Supreme Court New South Wales Medium Neutral Citation: RHG Mortgage Corporation Ltd v Ianni [2015] NSWSC 1911 Hearing dates: On the papers Date of orders: 16 December 2015 Decision date: 16 December 2015 Jurisdiction: Common Law Before: Davies J Decision: (1) Verdict and judgment for the Defendants on the Plaintiff's claim. (2) An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that the loan agreement dated 11 October 2005 between the Iannis and RHG be set aside. (3) An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that registered mortgage number AB858561T be set aside. (4) An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that RHG deliver up to the Iannis' Solicitors a duly executed discharge of registered mortgage number AB858561T, ("the discharge of mortgage") and the Certificate of Title for 159 Thompson Street Drummoyne, Folio 30/4514 within seven (7) days of the date of these Orders. (5) The Plaintiff is to pay the Iannis' costs. Catchwords: REAL PROPERTY – possession of land – mortgages – default – Contracts Review Act – parents of borrowers gave guarantee and mortgage – transfer of banks by borrowers – parents become borrowers and mortgagors – whether parents knew of change of status – whether contract unjust APPEAL – earlier judgment successfully appealed against – wrong admission of evidence – error with regard to Jones v Dunkel inference – effect of errors on credibility findings – matter remitted for re-trial EVIDENCE – whether exclusion of wrongly admitted evidence affected credibility findings – whether Jones v Dunkel inference should be drawn – whether other evidence equivocal – no change to credibility findings Legislation Cited: Contracts Review Act 1980 (NSW) Supreme Court Act 1970 (NSW) Cases Cited: Baira v RHG Mortgage Corporation Limited [2012] NSWCA 387 Manly Council v Byrne [2004] NSWCA 123 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 Perpetual Trustees Victoria v Longobardi [2009] NSWSC 654 RHG Mortgage Corporation Ltd v Baira; RHG Mortgage Corporation Ltd v Ianni [2014] NSWSC 849 RHG Mortgage Corporation Ltd v Ianni [2011] NSWSC 520 RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56 Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 Tobin v Ezekiel [2012] NSWCA 285; (2012) 83 NSWLR 757 Category: Principal judgment Parties: RHG Mortgage Corporation Ltd (Plaintiff/First Cross-Defendant) Rosario Ianni (First Defendant/Cross-Claimant) Domenica Ianni (Second Defendant/Cross-Claimant) Australian Mortgage & Business Finance Solutions Pty Ltd (Second Cross-Defendant) Representation: Counsel: M Ashhurst SC & M Newton (Plaintiff) J Kelly SC (Defendants Rosario and Domenica Ianni) Unrepresented (Australian Mortgage & Business Finance Solutions Pty Ltd) Solicitors: Kemp Strang (Plaintiff) Uther Webster & Evans (Rosario and Domenica Ianni) Unrepresented (Australian Mortgage & Business Finance Solutions Pty Ltd) File Number(s): 2008/284857 Judgment 1. On 1 July 2014 I gave judgment in these proceedings: RHG Mortgage Corporation Ltd v Baira; RHG Mortgage Corporation Ltd v Ianni [2014] NSWSC 849 ("my first judgment"). That judgment was given in respect of a second trial between the present parties including the claim by the Plaintiff against Mrs Baira. The first trial was heard by Grove AJ who gave judgment on 3 June 2011: RHG Mortgage Corporation Ltd v Ianni [2011] NSWSC 520. 2. The mortgagors appealed. The Court of Appeal upheld the appeal and remitted the matters to the Common Law Division for re-trial: Baira v RHG Mortgage Corporation Limited [2012] NSWCA 387. I heard the re-trial. In my first judgment I found relevantly that the loan agreement and the mortgage were unjust at [373] and that the Plaintiff engaged in unconscionable conduct towards the Defendants at [381]. 3. Orders were subsequently made in these terms: 4. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that the loan agreement dated 11 October 2005 between the Iannis and RHG be set aside. 5. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that registered mortgage number AB858561T be set aside. 6. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that RHG deliver up to the Iannis' Solicitors a duly executed discharge of registered mortgage number AB858561T, ("the discharge of mortgage") and the Certificate of Title for 159 Thompson Street Drummoyne, Folio 30/4514 within seven (7) days of the date of these Orders. 1. The Plaintiff appealed against my first judgment on 18 March 2015. The Court of Appeal relevantly made these orders (RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56): (3) Set aside the judgment of Justice Davies given on 1 July 2014 insofar as it concerns the Iannis. (4) Order that there be a retrial of the proceedings between RHG and the Iannis on the following conditions: (a) That the evidence at the trial be the evidence in the new trial without any further examination or cross examination of witnesses or the tender of any further documentary evidence; (b) That the trial judge shall proceed to determine the matter without reference to the evidence of Joe Ianni and, subject to 4(c) and (d), upon such limited further written or oral submissions as the trial judge may direct; (c) That the parties be given the opportunity to make submissions to the trial judge as to how his Honour's reliance on the evidence of Joe Ianni should affect the conclusions his Honour previously reached; and (d) That the parties be given the opportunity to make submissions to the trial judge as to whether his Honour should draw any Jones v Dunkel inferences consequent upon the Iannis failure to call Joe Ianni. 1. I subsequently directed that the further trial was to be conducted on the basis of written submissions only by the parties. That order resulted from an inability of the parties to be able to agree on dates for oral submissions within a time that I considered to be reasonable from 18 March 2015. 