan funds were available. Mr Trevor Steele said that he and his mother were starting up a new business and were enquiring as to the availability of loan funds. According to Mr Mahommed, later that day Mrs Steele-Smith rang him and said that she wanted to borrow $35,000 urgently for a new business and had real property available as security. 41 Mr Mahommed says that later that day he went to see Mrs Steele-Smith and Mr Trevor Steele at Mrs Steele-Smith's home at Caves Beach. Mrs Steele-Smith told him that she and her family had set up a new business called Country Power Newspapers and were in the process of obtaining a contract to supply marketing services to Country Energy. She said that she was going to organise the marketing and promotion of the business. 42 According to Mr Mahommed, Mrs Steele-Smith told him that her business had previously had a turnover in excess of $5M, that a contract had been terminated, and that she was arranging for a new contract in the name of her son, Trevor. She said that Trevor and Mr Tony Steele would operate the new business and that that was the reason that she needed a loan of $35,000. 43 Mr Mahommed says that he prepared the loan information based on information given to him at this meeting by Mrs Steele-Smith and Mr Trevor Steele. He returned to Mrs Steele-Smith's home the following day, met Mrs Steele-Smith and Mr Trevor Steele, went through the loan application with Mrs Steele-Smith and explained it to her before obtaining her signature to it. 44 It is of particular significance that, according to Mr Mahommed, Mr Trevor Steele was present and participated in the meetings which generated the first loan application. Although Mr Trevor Steele presented the case for the Plaintiffs on their behalf, he himself did not give any evidence during the trial. In particular, he did not deny Mr Mahommed's account of these meetings. Indeed, he did not even dispute Mr Mahommed's account of these meetings from the Bar Table. 45 Mr Mahommed says that shortly after this meeting, Mrs Steele-Smith requested him in a telephone conversation to arrange for the increase of the loan from $35,000 to $50,000. Mr Mahommed said that the lender would need a letter from Mrs Steele-Smith's accountant confirming that the borrowed funds were required for business purposes. Mrs Steele-Smith told him that her accountant was Mr Allan McKeown and that she would ring Mr McKeown to instruct to provide the necessary confirmation. 46 Mr McKeown was called by the Plaintiffs to give evidence. He said that he had met Mrs Steele-Smith socially on a number of occasions but had never acted for her as her accountant. He says, however, that in June 2002 Mrs Steele-Smith made an appointment to come to see him to discuss a business which she proposed to establish. At a meeting in his office she asked whether Mr McKeown's firm would act as her accountants and tax agents. Mr McKeown agreed. Mrs Steele-Smith explained what she had in mind and said that she would need working capital to buy various items of equipment and requested that Mr McKeown send a letter to Liberty Financial confirming that a loan was required for business purposes. In accordance with that request, Mr McKeown provided a letter to Mr Mahommed dated 1 July 2002. 47 On 4 July 2002, Mr Mahommed attended at Mrs Steele-Smith's home and procured her execution of the loan agreement and mortgage for a loan of $50,000 from Liberty Funding. 48 I accept the evidence of Mr Mahommed as to the circumstances in which the first loan to Mrs Steele-Smith was made and as to what was said by Mr Mahommed in the course of his discussions with Mrs Steele-Smith. It is corroborated by contemporaneous documents; to a certain extent, it is corroborated by Mr McKeown, particularly in regard to Mrs Steele-Smith's stated intention of borrowing funds to start a new business; there is no evidence to the contrary from Mrs Steele-Smith; Mr Trevor Steele, who could easily have given evidence denying that account of events if he had wished, did not do so. 49 According to Mr Mahommed, on 4 August 2002 Mrs Steele-Smith rang him and asked if he could arrange a loan of a further $40,000 for the business. On 5 August Mr Mahommed visited Mrs Steele-Smith at her home and she signed a loan application form. On 12 August 2002, Mrs Steele-Smith executed a loan agreement for a loan from Liberty Funding of $90,000, which was a consolidation of her previous loan of $50,000 with the additional loan of $40,000. 