Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Chaudhary v Chaudhary [2017] NSWCA 222 Hearing dates: 5 June 2017 Decision date: 01 September 2017 Before: Payne JA at [1]; Sackville AJA at [5]; Emmett AJA at [10] Decision: 1. Appeal allowed. 2. Orders of the primary judge be set aside and in lieu thereof: (1) Declare that a sum equal to $1,674,969.99 plus interest, from 8 June 2017 until the date of these orders, at the rate of $59.17 per day, be paid to the plaintiff out of the controlled monies account established pursuant to the order made by the Family Court of Australia on 16 June 2016 in proceedings between the first respondent and the second respondent. (2) Order the second defendant pay the plaintiff's costs of the proceedings. (3) Order that the proceedings be otherwise dismissed. 3. The second respondent pay the appellant's costs of the appeal. Catchwords: REAL PROPERTY – torrens title – mortgages, charges and encumbrances – advance from father to son to allow purchase of property – whether advanced sum a loan or a gift CONTRACTS – general contractual principles – unjust or unfair contract Legislation Cited: Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW), s 66G Family Law Act 1975 (Cth), ss 4, 39, 40, 79 Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth), s 7 Real Property Act 1900 (NSW), ss 42, 45 Cases Cited: Bate v Priestley (1989) 97 FLR 310; [1990] FLC 90-508 CGU Insurance Ltd v Blakeley [2016] HCA 2; 90 ALJR 272 Chaudhary v Chaudhary [2016] NSWSC 1423 Eberstaller v Poulos (2014) 87 NSWLR 394; [2014] NSWCA 211 Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 First Mortgage Managed Investments Pty Limited v Pittman [2014] NSWCA 110 Fountain v Alexander (1982) 150 CLR 615; [1982] HCA 16 Grace v Grace (2014) 85 NSWLR 688; [2014] NSWCA 86 R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141; [1945] HCA 50 The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185; [1984] HCA 82 Texts Cited: J Daley, AAA Housing for older Australians, (Grattan Institute, June 2017) Senate Economic References Committee, Out of Reach? The Australian housing affordability challenge (May 2015) Category: Principal judgment Parties: Vincent Jeet Chaudhary (Appellant) Adrian Bikram Chaudhary (First Respondent) Justine Meredith Williams-Chaudhary (Second Respondent) Representation: Counsel: M A Ashhurst SC with S B Docker (Appellant) Adrian Chaudhary (First Respondent) (submitting appearance) G T W Miller QC with D C Eardley (Second Respondent) Solicitors: Kemp Strang (Appellant) G & D Lawyers (Second Respondent) File Number(s): 2016/317325 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2016] NSWSC 1423 Date of Decision: 6 October 2016 Before: Campbell J File Number(s): 2015/27995 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. PAYNE JA: I have had the advantage of reading the judgment of Emmett AJA in draft. I agree with his Honour's reasons and the orders he proposes. I also agree with the additional remarks of Sackville AJA. 2. I wish only to add some brief additional observations about the Contracts Review Act 1980 (NSW) claim. As Emmett AJA explains, the relevant contract that the primary judge found to be unjust within the meaning of the Contracts Review Act – "the arrangement made late in November 2004 between Vincent and Adrian on the one hand and Justine on the other after the discussion in her absence on 13 or 14 November 2014" – was not the contract pleaded by the second respondent to be unjust. 3. What was pleaded to be unjust was the "contract" which was defined in the second respondent's cross-claim as "the mortgage and the loan". Whilst it is unclear precisely which contract was alleged to be unjust in the second respondent's submissions below, in this Court the second respondent's submissions squarely addressed the mortgage as the relevant contract said to be unjust. The primary judge did not find the mortgage to be unjust, although he ordered the appellant and the first respondent to execute a discharge of the mortgage in consequence of his findings about the agreement his Honour did address. This conclusion is sufficient to determine that the primary judge's orders based on the Contracts Review Act should be set aside. 4. Even assuming the broader arrangement found by the primary judge was properly the subject of consideration, I agree with Emmett AJA, for the reasons he gives, that the agreement described by the primary judge was not unjust within the meaning of the Contracts Review Act. Further, before ordering the discharge of the mortgage, his Honour was in my view bound in the circumstances of this case to consider whether and to what extent account should be taken of any "unwarranted benefit" the appellant derived from the transaction: Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [80]-[85] per Beazley JA; [87] and [98]-[107] per Santow JA and [112] per Campbell JA; First Mortgage Managed Investments Pty Limited v Pittman [2014] NSWCA 110 per Sackville AJA at [172]-[174] (with whom Beazley P and Gleeson JA agreed). His Honour's failure to do so is an additional reason his orders under the Contracts Review Act should be set aside. 