2. The Court of Appeal held that I made two errors in my first judgment. The first such error justified the ordering of a new trial. That error was a consideration of the evidence that included the evidence given by Joe Ianni at the first trial before Grove AJ. The parties' agreed position was that the only evidence from the first trial which would be admissible was of witnesses cross-examined or available to be cross-examined at the second trial. Joe Ianni was not called as a witness at the second trial. 3. The second error was my conclusion that the conditions for the operation of a Jones v Dunkel inference in relation to the absence of Joe Ianni from the second trial had not been established. The Court of Appeal did not hold, however, that a Jones v Dunkel inference ought to have been drawn from Joe Ianni's absence at the trial. The Court of Appeal made reference to Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [78]-[79] where it was said that "Generally speaking … [such an inference] only become[s] material where the balance of the evidentiary record is equivocal": The Court of Appeal said that it would be a matter for me to determine on which side of the line the evidence that Joe Ianni might have given falls. 4. The Court of Appeal also said at [98]: In this case the scope of the reopening will be finally determined by the primary judge to the extent to which it may be affected by the requirement that his Honour reconsider his reasons without having regard to Joe's evidence, any Jones v Dunkel inference he may draw and any related issues. 1. The terms of the Court of Appeal's order provide a relatively narrow focus for the re-trial. No further evidence is to be led, I am to determine the matter without regard to Joe's evidence, and the parties are to make submissions on (1) how my reliance on Joe's evidence should affect the conclusions I reached, and (2) whether I should draw a Jones v Dunkel inference from the failure by the Iannis to call Joe. The parties' submissions have gone beyond those two matters. I have taken all of those submissions into account. In the light of those two matters I have considered afresh whether or not reliance by the Defendant on the Contracts Review Act and unconscionability has been made out. However, where possible I have done that by referring to findings in my first judgment. It will be necessary for this judgment to be read in conjunction with my first judgment. 2. It is first necessary to identify those parts of my first judgment where I made reference to evidence given by Joe Ianni at the first trial or where reference was made to beliefs held by Rosario and Domenica as a result of what Joe had told them. 3. The paragraphs where I have made express reference to evidence given by Joe before Grove AJ are paragraphs [132] – [135], [196] – [197], [204] and [277]. In addition, references are made to the beliefs held by Rosario and Domenica from what they had been told by Joe at paragraphs [138], [184], [188], [191] and [369]. The significant difference between those latter paragraphs and the earlier-mentioned paragraphs is that evidence had also been given by Rosario about the beliefs that he held from what Joe had told him. Putting out of consideration the evidence given by Joe at the first trial would not necessarily lead to different conclusions in relation to those latter- mentioned paragraphs. I will return to those in due course. 4. My acceptance of the evidence given by Joe at the first trial influenced my findings on the following matters: (a) Rosario never met Mr Famularo (paragraph [196]); (b) Joe first met Mr Famularo in July 2005 (paragraph [204]); (c) Rosario believed that he was going to see Mr Wennerbom to sign documents granting a new guarantee for Joe and Sandra's borrowings that were being changed from St George Bank to RAMS (paragraph [277]). 1. Although Joe gave evidence that Mr Wennerbom did not explain documents to his parents I did not accept that evidence. I found that Mr Wennerbom was an honest witness and I accepted that he provided an explanation along the lines of what he recounted (at [143]). Further, I did not accept Joe's evidence that he told his father in 2005 that his father's guarantee "for $100,000" was required for the change of banks. Nor did I accept Rosario's evidence to that effect, nor Rosario's evidence that his guarantee was always limited to $100,000. What I found in that regard was this at [131]: I am satisfied from the foregoing that, by the time Rosario was asked by Joe to agree to change from St George Bank to RAMS, Rosario knew that he had given a guarantee for Joe and Sandra's borrowing, that he and Domenica had given a mortgage over their property as security for what he had guaranteed and that if Joe and Sandra did not pay what St George asked them to pay Rosario and Domenica would be responsible to pay it up to the full value of the Drummoyne property. 1. Much of the Plaintiff's approach, apparently in the Court of Appeal, but also in its present submissions to me, assumed that any conclusion I formed about the belief of the Iannis being informed by Joe meant that I had come to that view because I accepted Joe's evidence and did so impermissibly. I note in that regard the Court of Appeal's finding at [53] that my acceptance of Joe's evidence was clearly critical to my acceptance of Rosario's evidence. I accept that it was impermissible for me to accept Joe's evidence but Rosario also gave evidence of what Joe had informed him. As indicated in the previous paragraph I did not accept all of that evidence, whether from Joe or from Rosario. 