50 On 14 August 2002, Mrs Steele-Smith wrote a letter to Country Energy concerning the outstanding amount which she claimed Country Energy owed to her pursuant to her agreement with North Power. That letter is written in clear and businesslike terms. In the letter Mrs Steele-Smith states: "Further to our previous phone conversations regarding outstanding accounts payable for invoices submitted to North Power. I have finalised a schedule showing invoices and receipts/bank deposits for the term of my appointment with North Power. Due to the long term illness and recent death of my husband coupled with the three operations I have had to undertake during the past few years I was unable to address the issue of corroborating receipts and invoices in this matter any earlier. I am however, feeling much stronger these days and therefore have been able to attend to this matter therefore please find enclosed the following items …" 51 According to Mr Mahommed, on 28 August 2002 Mrs Steele-Smith rang him and told him that Mr Tony Steele needed to borrow $80,000 for working capital to assist in "the business". Mr Mahommed went to Mrs Steele-Smith's home at Caves Beach and spoke to Mrs Steele-Smith and Mr Tony Steele. He obtained the requisite information to make an application for the loan to Liberty Funding. I will return to deal in more detail with this meeting and with other meetings between Mr Tony Steele and Mr Mahommed. 52 On 29 August 2002, Mr Mahommed returned to Mrs Steele-Smith's home where he again met Mrs Steele-Smith and Mr Tony Steele. He obtained the signature of Mr Tony Steele to the completed loan application form. 53 On 4 September 2002 an account in the name of Mr Tony Steele was opened at the St George Bank. Mrs Steele-Smith and Mr Tony Steele were signatories to the account, each being entitled to operate the account independently of the other. 54 On 13 September 2002, Mr Mahommed obtained Mr Tony Steele's signature to the loan and mortgage documents. The loan was secured over the property at 1/151 Bowman Street, Swansea, which was registered in the name of Mr Tony Steele. 55 On 19 September 2002, settlement of the mortgage and loan to Mr Tony Steele occurred and the proceeds of the loan were received into Mr Tony Steele's account at St George Bank on the following day. 56 According to Mr Mahommed, on 21 November 2002 Mrs Steele-Smith rang him and told him that Mr Tony Steele wanted to increase his loan by $49,000 to $129,000. Mr Mahommed went to Mrs Steele-Smith's home on the following day, met Mr Tony Steele and obtained information for the loan application. Later that day he returned and obtained Mr Tony Steele's signature to the loan application. 57 On 5 December, Mr Tony Steele signed the mortgage and loan documentation and on the following day the loan funds were received into Mr Tony Steele's account at St George Bank. 58 According to Mr Mahommed, on 30 December 2002, Mrs Steele-Smith rang him and asked if he could arrange a further loan of $80,000 for use in her business, making a total of $170,000 borrowed by her from Liberty Funding. The loan documentation was signed on 31 January 2003 and the loan funds were received by Mrs Steele-Smith on 5 February 2003. 59 The loans made to Mr Tony Steele never went into default in the payment of interest. The property at 1/151 Bowman Street, Swansea, registered in the name of Mr Tony Steele, was sold in about February 2003 for $245,000, making a profit on the purchase and resale of about $100,000 gross over the space of approximately two years. On about 10 March 2003 the settlement of the sale of that property was effected and the mortgage to Liberty Funding was discharged out of the proceeds of sale. What happened to the balance of the proceeds of sale after the repayment of the mortgage loan has not been explained by the Plaintiffs. 60 On 4 June 2003, Mrs Steele-Smith commenced proceedings number 11540 of 2003 in the Common Law Division against Country Energy claiming unpaid commission of $1,372,500. According to Mr Mahommed, Mrs Steele-Smith was at this time conferring with solicitors and barristers in respect of these proceedings. Mr Mahommed was assisting her in this regard and in that capacity he attended some of these conferences. 61 According to Mr Mahommed, on 6 June 2003 Mrs Steele-Smith rang him and said that "the business" needed to arrange a loan for $50,000. She offered as security "another investment property" at Blacksmiths. That property was a home unit, 2/2 Mankilli Street, Blacksmiths, which had been purchased in the name of Maxwell Developments in June 2002 for a purchase price of $221,000. How the purchase price was provided has not been explained by the Plaintiffs. As Maxwell Developments was said to be a company beneficially owned by Mr Tony Steele, who has been on a disability pension for more than twenty years, the inference is open that the money for the purchase of this "investment property" was provided by Mrs Steele-Smith. 