5. SACKVILLE AJA: I have had the advantage of reading the judgment of Emmett AJA. I agree with the orders proposed by his Honour and with his reasons. I add one comment. 6. The primary Judge seems to have been influenced by his view that the mortgage was a "legal device to attempt to quarantine the money from the jurisdiction of the Family Court in the event of the breakdown of the marriage". [1] This is a rather pejorative description of the arrangement entered into by the parties. 7. There has been much discussion in recent times about the unaffordability of housing, particularly for young people, in many parts of Australia. [2] One consequence of declining housing affordability is that young adults very often need and sometimes receive assistance from parents (or other benefactors) to enter the housing market. The occasion for providing that assistance may be that a young couple is in or about to start a relationship. 8. Some benefactors in these circumstances may be quite content to make a gift of money to assist with the purchase of the property. Others may be willing to assist with a purchase but approach the matter more circumspectly. For example, they may be willing to provide funds to assist with the purchase of a property without necessarily expecting repayment if all goes well. Yet they may also wish to protect the family's resources in the unhappy event of the relationship breaking down. 9. There are a number of ways in which these objectives might be achieved. One is for the benefactors to make a loan (with or without interest) to one or both parties to the relationship and to take a mortgage over the property to secure repayment of the funds advanced in certain specified circumstances. If the terms of the loan are not onerous and if the borrower or borrowers receive appropriate advice and understand the nature of the transaction, it cannot be fairly described as a "device" to avoid the operation of the Family Law Act 1975 (Cth). In these circumstances, the legal form of the transaction reflects its substance. 10. EMMETT AJA: Introduction The principal question in this appeal is whether advances made in November and December 2004 by the appellant, Mr Vincent Chaudhary (Vincent), constituted a gift to the first respondent, Mr Adrian Chaudhary (Adrian), or a loan to him. The advances were made in connection with the purchase of a property situated at Drummoyne, New South Wales (the Property) by Adrian and the second respondent, Ms Justine Williams-Chaudhary (Justine). The advances were secured by a mortgage over the Property in favour of Vincent (the Second Mortgage). A secondary question, which arises if the advances constituted a loan, is whether the loan and the Second Mortgage constituted a contract that was unfair in the circumstances in which it was made, within the meaning of the Contracts Review Act 1980 (NSW) (the Contracts Review Act). 1. Adrian is Vincent's son and, at the time of the advances, Adrian and Justine were married. Mrs Sareeta Chaudhary (Sareeta), who is Vincent's wife and Adrian's mother, is not a party to the appeal but mention will be made of her. Mr John Fordham (Mr Fordham) is a solicitor and trusted professional advisor of Vincent's. At the relevant time, Mr Fordham and Vincent had known each other and had been professionally associated for in excess of 20 years. It will be convenient, without intending any disrespect to the parties, to refer to them by their first names. The Dispute 1. On 6 November 2004, following an auction, Adrian and Justine entered into a contract to buy the Property (the Purchase Contract). The purchase price under the Purchase Contract was $1,530,000. At the time of the auction, the deposit of $153,000 was paid with a personal cheque drawn by Vincent made payable to the agent. Vincent also paid the stamp duty on the Purchase Contract and other costs incurred in connection with the purchase. 2. Completion of the purchase took place on 13 December 2004, when Adrian and Justine became the beneficial owners of the Property as tenants-in-common, with Adrian having a share of 87.5 per cent and Justine having a share of 12.5 per cent. On completion, the balance of the purchase price was paid, as to the sum of $400,000, by a loan from Westpac Banking Corporation Ltd (Westpac) to Adrian and Justine. The remaining amount of $977,714.42 was paid by Vincent. Accordingly, together with the deposit, stamp duty and costs, the total amount advanced by Vincent was $1,200,356.42. 3. The loan from Westpac was secured by a mortgage over the Property dated 1 December 2004 (the Westpac Mortgage). Shortly before completion of the Purchase Contract, Adrian and Justine executed the Second Mortgage. In due course, Adrian and Justine became the registered proprietors of the fee simple in the Property as tenants-in-common in the respective shares indicated above. The Westpac Mortgage was registered soon after completion. However, the Second Mortgage was not registered until some years after completion, following the breakdown of the marriage between Adrian and Justine. 