2. Further, when the Court of Appeal referred to acceptance of Joe's evidence being "critical" to my acceptance of Rosario's unreliable evidence, they cannot have been using the term to mean essential in contradistinction to important or significant, because, if they had meant essential, the matter would not have been remitted to me for reassessment. If they had meant essential, the Court of Appeal could have themselves determined that matter by reason of s 75A of the Supreme Court Act 1970 (NSW). 3. Evidence given by Joe at the first trial, on which I should not have relied, provided some corroboration of the evidence given by Rosario at the second trial. The question now for determination is whether, absent Joe's evidence, my conclusions as to the Iannis' understanding and their involvement in the transaction can stand or, if they cannot, what conclusions I should reach.. 4. The Plaintiff submitted that the critical issue on the retrial was whether Mr and Mrs Ianni understood the true nature of the loan agreement they executed with Mr Wedderbom. I accept that this is the first critical issue. If it is found that they did not understand the true nature of the loan agreement a second issue which is likely to be critical is the knowledge or means of knowledge of the Plaintiff about the transaction and the information the Plaintiff had at its disposal. 5. There seem to me to be two aspects to the first critical issue. First, did the Iannis know the true nature of the loan agreement before they saw Mr Wedderbom? If they did, that could either be because of what Joe had told them or because they were, with Joe, the initiators of the arrangement. Secondly, if they did not know the true arrangement before they saw Mr Wedderbom, did they know it as a result of what he explained to them? 6. The Plaintiff submitted that Rosario gave untruthful and dishonest evidence and said, in reliance on Tobin v Ezekiel [2012] NSWCA 285; (2012) 83 NSWLR 757, that this required the Court to consider why he was lying about particular matters. The Plaintiff said that the answer to the question was that Rosario did not want to reveal his true knowledge of the transaction that he was seeking to impugn. 7. I made a number of findings critical of Rosario's evidence. I found that it was unreliable and needed to be scrutinised with care (paragraphs [121] and [125]). Nevertheless, what I did accept of Rosario's evidence was informed by a number of matters of which Joe's evidence was only one. I noted at [183] that, although I found that Rosario and (also Mrs Baira for that matter) were unreliable, I could not and did not conclude that none of their evidence was to be relied upon. 8. What Meagher JA said in Tobin v Ezekiel at [60] was that the fact of a lie "may indicate a consciousness" that the truth would not assist the liar's case. The present case was one, like others that one encounters, where a person unnecessarily attempts to paint a rosier picture than was the reality and tells lies to do so. Rosario probably did not tell the truth about going to see Mr Wedderbom to swap banks in respect of a guarantee limited to $100,000. He probably did so because he did not want to lose his house and thought that if he was believed in telling that lie he would not lose his house. That lie, however, does not necessarily result in the conclusion, as the Plaintiff would have it, that Rosario knew the whole of the reality, that is, that he and Domenica were to become principal borrowers. It is necessary to consider all of the relevant evidence to see if that conclusion inevitably flows. 9. The finding at [184] of my first judgment of being comfortably satisfied that both Rosario (and Mrs Baira) did not understand the detail of the financial arrangements that existed between Joe, Sandra and Jencon on the one hand and St George Bank on the other and the extent of the borrowings or what was being planned and organised by Joe and Mr Famularo finds support elsewhere in the evidence. That support comes from a number of matters, the principal ones being (a) the history of the borrowing by Joe and his interests up to and including the application for the RHG loan, (b) evidence concerning Mr Famularo, (c) matters concerned with Mrs Baira, and (d) what transpired with Mr Wennerbom. (a) History of lending 1. This was the material set out in my first judgment at [18] to [96]. I note from the parties' submissions that there is no dispute about what is set out in paragraphs [18] to [79]. No comment was made with regard to [80] to [96], presumably because they concerned Mrs Baira. 2. This material was significant because it showed that Joe was not only the moving party behind the loan applications to the Plaintiff but that he was prepared to put forward false information and material concerning both his parents and Mrs Baira. Despite the Plaintiff's persistence with the submission that Rosario and Domenica had an interest in the outcome of the loans because they were acquiring some interest in the Wildthorn Avenue property at Dural, there was no evidence to suggest that that was true except in Mr Famularo's filenote. The evidence disclosed that Joe was using his parents to re-organise his and his company's finances. His parents were willing to assist to the extent of providing a guarantee and mortgage over their home at Drummoyne, but the falsity of the information provided to the Plaintiff was significant evidence that Rosario and Domenica were not told the truth by Joe about what was being arranged. 3. The false information included the stated occupations and earnings of the Iannis, their assets, their passport details and the fraudulently altered front page of the contract to purchase Wildthorn Avenue. In addition, there was the misleading Snapshot of Account. I accept that it is possible that Rosario and Domenica could have conspired with Joe in this way to enable Joe to restructure the loans in the way that ultimately occurred but I do not think it is probable. That is really the issue to be decided. 