62 According to Mr Mahommed, Mr Tony Steele signed the application for the Maxwell Development loan on 6 June 2003. Soon after the meeting, Mr Mahommed says, Mr Tony Steele rang him and requested that the loan be increased to $70,000. As explained later, I have severe doubts that it was Mr Tony Steele who made this request. Mr Mahommed prepared a letter of request which Mr Tony Steele signed. 63 Mr Mahommed then telephoned the sole director of Maxwell Developments, Ms Denise Robinson, who is Mrs Steele-Smith's daughter. He obtained the information required for the loan application from Ms Robinson and forwarded the application to her for signature. 64 On 24 July 2004, Ms Robinson rang Mr Mahommed and requested that the loan to Maxwell Developments be increased to $225,000. Mortgage documentation was executed by Ms Robinson on 27 August 2003 and the further loan funds of $155,000 were advanced to Maxwell Developments on 3 September 2003. 65 On 1 October 2003 Maxwell Developments exchanged contracts for the sale of the Blacksmiths property for a price of $310,000, realising a gross of $89,000 on the resale of the property in about sixteen months. Settlement of the sale took place on 20 October 2003, and the mortgage to Liberty Funding was then discharged. 66 According to Mr Mahommed, on 27 October 2003 Mrs Steele-Smith rang him and requested that the loan to her from Liberty Funding be increased to $300,000. On 4 November 2003 Mr Mahommed met Mrs Steele-Smith and verified the information contained in a loan application which he had drawn up. She then signed the application. On 2 December 2003, Mrs Steele-Smith executed loan documentation and on 8 December 2003 the further loan of $130,000 was advanced, bringing the total indebtedness of Mrs Steele-Smith to Liberty Funding to $300,000. 67 On 8 August 2004, Mrs Steele-Smith defaulted in the payment of interest under the mortgage. On 24 November 2004 her home was sold at her own instigation and the loan was repaid in full out of the proceeds of sale. Dr Manners' evidence 68 I come now to Dr Manners' evidence as to Mrs Steele-Smith's medical and physical condition at the time of these transactions. 69 Dr Manners has been treating Mrs Steele-Smith as her general practitioner for more than twenty years. He describes her as having a chronic anxiety state, with depressed mood, a chronic back problem which required surgery in 2001, hypertension and gastro-oesophageal reflux disease. She has for many years been a heavy smoker. Her anxiety and depression were exacerbated by the death of her husband in 2002. In addition, she has for a long time been taking sleeping tablets, Temazepam or Normison, as well large quantities of the narcotic pain relieving medication, Endone. Indeed, such is her dependence on Endone that she is registered with the New South Wales Health Department as an Endone addict. Endone is a drug which is obtained upon prescription. 70 Dr Manners described Mrs Steele-Smith's addiction to Endone as not having much effect other than to contain pain and withdrawal symptoms, provided that the medication is taken as prescribed. However, if the tablets are saved up and taken in large quantities, the effect can seriously impair judgment. Dr Manners was not able to say whether Mrs Steele-Smith had in fact been taking excessive quantities of Endone at about the times of the relevant transactions with Liberty Funding. 71 Dr Manners had consultations with Mrs Steele-Smith on a number of occasions during 2002 and 2003. In early June 2002 Mrs Steele-Smith had pain in her left shoulder and in late June she had a respiratory tract infection. On 8 July 2002, when Mrs Steele-Smith signed the mortgage for the first loan from Liberty Funding, Dr Manners noted that she had been losing weight and was obviously grieving over the loss of her husband, who had died in February that year. 72 On 13 August 2002, Dr Manners noted that Mrs Steele-Smith was still losing weight but it should be recalled that on the following day Mrs Steele-Smith wrote to Country Energy that she was feeling much stronger: see paragraph 50 above. 73 From September 2002 to the end of that year, Dr Manners saw Mrs Steele-Smith on four occasions about proposed surgery on her shoulder and to write further prescriptions for Endone. 