4. On 3 January 2014, after the breakdown of the marriage, Vincent made demand on Adrian for repayment of the sum of $1,200,000. When that demand was not met, Vincent commenced proceedings (the Common Law Proceedings) by filing a statement of claim in the Common Law Division of the Supreme Court, seeking an order that Adrian and Justine give him possession of the Property and that he have leave to issue a writ of possession in respect of the Property. In an amended statement of claim Vincent sought, in the alternative, an order for the appointment of trustees for the sale of the Property under s 66G of the Conveyancing Act 1919 (NSW) (the Conveyancing Act). Vincent relied on the provisions of the Second Mortgage for the relief that he sought. 5. Justine filed a cross-claim in the proceedings, seeking a declaration that the sum advanced by Vincent was advanced by way of gift and was not repayable. Justine sought, in the alternative, a declaration that the procuring of the Second Mortgage was unconscionable, or that the Second Mortgage and any purported loan made by Vincent on the security of the Second Mortgage constituted a contract that was unjust in the circumstances in which it was made within the meaning of the Contracts Review Act. She sought an order that the Second Mortgage and any such contract be set aside (the Contracts Review Act claim). 6. On 6 October 2016, for reasons published on that day, a Judge of the Common Law Division (the primary judge) declared that the advance from Vincent was not a loan but was a gift to Adrian. The primary judge ordered that Vincent execute a discharge of the Second Mortgage and gave directions for steps to be taken to procure the registration of such discharge. 7. Vincent now appeals from the orders made by the primary judge. He relies on an amended notice of appeal filed on 24 February 2017. Adrian filed a submitting appearance in the appeal. However, before dealing with Vincent's grounds of appeal and the circumstances that led to the execution of the Second Mortgage, it is necessary to say something about the involvement of the Family Court of Australia in the dispute and this Court's jurisdiction to deal with the matter. The question of the jurisdiction of this Court was not mentioned in the written submissions of either party or in oral submissions to this Court, until the question was raised by the Court towards the end of the hearing of the appeal. Involvement of the Family Court 1. In her defence to Vincent's amended statement of claim, Justine alleged that the Property was "the family home" and that she and Adrian were involved in proceedings under the Family Law Act 1975 (Cth) (the Family Law Act). She asserted that the Common Law Proceedings should be transferred to a court with competent jurisdiction to determine all matters between Adrian, Justine and Vincent, including "the issue of the Property". She also asserted that the Property was otherwise subject to orders being made pursuant to s 79 of the Family Law Act, which the Supreme Court of New South Wales did not have jurisdiction to make. For some reason, that question was not raised before the primary judge, who proceeded to deal with Vincent's claims and Justine's cross-claims on the basis that the Supreme Court had jurisdiction to do so. 2. It emerged in the course of the hearing in this Court that, prior to the commencement of the Common Law Proceedings, Adrian had commenced proceedings in the Federal Circuit Court of Australia. In his amended initiating application filed on 31 October 2013, Adrian sought orders that Justine forthwith do all acts and things necessary to execute a contract for the sale of the Property and any other document or writing necessary to complete the sale of the Property. Those proceedings were transferred to the Family Court at some time before 15 April 2015 and are still on foot (the Family Court Proceedings). By her further amended response to Adrian's initiating application, which was filed on 15 April 2015, Justine sought, amongst other relief, orders that a pre-nuptial financial agreement entered into between Adrian and Justine on 28 January 2003 (the Financial Agreement) be found not to constitute an agreement by reason of unconscionable conduct, undue influence and equitable duress. Further reference to the Financial Agreement will be made below. 3. On 9 October 2015, Adrian filed an interlocutory application in the Family Court Proceedings seeking the sale of the Property. That application was opposed by Justine. The application was heard by Le Poer Trench J of the Family Court in February 2016, who gave judgment on the application on 16 June 2016. In his reasons of that date, his Honour observed that the area of greatest concern in relation to the application was the amount of money that would need to be paid to Vincent. His Honour referred to the fact that Vincent had commenced the Common Law Proceedings seeking to recover money said to be secured by the Second Mortgage. His Honour also referred to Justine's cross-claim in the Common Law Proceedings and the fact that the proceedings had been listed for hearing in May 2016. His Honour noted that the full extent of the matters in dispute to be determined by the Supreme Court were not the subject of evidence in the Family Court, although the Family Court had been provided with some information by the legal representatives of the parties. 