4. Amongst this material the following matters point strongly against a conclusion that the Iannis knew the true position. First, all the contact details on the applications related to Joe. Secondly, Deborah Brown of Phillips Fox was never the Iannis' solicitor. Thirdly, if the Iannis were involved , why would they provide false passport details? They both had current passports. Fourthly, as noted earlier, the Iannis never intended to buy any interest in Wildthorn Avenue – it was Joe and Sandra who had entered the true contract for that property. As mentioned, there was simply no evidence of such an arrangement except for Mr Famularo's filenote. An equitable interest is not evidenced by a contract with the vendor showing part of the purchase price, let alone a contract document that had demonstrably been altered without proof of the vendors' involvement. I rejected Mr Famularo's evidence and accepted Dante Fiovaranti's evidence (at [235]-[236]) that there was no conversation that part of the accommodation at Wildthorn Avenue was for Rosario and Domenica. Nothing has been put forward to make me change that assessment. It was the Plaintiff that asserted this arrangement of the purchase of an equitable interest by the Iannis, yet singularly failed to prove it. (b) Mr Famularo 1. A significant matter pointing to the limited knowledge that Rosario had about the transaction with the Plaintiff was the question of whether or not he met with Mr Famularo. The Plaintiff placed significance on Mr Famularo's evidence and on his diary note of the meeting with Rosario and Domenica to show that Rosario not only had knowledge and understanding about the proposed transaction but was, to some extent, the person providing Mr Famularo with the information necessary to organise the loan with the Plaintiff. 2. In the Court of Appeal Mr Ashhurst of Senior Counsel for the Plaintiff submitted that I would not have reached my conclusion about Mr Famularo's evidence at [199] if I had not relied impermissibly on Joe's evidence. The Court of Appeal said it was not necessary to reach a concluded view on that matter but it was sufficient to note that it was an available argument which the Plaintiff did not have the opportunity to address at the trial because the Plaintiff proceeded on the understanding common to the parties that Joe's evidence would not inform my fact-finding exercise – see the Court of Appeal's judgment at [61]. 3. The Plaintiff, in substance, made two submissions in relation to Mr Famularo's evidence. First, the finding that Mr Famularo was not a truthful nor reliable witness does not of itself determine that there was no meeting involving the Iannis. Mr Famularo had a diary note of the meeting that tends to corroborate his evidence that there was such a meeting. Further, I had also found that Mr Ianni was at times not truthful and that he was not reliable. Secondly, the only other person who could give evidence in relation to the meeting was Joe and he was not called. Therefore, a Jones v Dunkel inference should be drawn adversely to the Iannis' case from that failure. 4. A fair reading of my judgment and that part of it which discussed Mr Famularo makes clear that my assessment of Mr Famularo's evidence was not based in any way on Joe's evidence although I noted in passing at [204] that Joe's evidence was that he had met Mr Famularo from July 2005. That statement added nothing to the other evidence I considered when looking at the question of when Mr Famularo first met Joe. Although his evidence at the trial before me was to the effect that he first met Joe and his parents on 14 September 2005 he had in fact met with Joe on two or three occasions prior to that time as he (Mr Famularo) had acknowledged in his evidence before Grove AJ (see my first judgment at [204]). 5. Nothing in the Court of Appeal's judgment, contrary to the Plaintiff's submission, points to Mr Famularo's file note as being a genuine and contemporaneous record of the meeting between him, the Iannis and Joe. I discussed in detail (at [208] to [220] and [269] to [275]) my reasons for holding that there was no meeting with the Iannis and that the file note was a fabrication. Whilst the generally untruthful and unreliable evidence of Mr Famularo ([202] to [207] and [221] to [268]) helped inform my determination that no meeting occurred and that the diary note was fabricated, it was the matters discussed at [208] to [220] and [269] to [275] that brought me to that view. 6. For the reasons set out in those paragraphs of my first judgment, I have no doubt that there was no meeting between Mr Famularo and Rosario as Mr Famularo alleged. That was a significant matter because it provided support for Rosario in respect of a critical matter. It tended to corroborate Rosario's evidence that he was provided with minimal information by Joe, and that he went along to the meeting with Mr Wennerbom not understanding that he was to become a principal borrower in a way that would enable Joe, Sandra and Jencon to reduce their borrowings thereby. It also tended to highlight how Joe was using his parents (and Mrs Baira, for that matter) to obtain the loans from the Plaintiff by putting forward any evidence, whether true or not, that he thought would bring about that result. That conclusion comes not from any evidence of Joe's but by inference from what was put forward by him to the Plaintiff through Mr Famularo when compared to what was objectively true. 7. The further submissions made now by the Plaintiff in an attempt to restore Mr Famularo's credibility, particularly at paragraph 37 of the Plaintiff's written submissions, are simply a variation of submissions made at the conclusion of the trial and which I rejected in my assessment of the evidence that concerned Mr Famularo at [202]-[276]. Nothing in Joe's evidence influenced my views in that regard. 