74 From January to the end of June 2003, Dr Manners had eight consultations with Mrs Steele-Smith, either to renew her prescription for Endone or Normison or in connection with her shoulder surgery. On 1 April 2003, Dr Manners noted that Mrs Steele-Smith seemed slightly confused and on 29 May he noted that she had gained weight but was feeling stressed about some Court cases. 75 Between 1 July 2003 and the end of that year, Dr Manners had eight further consultations with Mrs Steele-Smith. On 1 July Dr Manners noted that Mrs Steele-Smith was stressed and depressed due to pain in her shoulder and the effects of an operation. On 5 August he noted that she was distressed by Mr Tony Steele's behaviour. On 12 and 18 September Dr Manners saw her about a chest infection. On 25 September he noted that she was extremely distressed by an incident in which her daughter had been assaulted. 76 In October 2003 Dr Manners renewed Mrs Steele-Smith's prescriptions; in November he saw her about a chest infection. On 17 December, a little over two weeks after she had signed the loan agreement for the last loan made by Liberty Funding, Dr Manners noted that Mrs Steele-Smith had slurred speech but he could not tell whether this was the result of a temporary lack of blood flow to the brain or whether Mrs Steele-Smith had been taking excessive amounts of her medication. 77 Dr Manners had taken notes of all his consultations with Mrs Steele-Smith during the period during which the transactions with Liberty Funding occurred. He was in a very good position to assess her mental and physical condition at that time. His evidence was careful, considered and objective. I accept it as reliable. 78 It was Dr Manners' opinion that during 2002 and 2003 Mrs Steele-Smith had many periods when she was lucid and mentally alert, that she was not suffering from dementia, and that she would probably understand the nature of a loan secured by a mortgage. He generally described her physical and mental condition from July 2002 to December 2003 in these terms: "I think she suffered from clinical depression for much of that time, possibly had some episodes of confusion that may have related to excessive medication, the Endone and Normison." He said that the impairment of judgment produced by excessive use of medication would be episodic, not constant, in the same way as the effects of excessive consumption of alcohol on occasions is episodic. He agreed that if Mrs Steele-Smith was not suffering an episode of confusion from excessive consumption of medication it was "highly unlikely" that anyone dealing with her in relation to a transaction such as a loan would notice anything amiss: T42 l36. 79 Dr Manners also said that depression, on its own, would not impair Mrs Steele-Smith's judgment. 80 In the light of Dr Manners' evidence and bearing in mind that during the relevant period Mrs Steele-Smith seemed able to conduct correspondence with Country Energy, to instruct solicitors and barristers as to the prosecution of her claim, and was able to tell Mr McKeown about her intention to start a new business, I cannot be satisfied that at the times Mrs Steele-Smith entered into the loan transactions with Liberty Funding she was suffering from such a mental or physical incapacity as to be incapable of understanding the nature of the transactions and her obligations thereunder or of deciding freely for herself whether or not to enter into the transactions. Duty to "check and verify" 81 Mr Trevor Steele has submitted that Liberty Funding and Liberty Financial had a duty to "check and verify" that the Plaintiffs had the financial capacity or were otherwise able to meet their obligations under the loan transactions. 82 There is no evidence of facts which might give rise to such a duty of care under the general law, such as that Mrs Steele-Smith made it known to Liberty Funding or Liberty Financial that she was relying upon them to advise her in any way about the proposed transactions. 83 As a general principle, a financier is not under a duty to provide a borrower with commercial advice about the proposed loan: Mahlo v Westpac Banking Corporation Ltd [1999] NSWCA 358 per Sheller JA at para 48; Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256, at 276. 