4. Le Poer Trench J recorded that Adrian sought an order that the proceeds of sale of the Property be applied to pay the costs and commission of sale; to discharge the Westpac Mortgage in full; to discharge the Second Mortgage; and for the balance to be paid into a controlled money account, with the exception of $20,000 to be paid to Justine for "re-location costs". On 16 June 2016, his Honour ordered that Adrian and Justine were to do all things and sign all documents necessary to cause a sale of the Property upon such terms and at such price as they may agree in writing. However, the order was conditional upon Vincent consenting to an order that joined him as a party to the Family Court Proceedings for the sole purpose of consenting to the postponement of payment to him of sufficient funds to discharge the Second Mortgage and consenting to the making of the order. His Honour ordered that upon a sale being effected, the sale proceeds were to be applied as follows: * Payment of agent's commission and charges, legal costs and usual adjustments of sale; * Payment of monies sufficient to discharge the Westpac Mortgage; * Payment of $50,000 to Justine; * Payment of the balance to a controlled monies account to be held, until further order, upon trust for Adrian, Justine and Vincent. 1. On 24 August 2016, pursuant to the orders made on 16 June 2016, orders were made by the Family Court by consent that Vincent be joined as a party to the proceedings in the Family Court, such joinder being limited to the sole purpose of consenting to the postponement of payment to him of sufficient funds to discharge the Second Mortgage. The Family Court noted that judgment in the Common Law Proceedings was "pending". 2. On 22 October 2016, Adrian and Justine entered into a contract for the sale of the Property for the total price of $3,125,000 (the Sale Contract). The Sale Contract was completed on 5 December 2016 when, after adjustments, total proceeds of $3,125,802.06 were received. From that sum, the following amounts were deducted: * Amount to discharge the Westpac Mortgage - $817,020.58; * Other selling costs - $58,552.42; * Payment to Justine pursuant to the orders of the Family Court of 16 June 2016 - $50,000. 1. The balance of $2,200,229.06 was paid into a controlled monies account pursuant to the orders of 16 June 2016. In effect, the sum in the controlled monies account, together with accrued interest, is the subject matter of the dispute between Vincent and Justine in the appeal. Jurisdiction of this Court 1. Both Vincent and Justine have made written submissions to the effect that this Court has jurisdiction to hear and determine the appeal. A fundamental question to be considered in determining this Court's jurisdiction to hear and determine the appeal is the identification of the character of the jurisdiction being exercised. The question does not concern the nature of the litigation but the source and character of the authority exercised by the Court to determine the dispute that is the subject of the litigation. [3] 2. The jurisdiction of the Court is in question because of s 7 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (the Cross-Vesting Act). Section 7(5) of the Cross-Vesting Act relevantly provides that, subject to s 7(7) and s 7(8), where it appears that a matter for determination in a proceeding by way of an appeal from a decision of a single judge of the Supreme Court is a matter arising under the Family Law Act, the proceeding must be instituted only in, and is to be determined only by, the Full Court of the Family Court. Section 7(7) relevantly provides that, where the Court of Appeal commences to hear a proceeding by way of an appeal and, before the Court determines the proceeding, it appears to the Court that the proceeding is one to which s 7(5) applies, the Court of Appeal must, unless the interests of justice require that it proceed to determine the proceeding, transfer the proceeding to the Full Court of the Family Court. Section 7(8) only applies where an appeal has been determined. That is not this case. 3. Thus, the following questions arise: * whether there is a matter for determination in this appeal that is a matter arising under the Family Law Act; * if so, whether the interests of justice require this Court to determine the appeal. I have concluded that no matter for determination in the appeal is a matter arising under the Family Law Act and that, if there were such a matter, the interests of justice would require this Court to determine the appeal. The reasons for those conclusions are as follows. 