8. The only remaining consideration is whether the failure to call Joe in relation to the meeting should cause a re-assessment of Mr Famularo's evidence and, hence, a re-assessment of Rosario's evidence about what he knew. 9. In Manly Council v Byrne [2004] NSWCA 123 Campbell JA (with whom Beazley JA and Pearlman AJA agreed) said: [72] In the present case, if there had been no eyewitness evidence about the state of the lighting from Mrs Grose and Ebony, and if his Honour had had doubts about Brooke's credibility, his Honour would have been justified in concluding it was more natural for the plaintiff to call Melissa and Mrs Pratt, and that failure to do so entitled him to conclude that their evidence would not have helped Brooke, and to draw more strongly any inference available to him that the light was on…. [73] However, on the evidence in fact before his Honour, there was ample evidence to justify him in concluding that the light was off. In that situation, the fact that Melissa and Mrs Pratt were equally available to both parties justified him in not drawing any adverse inference from Brooke's failure to call them. [74] That the strength, or weakness, of the case made out by the evidence actually presented in the case bears on whether inferences should be drawn from other evidence not having been presented, is recognised in JPQS P/L v Cosmarnan Constructions P/L [2003] NSWCA 66. Meagher JA (with whom Beazley JA agreed, and Mason P substantially agreed) said, at [24]: "When a finding of fact has been made in a party's favour by a judge, the fact that an absent witness's evidence, if it were given, would not support that finding, cannot disturb the finding actually made." [75] In all these circumstance, I see no error in his Honour's failure to draw any inference unfavourable to the plaintiff, on the topic of whether the light was off, from the absence of Melissa and Mrs Pratt. (emphasis added) 1. The Defendant drew attention to what was said in Byrne at [73] to [75] to submit that there was ample other evidence so that no inference should be drawn. The Plaintiff drew attention to [72] and to the passage emphasised in the extract to submit that, because of the doubts about Rosario's credibility, an inference should be drawn. 2. Two things should be noted about the passage at [72]. First, if the two matters specified had been established the trial judge "would have been justified in concluding" and those matters would have "entitled him to conclude" that their evidence would have been unfavourable to the party that ought to have called the witnesses. The judge would not be required so to conclude. Secondly, the first of the two matters is significant. It is not enough for the judge to have doubts about the plaintiff's credibility without more for him to conclude the missing evidence would have been unfavourable. The first of those matters (the eyewitness evidence) ties in with what Campbell JA had said earlier at [55]: The second matter of significance is that if the evidence which has been admitted is enough to prove the case of the party who has not called the witness, the tribunal of fact could be justified in not counting the failure of that party to call that witness as something that reduces the strength of that case…. 1. In the present case there was powerful evidence suggesting that the conference did not occur and that the diary note was fabricated. In addition, the evidence that Mr Famularo generally was untruthful and unreliable was very strong. I made findings to those effects. 2. Further, I have no doubt that the person who was driving this refinance was Joe, and that he was ably assisted by Mr Famularo who either knew that information he was putting forward to the Plaintiff was false or he turned a blind eye to its lack of truthfulness. That being so, any evidence given by Joe that was unfavourable to Rosario's case would not be credible evidence. 3. In Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd the Full Court of the Federal Court (Besanko, Perram and Katzmann JJ) said: [79] But the fact that one can infer that a party was afraid to call some particular witness or tender some particular document can take a trier of fact only so far. It is accepted that where a party fails, without explanation, to call a witness who that party might have been expected to call and whose evidence might have elucidated the matter in dispute, then the inference may be drawn that the evidence of the absent witness would not have assisted the party that failed to call that witness: Jones v Dunkel at 308, 312 and 320–321. By itself that inference is frequently somewhat barren, for knowing that the evidence of a witness would not have assisted tells one nothing about what the witness's evidence affirmatively would have been. Often more directly useful is the allied principle that in such a case the trier of fact may more confidently draw any inference unfavourable to the party that failed to call that witness if that witness appears to be in a position to cast light on whether the inference should be drawn: Jones v Dunkel at 308 per Kitto J, 312 per Menzies J, and 320–321 per Windeyer J. Neither inference is mandatory and, generally speaking, these inferences only become material where the balance of the evidentiary record is equivocal. (emphasis added) 1. In the present case the balance of the evidentiary record is not equivocal. I accept that Rosario's evidence had to be scrutinised with care because of the credibility issues I identified, but the evidence surrounding Mr Famularo's involvement with Joe was not equivocal. I am entirely satisfied that Rosario was not part of