84 In the present case, the Plaintiffs were required to provide information about their financial position in loan applications, on the basis of which the Defendants would assess the risk of lending to them. The Defendants were in no special relationship with the Plaintiffs which imposed on the Defendants a duty to investigate whether the Plaintiffs were telling the truth about their financial position or whether the Plaintiffs, in fact, had the capacity to repay which they represented they had. Conclusions as to Mrs Steele-Smith's claim 85 There is no evidence that Mrs Steele-Smith was induced to enter into the loan transactions with Liberty Funding by misrepresentation, coercion, undue influence or other unconscionable conduct. 86 There is no evidence upon which the Court could conclude that Mrs Steele-Smith did not understand the nature of the transactions into which she was entering or was incapable, by physical or mental infirmity, of giving free and informed consent to the transactions. 87 There is no evidence that her mortgage transactions with Liberty Funding themselves caused loss to Mrs Steele-Smith: she undoubtedly received the loan monies from Liberty Funding, paid a commercial rate of interest, and repaid the loan monies out of the proceeds of sale of her house. If the investments she made with the loan monies resulted in loss, no legal consequences can attach thereby to the Defendants. 88 The loans sought by Mrs Steele-Smith were stated in her application to be for business purposes. She confirmed that purpose to Mr McKeown. There is no evidence that the proceeds of the loans were not applied for a business purpose, contrary to Mrs Steele-Smith's statements. Those circumstances take the loans out of the purview of the Contracts Review Act 1980 (NSW), even if some factual basis for relief under the Act had otherwise been made out: see s.6(2). Mr Tony Steele 89 During the course of the trial I was troubled by the evidence which began to emerge as to the circumstances in which Mr Tony Steele entered into the two loan transactions with Liberty Funding. 90 Dr Manners has treated Mr Tony Steele for more than twenty years and gave the following evidence as to his condition. Mr Tony Steele has had a long history of chronic paranoid schizophrenia. He was admitted to psychiatric hospital on eight occasions between 1970 and 1989. He has been diagnosed with poly-drug abuse and anti-social personality traits. He has been on long-term anti-psychotic medication and has also been intermittently on a methadone programme in order to assist him to cease drug abuse. His psychotic behaviour is controlled when he is taking his medication regularly but, if he does not, his behaviour becomes florid. 91 Physically, Mr Tony Steele suffers from gastro-oesophageal reflux. He suffered a fractured femur in a car accident in 1984. The fracture was pinned and plated but the plate has deformed, resulting in severe angulation in his leg. He refuses to have further surgery to rectify the problem. The result is that he walks with a pronounced limp, as was easily observable in Court. 92 In addition, Dr Manners is of the opinion that the Mr Tony Steele has a mild degree of intellectual disability. Further, apart from being able to sign his name and read one or two words, he is illiterate. He appears able to do very simple additions and subtractions but nothing more. 93 Dr Manners is of the view that it is very unlikely that Mr Tony Steele would be able to initiate a conversation about a business transaction or to describe what commercial objective he wished to achieve. He says that Mr Steele would not have any understanding of a business transaction. 94 Dr Manners describes Mr Tony Steele's manner of speaking as slow, stilted and repetitious. He says that when talking Mr Steele will seem confused at times, misunderstanding questions and repeating himself. He has a "very blunted affect" , i.e., he does not have an animated face and does not react in a normal emotional way with other people. In Dr Manners' opinion, a stranger meeting Mr Tony Steele and endeavouring to engage him in a conversation would soon notice that there was "something not quite right" . 95 Dr Manners says that Mr Tony Steele's condition has been the same over the last twenty years and certainly during the period now in question, 2002 and 2003. Mr Steele has not worked in all that time and has been in receipt of a disability pension. Dr Manners does not think that Mr Steele is capable of undertaking any work requiring any degree of mental alertness. 96 Again, I accept Dr Manners' evidence without qualification. It was of considerable assistance when I came to observe Mr Tony Steele giving evidence. 