1. A matter may properly be said to arise under the Family Law Act if a right or duty in question in the matter owes its existence to the Family Law Act or depends upon the Family Law Act for its enforcement, whether or not the determination of the dispute involves the interpretation or validity of the Family Law Act. [4] A matter will arise under the Family Law Act if a party on either side of the record relies upon a right, immunity or defence derived from the Family Law Act or if the right or duty in question owes its existence to the Family Law Act or depends upon the Family Law Act for its enforcement. [5] 2. The rights claimed by Vincent in the Common Law Proceedings and in the appeal arise out of the arrangements entered into between Vincent, on the one hand, and Adrian and Justine, on the other, in relation to the advances. Those arrangements included the Second Mortgage, which was registered under the Real Property Act 1900 (NSW) (the Real Property Act). The rights claimed by Vincent depend upon the general law concerning the making of gifts, the making of loans and the construction of instruments such as the Second Mortgage. None of those rights is derived from the Family Law Act. None of them depends for its existence or its enforcement upon the Family Law Act. 3. Before the primary judge, Justine relied upon the general law in support of her contentions that Vincent made a gift to her and Adrian and not a loan. She also relied upon the Contracts Review Act to argue that the contract made between her and Vincent was unjust and in seeking orders that the Second Mortgage be set aside and discharged. As will appear below, Justine contended that this Court must consider whether the Second Mortgage is indefeasible by reason of the operation of s 42 of the Real Property Act; whether Vincent has the protection of s 45 of the Real Property Act, as a bona fide mortgagee; whether Vincent's advances constituted a loan or a gift to Adrian; and whether there was conduct that would amount to an unjust contract under the Contracts Review Act. None of those matters arises under the Family Law Act. 4. Part V of the Family Law Act deals with the jurisdiction of courts. Section 39(1)(b), which is in Part V, relevantly provides that a matrimonial cause may be instituted under the Family Law Act in the Supreme Court of a State. However, under s 40(4), the Supreme Court of a State must not hear and determine proceedings under the Family Law Act instituted in that Court otherwise than in accordance with a proclamation in force under s 40(3). Section 40(3) relevantly provides that the Governor-General may, by proclamation, fix a date as the date on and after which matrimonial causes may not be instituted in the Supreme Court of a State or may be so instituted only where specified conditions are complied with. It is necessary, therefore, to consider whether the lis before this court is a matrimonial cause within the meaning of that term when used in the Family Law Act. 5. Under s 4 of the Family Law Act, the term "matrimonial cause" is defined as including the following: (ca) proceedings between the parties to a marriage with respect to the property of the parties to the marriage or either of them, being proceedings: (i) arising out of the marital relationship; … (eaa) without limiting any of the preceding paragraphs, proceedings with respect to a financial agreement that are between any combination of: (i) the parties to that agreement; and (ii) the legal personal representatives of any of those parties who have died … (f) any other proceedings (including proceedings with respect to the enforcement of a decree or the service of process) in relation to concurrent, pending or completed proceedings of a kind referred to in any of [the above] paragraphs, including proceedings of such a kind pending at, or completed before, the commencement of [the Family Law] Act. 1. The proceedings between Adrian and Justine in the Family Court concern the Financial Agreement. Clearly, therefore, the proceedings involving them constitute a matrimonial cause. Justine also seeks an adjustment of property under s 79 of the Family Law Act if the Financial Agreement is held to be unenforceable or is set aside. That also has the consequence that the proceedings in the Family Court constitute a matrimonial cause. However, while the Property was owned by Adrian and Justine as tenants-in-common, it does not follow that a dispute between Vincent and Adrian and Justine as to the character of the advances made by Vincent to Adrian on the security of the Second Mortgage, albeit in relation to the Property, constitutes a matrimonial cause. 2. The mere fact that Adrian and Justine are parties to a marriage and are defendants in the Common Law Proceedings brought by Vincent in relation to matrimonial property does not lead to the conclusion that the Common Law Proceedings were relevantly proceedings between the parties to a marriage. Similarly, the mere fact that Adrian and Justine are parties to a marriage and are both respondents in the appeal, which relates to matrimonial property, does not lead to the conclusion that the appeal is relevantly proceedings between the parties to a marriage. [6] 3. The proposition that the Common Law Proceedings or that the appeal are "proceedings between the parties to a marriage", simply because both parties to the marriage are defendants or respondents respectively, is inconsistent with High Court authority. [7] Neither the Common Law Proceedings nor the proceedings in this Court are "proceedings between parties to a marriage with respect to the property of the parties to the marriage ..." within s 4(ca) of the definition of "matrimonial cause". 