that involvement. I do not consider that I should infer that Joe's evidence about this aspect of the matter, when assessed in the light of the other evidence, would not have assisted Rosario. (c) Mrs Baira 1. My findings in relation to Mrs Baira's understanding, or lack thereof, in relation to the proposed transaction with the Plaintiff tend to support the evidence of Rosario that he thought he was simply giving another guarantee to a new bank. 2. The significant matter to be drawn from Mrs Baira's evidence is the lack of information with which she was provided whenever her increased support was needed by Joe and Sandra. I accept that she generally made little enquiry but little information was offered. That culminated in Mrs Baira being asked to execute the documents in respect of the loan from the Plaintiff without Joe and Sandra ensuring that she was referred to a solicitor to explain the change that was being made to the arrangement whereby she became a borrower. 3. A further matter of considerable importance was my finding that there was no meeting between Mrs Baira and Mr Famularo and that the diary note he prepared in relation to a conference with her was fabricated. The information in the diary note must have come from Joe. In that regard I draw attention to my conclusions at [244] to [253] and [284] to [293]. 4. The issue of a Jones v Dunkel inference is irrelevant as far as Mrs Baira's evidence goes. There is no suggestion that Joe dealt with Mrs Baira – that was left always to Sandra. Secondly, the conference Mr Famularo claims that he had with Mrs Baira did not, on anybody's evidence, include Joe. (d) Mr Wennerbom 1. My findings with respect to the conference with Mr Wennerbom were also critical to the conclusion I reached that Rosario and Domenica never understood that they were becoming principal borrowers and not merely providing their house as a guarantee to a new financial institution. The conclusions I reached about Mr Wennerbom were unrelated to any evidence that Joe gave. I accepted Mr Wennerbom's evidence. The important findings were that Mr Wennerbom had no knowledge or understanding of the prior arrangements between Joe and his interests on the one hand and Rosario and Domenica on the other, nor was Mr Wennerbom aware of the wider transaction that would enable him to put into context the documents on which he was asked to advise Rosario and Domenica. 2. I also drew attention to the shortcomings of the meeting between Mr Wennerbom and Rosario and Domenica at [137]-[143] and at [189]-[194]. Those matters included the fact that when Mr Wennerbom said to Rosario and Domenica that they were borrowing $910,000 and made certain other statements about that borrowing they fell silent. That was information, as I noted, that did not accord with their pre-existing understanding, as Rosario had given evidence, that he thought he was simply providing a guarantee to another bank, although I did not accept Rosario's evidence that he thought their guarantee was limited to $100,000. 3. I consider that it is also significant, as I noted in my first judgment, that the solicitor who Joe undoubtedly arranged for his parents to see was an English speaking solicitor who did not speak Italian or any dialect thereof. Arrangements could have been made for his parents to see an Italian speaking solicitor as they had previously done. That was significant, not only for the language problem, but because those Italian speaking solicitors (Messrs Egisto, Calvitto and Previte), unlike Mr Wennerbom, were or would have been aware that the new arrangement involving the loan from the Plaintiff was a fundamentally different arrangement for the Iannis from what they had previously advised them and Mrs Baira about. That is a further indication, quite independently of Joe's evidence, that Joe was endeavouring to keep his parents in the dark and that he succeeded in doing so. 4. The Plaintiff's submissions appear to assume that I have preferred Rosario's evidence to Mr Wennerbom's about what happened when the documents were signed. The Plaintiff refers, for example, to a Jones v Dunkel inference that should be drawn from the failure to call Joe to give evidence about that meeting, and to the fact that Mr Wennerbom's evidence was uncontradicted. 5. I accepted Mr Wennerbom's evidence of what transpired at the meeting (see [139], [140] and [143]) and I held at [115] that Rosario had no clear recollection of the meeting. However, my crucial findings concerning the explanation given by Mr Wennerbom are at [190] to [194]. This was no criticism of Mr Wennerbom except, perhaps, that he did not follow the practice recommended at that time to ask the client his or her understanding of what they were entering into. I noted (at [138]) the limited information provided to Mr Wennerbom about the transaction generally and his view (at [141]) that he was not providing commercial or financial advice to the Iannis. All of this meant that he was not in a position to explain matters to them which would have given them a proper understanding of how their position was being fundamentally altered by entering into this transaction – see also at [282]–[283]. 6. The view that the Iannis had that they were simply swapping a guarantee from one bank to another derived from Rosario's own evidence in his affidavit of 23 February 2010 paragraph 27, and from his oral evidence in cross-examination both before Grove AJ and before me. I referred to this evidence at [74]. In evidence before me he confirmed to the cross-examiner when the question was put (at T 32.1) that it was Joe who told him his guarantee was capped at $100,000 but he was not cross-examined to suggest that his understanding about swapping banks on the guarantee did not come from Joe. Whilst I discussed Joe's evidence to similar effect given before Grove AJ (at [132]ff) my acceptance of Rosario's evidence in that regard was not dependent on Joe's evidence. I said (at [133]) that it appeared to provide some basis for Rosario's fixation on a guarantee for $100,000 but references (such as at [138], [188], [191] and [369]) to their beliefs about what they were entering into with the Plaintiff came from Rosario's evidence which I accepted. 