97 Mr Tony Steele quickly confirmed in the witness box all that Dr Manners says about his inability to understand and about the impression which he would make on a stranger. Mr Steele was unable to read the simplest sentence let alone a complex commercial document such as a loan application. He was often confused and rambling and seemed to have fixed ideas apparently unrelated to the subject matter of discussion, to which he kept returning. His behaviour was not florid as he clearly was on medication but after a short time it was impossible not to realise that Mr Steele is suffering from disabilities of a high order. 98 I have formed the strong view that it would be utterly impossible for Mr Tony Steele to have understood the nature of the transactions with Liberty Funding into which he was entering and that someone experienced in the finance industry, such as Mr Mahommed, would have recognised that fact unmistakeably within a minute or two of conversation with Mr Steele. 99 Yet Mr Mahommed gave evidence that he had a number of lengthy meetings with Mr Tony Steele in which Mr Steele gave him information about his financial position, provided him with other information for insertion in the loan applications, and appeared to read for himself and to understand the terms of the loan application and the various declarations therein appearing. Mr Mahommed said that he noticed nothing at all unusual about Mr Tony Steele's physical appearance or manner. He did not even remark that Mr Tony Steele walked with a limp. 100 I find Mr Mahommed's evidence as to his dealings with Mr Tony Steele to be incapable of belief. I am satisfied that Mr Steele is, and was at the time of these transactions, completely unable to initiate a business discussion, provide financial information, read the loan applications or any other document proffered to him by Mr Mahommed, or to understand any explanation of the transaction given to him by Mr Mahommed. 101 I find that Mr Mahommed did not tell the truth in his evidence about Mr Tony Steele. My assessment of Mr Mahommed's credit is supported by my conclusion that he deliberately made false entries in the loan applications for the loans to Mr Tony Steele as to the value of Mr Steele's assets, namely, the value of his motor vehicle, the amount in his bank account and the value of his household property. Mr Mahommed conceded that he had not been given the figures for the values of these items of property which he inserted in the first loan application for Mr Tony Steele. His explanation was that when inserting the figures for these items in the loan application he must have made a mistake and "hit the wrong button" . 102 That explanation might be plausible for one item but not for three separate items. Further, the "mistake" did not occur in just one loan application but the wrong figures were actually increased in a subsequent loan application. Mr Mahommed could not give any satisfactory explanation as to how this happened. Despite Mr Mahommed's denials, I am satisfied that he was "improving" the figures in Mr Tony Steele's loan application for the purpose of making the application look more attractive to the prospective lender. 103 In summary, I find that when Mr Tony Steele executed the loan documentation for the loans from Liberty Funding he did not understand the nature and quality of his acts. However, while Mr Mahommed must have been aware of that fact, there is no evidence that Liberty Funding or Liberty Financial was aware of it nor is there any evidence of anything known to either of them which should have put them on enquiry. 104 The Plaintiffs say that Mr Mahommed was the employee or agent of Liberty Funding or Liberty Financial but this is clearly incorrect. The Introducer Agreement between Vestecorp and Liberty Financial makes it plain that Vestecorp was an independent contractor, not an employee or agent. The fact that a finance broker approaches a finance company for a loan to a client of the broker and assists in the execution of loan documentation, as occurred in the present case, does not in itself make the finance broker the agent of the finance company, let alone an employee: see e.g. Octapon Pty Ltd v Esanda Finance Corporation Ltd (NSWSC 3 February 1989, Cole J., p.28); see also Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226, at 234. 105 The finding that Mr Tony Steele did not understand and assent to the nature of the transactions with Liberty Funding into which he was entering means that if Liberty Funding had sought to enforce the loan agreement and mortgage against him at law he would have had a defence of non est factum. However, no enforcement of the transaction was ever necessary. Conclusion as to Mr Tony Steele's claim 106 As I have noted, Mr Tony Steele's loan with Liberty Funding never went into default in the payment of interest. The loan and mortgage were discharged in full when the property in Bowman Street, Swansea, was sold in about February 2003 at a considerable profit. There is no suggestion that the sale was forced by Liberty Funding. 107 There is no doubt that the loan monies advanced to Mr Tony Steele were paid into his St George Bank account. Many withdrawals from that account were subsequently made by Mrs Steele-Smith. Where the money went and how it was used has not been explained by the Plaintiffs. It is inconceivable that Mr Tony Steele himself made any rational decision as to the use of the bulk of the loan money, although he may have withdrawn comparatively small amounts for his own purposes. 108 Precisely how and why Mr Tony Steele came to enter into the loan transactions has not been explained by Mrs Steele-Smith or by Mr Trevor Steele. However, very revealing evidence in that regard was given by Mr Tony Steele. 109 On a number of occasions in his evidence Mr Tony Steele said that he did not know what he was signing at the meetings with Mr Mahommed but he was told by Mrs Steele-Smith and by Mr Trevor Steele to sign the documents and that he was going to get some money. He was not sure whether Mr Mahommed was present when Mrs Steele-Smith and Mr Trevor Steele told him to sign but he signed the documents because they told him to sign. 110 I accept this evidence. It is inherently probable that Mr Tony Steele would rely implicitly on his mother and his brother in anything to do with financial matters rather than on a total stranger, such as Mr Mahommed. Mr Trevor Steele could easily have given evidence denying what his brother had said in this regard; he gave no such evidence. I conclude that Mr Tony Steele did not enter into the loan transactions with Liberty Funding in reliance upon, or as a result of, anything said or done by Mr Mahommed but rather because his mother and his brother told him to do so. 111 Further, if the loan transactions in Mr Tony Steele's name resulted in any loss, I am not satisfied that it was Mr Tony Steele who suffered that loss. As the Defendants submit, all of the circumstances give rise to a strong inference that the money which went to purchase the unit at Bowman Street, Swansea came from Mrs Steele-Smith herself, that she was always in control of what happened to the property, and that she instigated the loan secured on that property to obtain money for her own purposes. The absence of Mrs Steele-Smith's evidence leaves the inference wide open. 112 As I have said, there is no evidence from the Plaintiffs to explain what happened to the proceeds of the loan to Mr Tony Steele after they were deposited in his St George Bank account. So far as the evidence reveals, all that has happened is that Mr Tony Steele has borrowed a total of $129,000, paid a commercial rate of interest, and has repaid the money to the lender. If the original loan proceeds were lost by imprudent investment, there is no evidence to suggest that that is the fault of the Defendants. 113 As I have noted, Mr Tony Steele would have had a defence of non est factum if Liberty Funding had sought to enforce the loan agreement and the mortgage against him while the loan moneys were still outstanding. Even then, restitutionary principles would have prevented Mr Steele from simply keeping the loan monies with no obligation to repay or to pay interest thereon. These issues do not arise, however, because the loan has already been repaid in full. Even if, contrary to my finding, the Defendants had been guilty of some wrongdoing in procuring Mr Tony Steele to enter into the loan transaction, the Court could not now make orders compelling Liberty Funding to pay Mr Tony Steele the amount of the loan free of any obligation to repay it, as Mr Trevor Steele asks. 114 For all of these reasons, no basis for any relief in favour of Mr Tony Steele has been made out. Maxwell Developments 115 There is no evidence whatsoever of any wrongdoing on the part of the Defendants in the circumstances which brought about the Maxwell Developments loan and mortgage. Instructions for seeking the loan were given to Mr Mahommed by Ms Robinson but Ms Robinson has not given any evidence at all. There is no other evidence of wrongdoing on the part of the Defendants. 116 Further, there is no evidence of any loss suffered by Maxwell Developments as a result of the loan transaction. The loan never went into default and the mortgaged property was sold by Maxwell Developments at a profit. 