7. As far as the failure to call Joe is concerned in relation to the meeting with Mr Wennerbom, I do not consider any Jones v Dunkel inference should be drawn. I accepted Mr Wennerbom's account of the meeting in preference to Rosario's account. My conclusion about that meeting was not that Mr Wennerbom did not do what he said he did. It was that, despite his best efforts, he did not manage to have the Iannis understand the obligations they were undertaking and the rights, as guarantors, they were giving up. That was because Mr Wennerbom himself did not know the background to understand the change being brought about by the arrangement with the Plaintiff, and also because the language difficulty coupled with a pre-conceived notion by the Iannis of what they were doing was present. My findings in relation to the language difficulty are at [120] and [194]. Conclusion regarding knowledge of Rosario 1. Joe's evidence that I relied upon in my first judgment was never significant evidence. The three areas where it had any influence (identified at [12] above) were all matters where there was abundant other evidence to support the findings. Reconsidering those matters without any regard to Joe's evidence does not lead me to a different conclusion for the reasons I have discussed. 2. Nor do I consider that any inference should be drawn from the failure by Rosario to call Joe at the second trial for the reasons which I have indicated. In my first judgment I rejected Joe's evidence about what occurred at the meeting with Mr Wennerbom (the evidence Joe had given at the first trial before Grove AJ was referred to at [196] of my first judgment). In relation to Rosario and Domenica's knowledge about their liabilities prior to entry into the RHG loans I rejected Rosario's evidence about what he claimed Joe had told him in any event. I held that he had much greater knowledge about what he had committed himself to prior to the entry into the RHG loans. 3. In relation to Rosario's involvement in the provision of material to Mr Famularo and RHG, the other evidence about the matters was not in any sense equivocal that would enable an inference to be drawn that Joe's evidence would not have assisted Rosario. 4. Matters I discussed in (a), (b) and (c) above comfortably satisfy me that before the Iannis saw Mr Wedderbom they did not know the true nature of the loan agreement into which they were to enter. 5. My conclusion remains as before in my first judgment at [283] that despite Mr Wennerbom's best efforts with the information and material he had, he did not succeed in getting Rosario and Domenica to understand that they were becoming principal borrowers in contradistinction from what they did know about their position previously, that they were guarantors and that their house was security for that guarantee. The advice given by Mr Wennerbom, through no real fault of his own, was inadequate for the purpose. The Guidelines 1. It is not clear why this is a matter that needs to be decided on this remitter. Nothing in the orders made by the Court of Appeal suggests that it does. The Plaintiff points, however, to what was said in the Court of Appeal's judgment at [69]: There is a live issue between the parties as to whether the primary judge was referring to superseded guidelines rather than those in force at the time the Ianni transactions were effected. The parties did not ask the Court to resolve that issue prior to the remitter. 1. Nevertheless, as submissions have been made by the parties I will address the issue. 2. The Plaintiff asserted both in the Court of Appeal and in submissions on this remitter that Version 11.1 was the relevant version because Version 10.5 was dated 22 April 2005 and Version 11.1 was dated 2 May 2005. The loan application of the Iannis was submitted in September 2011. Accordingly, Version 11.1 applied. 3. It should first be observed that in the submissions made to me at the trial Senior Counsel for the Iannis took me to a number of extracts from the Lending Guidelines Version 10.5. When Mr Ashhurst SC addressed me on behalf of the Plaintiff he did not submit that those Guidelines were not the applicable or appropriate guidelines. He did, however, draw my attention to certain portions of Lending Guidelines Version 11.1. Both counsel treated the two versions of the Guidelines as if there were no material differences between them for the matters I had to decide. Moreover, my further examination of both versions of the Guidelines suggests two things. First, there is no relevant material difference between them except in one respect and that relates to provision of an ABN. In the Lending Guidelines Version 11.1 under the heading "Self Certification Requirements" one of the bullet points states: There is provision for the ABN to be recorded in section 1, it is preferable that the ABN is provided, but it is not mandatory for file validation. (emphasis added) 1. The second matter is that in the Lending Guidelines Version 11.1 at the bottom of the section headed "RAMS Lending Guidelines – Preamble" this appears in bold font: These Guidelines will apply to all RAMS loans except that for Genworth or PMI where a conflict occurs then RAMS Lending Guidelines Version 10.5 (as approved amendment) or any specific delegated underwriting agreement will apply. As to this latter provision, this was a Genworth loan. If what was provided concerning an ABN not being mandatory conflicted with the requirements of Version 10.5 then Version 10.5 applied. 1. However, even if any significance should be given to the non-mandatory nature of the requirement for an ABN, the matter was clearly of concern to the Plaintiff by reason of the matters that I have set out in my first judgment from [296] to [301]. 2. In any event, the matter of an ABN was only one matter in relation to the failure to follow Guidelines and in relation to the way that the Plaintiff dealt with the loan application in any event. What is set out at [302] to [305] are reproduced in precisely the same terms in Lending Guidelines Version 11.1. 3. Senior Counsel for Rosario correctly submitted on this remitter that the failure to follow Guidelines was only one basis upon which I made findings that the contract was unjust and that the Plaintiff had behaved unconscionably (see for example my first judgment at [370]), and correctly submitted that there is no clear evidence to demonstrate that the wrong Guidelines were relied upon by me in my judgment. Had Mr Anderson or some other person from the Plaintiff been called the matter could have been clarified. 4. I do not think any consideration in relation to the applicable Guidelines affects the conclusions which I reached in my first judgment. 5. In my first judgment I dealt with eleven separate matters that ought to have put the Plaintiff on notice that things were not as were advised when the loan application was made. For reasons there given, most of these matters required some explanation from Mr Anderson or some other person from the Plaintiff. None was forthcoming. In the written submissions forwarded to me on the remitter the Plaintiff raised only two matters to answer those findings. The first concerned what was said to be wrong reliance on the correct lending Guidelines. Reference was made to what Spigelman CJ said in Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [42] that a failure to follow lending guidelines may not of itself be sufficient to constitute an unjust contract unless there was also evidence that the failure constituted a departure from prudent lending practice. That submission appears to ignore paragraph [371] of my first judgment where I set out other parts of Spigelman CJ's judgment from Khoshaba dealing with the same point. 6. I have otherwise dealt with the reliance on the Guidelines above. 7. The second submission made by the Plaintiff was based on the judgment of McDougall J in Perpetual Trustees Victoria v Longobardi [2009] NSWSC 654 at [80] and [86]-[93] in relation to what constitutes asset lending. 8. This was a slightly unusual submission, since I made but one parting reference to "asset lending" at [305]. It did not form the basis for my findings of unjustness although on the true financial position of Mr and Mrs Ianni the effect of the loan agreements was pure asset lending. In Longobardi McDougall J was dealing with a case where the borrowers "focused extensively" on what was said to be asset lending in that case to show that the contract was unjust – see at [78]. 9. The unjustness in the present case arose because Mr and Mrs Ianni did not fully comprehend the arrangement into which they were entering and the Plaintiff had sufficient notice that the contracts were in fact unjust or, if they had followed their Guidelines and made the appropriate enquiries in the circumstances of the lending, they would have ascertained that the contracts were unjust. Conclusion 1. For the reasons I gave in my first judgment, this was a clear, and perhaps classic, case of an unjust contract involving Mr and Mrs Ianni. The borrowers were elderly migrant parents of a rogue businessman son who needed their financial assistance. The parents were given as little information as the son was required to impart to them. Even the solicitor whom the son arranged to give them legal advice was misled by not being given the full background to the transactions the parents were undertaking so that his advice could properly inform them. The son engaged a dishonest mortgage broker who fed false and misleading information to the finance company. That company's failures to follow its own Guidelines and to follow prudent lending practices were manifold. 2. The case would not have been such a difficult one if the parents (including Mrs Baira) had given honest and straightforward evidence, instead of trying to gild the lily. Despite the unreliable evidence given by them, I have no doubt that the Iannis did not understand the loan contract they were entering for the reasons I have given. At the same time, the Plaintiff was on notice of too many matters about which it failed to enquire that rendered the contract unjust. Had it done so, the loan would never have gone ahead. 3. Joe's evidence, or its absence, did not ultimately make a difference to that position. There was too much other evidence on both sides that made the matter clear. 4. I make the following orders: 1. Verdict and judgment for the Defendants on the Plaintiff's claim. 2. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that the loan agreement dated 11 October 2005 between the Iannis and RHG be set aside. 3. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that registered mortgage number AB858561T be set aside. 4. An order pursuant to section 7 of the Contracts Review Act 1980 (NSW) that RHG deliver up to the Iannis' Solicitors a duly executed discharge of registered mortgage number AB858561T, ("the discharge of mortgage") and the Certificate of Title for 159 Thompson Street Drummoyne, Folio 30/4514 within seven (7) days of the date of these Orders. 5. The Plaintiff is to pay the Iannis' costs. ********** 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. Decision last updated: 16 December 2015