117 No basis for any relief in favour of Maxwell Developments has been made out. Cross Claim against Vestecorp 118 As no liability of the Defendants to the Plaintiffs has been found, it is necessary to consider only that part of the Defendants' First Cross Claim which seeks indemnity against Vestecorp for the costs of these proceedings. 119 Clause 9.1 of the Introducer Agreement provides that if either Liberty Funding or Liberty Financial: "… suffers, incurs or pays any loss or liability, expenses, damages, and costs (including legal costs on a solicitor and own client basis) sustained or incurred, arising directly or in connection with: … b) any breach by the other party ("Indemnifying Party") of this agreement; … ("the Loss") then the Indemnifying Party will pay to the Indemnified Party an amount equal to the Loss." 120 The Defendants submit that if it is found that Mr Mahommed was aware that Mr Tony Steele did not understand the nature of the loan agreements, then Vestecorp was in breach of Clause 3.1(d) of the Introducer Agreement. That Clause contains an obligation on the part of Vestecorp to: "… ensure you and your Representatives act at all times in good faith and with all due care, skill and diligence;…" 121 For the reasons which I have given above, I have found that Mr Mahommed must have known that Mr Tony Steele could not understand the nature of the loan transactions into which his mother and his brother were inducing him to enter. It follows that to submit Mr Tony Steele's loan applications to Liberty Funding was a breach by Vestecorp of its obligations under Clause 3.1(d) of the Introducer Agreement. If those loan applications had not been submitted to Liberty Funding, neither it nor Liberty Financial would have been involved in any loan transaction with Mr Tony Steele and would not have incurred the costs relating to Mr Tony Steele's claims in these proceedings. 122 I find that the costs and expenses of Liberty Funding and Liberty Financial in relation to Mr Tony Steele's claim in these proceedings arise directly from Vestecorp's breach of clause 3.1(d). Accordingly, they fall within the provisions of Clause 9.1 of the Introducer Agreement and must be indemnified by Vestecorp. Vestecorp's Cross Claim 123 By a Second Cross Claim, Vestecorp says that if, in making the loan applications on behalf of the Plaintiffs, it was the Plaintiffs' agent, then any liability which it may have to the Defendants was incurred within the terms of the agency relationship and must be indemnified by the Plaintiffs. 124 I cannot find that Vestecorp was acting as the agent of Mr Tony Steele in making the loan application in his behalf: Mr Tony Steele was, to Mr Mahommed's knowledge, incapable of giving instructions as a principal. The instructions to make the loan applications in Mr Tony Steele's name came from Mrs Steele-Smith, who knew that Mr Tony Steele was incapable of entering into the transactions. The inference is clear that, nevertheless, she induced Mr Mahommed to procure the loan applications to be made in Mr Tony Steele's name in order that she herself could have access to the resulting proceeds of the loans. 125 Accordingly, in relation to the loans to Mr Tony Steele, Vestecorp was, in truth, acting as the agent of Mrs Steele-Smith and in lodging the loan applications with Liberty Funding in breach of Clause 3.1(d) of the Introducer Agreement, it was acting within the scope of its authority from Mrs Steele-Smith. Vestecorp is, therefore, entitled to be indemnified by Mrs Steele-Smith in respect of its resulting liability to Liberty Funding and Liberty Financial under the First Cross Claim. Orders 126 The orders of the Court are: a) judgment for the Defendants on the Plaintiffs' Statement of Claim; b) judgment for the Claimants on the First Cross Claim in an amount equal to the costs and expenses incurred by the Cross Claimants in relation to the claim made by Mr Tony Steele in these proceedings; c) the First Cross Claim is otherwise dismissed; d) judgment for the Cross Claimant on the Second Cross Claim against Mrs Steele-Smith in an amount equal to the Second Cross Claimant's liability to the First Cross Claimants on the First Cross Claim; e) the Second Cross Claim is otherwise dismissed. Costs 127 To some extent the orders on the Cross Claims reflect a just and appropriate result in respect of the costs of the claim made on Mr Tony Steele's behalf – a claim which ought never to have been brought. 128 I will hear argument as to the appropriate orders in respect of the remainder of the costs incurred by the Defendants and Vestecorp. – oOo – 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.