4. Further, the alternative proposition that the Common Law Proceedings are nevertheless "other" proceedings in relation to the Family Court Proceedings (under par (f) of the definition) because the outcome in the Common Law Proceedings and the appeal to this Court will indirectly affect the result of the Family Court Proceedings was expressly rejected by the High Court. [8] Thus a claim by a creditor for the recovery of a debt against her former son-in-law, at a time that the son-in-law had commenced property adjustment proceedings in the Family Court (including an indemnity from his former wife in respect of her mother's claim against him), was not a matrimonial cause. The situation here is not relevantly distinguishable, in that Justine is claiming an indemnity from Adrian in respect of the Second Mortgage and loan. Moreover, there is no claim in the Family Court Proceedings that seeks to impugn the Second Mortgage. Thus, Vincent's claim in this Court is not a "matrimonial cause" under the Family Law Act. 5. The mere fact that the outcome of the Common Law Proceedings and this appeal may indirectly affect the Family Court Proceedings, in the sense that the outcome of the appeal will determine what property of Adrian might be available for the making of an order under s 79 of the Family Law Act, is not sufficient to render the Common Law Proceedings or the appeal in this Court a matrimonial cause. The lis before this Court is a dispute between Adrian and Vincent. Except in relation to the Contracts Review Act claim, Justine has no relevant interest in the outcome of the appeal, any more than a creditor of Adrian would have an interest in the outcome of the appeal. That is to say, it may be that it is in the interests of Justine for the purposes of her claim in the Family Court that the advances be found to be a gift to Adrian, so as to bolster Adrian's assets, just as it would be in the interest of a creditor to ensure that Adrian had assets to meet a liability. However, that is insufficient interest in the lis between Adrian and Vincent. Vincent's claim against Adrian is not a matrimonial cause under the Family Law Act. [9] 6. In any event, even if the matter involved in the appeal constituted a matrimonial cause or a matter arising under the Family Law Act, the interests of justice would require this Court to proceed to determine the appeal. The merits of the appeal have been fully argued and the question of jurisdiction was not raised until well into the hearing of the argument on the substantive issues. The issues in the appeal involve the application of the general law to facts concerning loans, gifts and the construction of instruments. Significant costs would be thrown away if the appeal were to be transferred to the Full Court of the Family Court, since it would be necessary for all those issues to be re-argued. The Court has also been informed that it could be some time before an appeal would be listed before the Full Court of the Family Court. 7. There is no matter before this Court that arises under the Family Law Act. No claim or defence is raised in the appeal that can be said in any way to be derived from the Family Law Act. In particular, no "matrimonial cause" arises in the appeal. Accordingly, this Court has jurisdiction to hear and determine the appeal. Before addressing the issues raised in the appeal, it is desirable to set out the factual background in more detail. Factual Background 1. The primary judge found that, from very early on in the relationship between Adrian and Justine, Adrian evinced an attitude of not permitting "affairs of the heart" to cloud his judgment about financial matters. As time went on, that attitude became more ingrained. 2. By June or July 1999, Adrian and Justine were living together. In August 1999, they completed the purchase of an apartment in Darlinghurst as tenants-in-common, Adrian having a 70 per cent share and Justine having a 30 per cent share. The shares were determined according to their respective financial contributions to the purchase price. Mr Fordham acted for them in connection with that transaction. 3. On 20 June 2000, Adrian and Justine entered into a co-habitation agreement drafted by Mr Fordham. Relevantly for present purposes, the co-habitation agreement provided that the parties agreed that any inheritance received by them would be their sole and unencumbered property; that all assets acquired by them in the future would be owned by them jointly in equal shares; and that each of them would remain the sole owner of their current assets and future personal items owned by them. Justine and Adrian received independent legal advice in relation to the co-habitation agreement. 4. The Financial Agreement contained terms dealing with the proposed division of property and assets in the event of the breakdown of their proposed marriage. Relevantly, the Financial Agreement provided that each party would retain his or her separate property as his or her own property absolutely. The separate property was listed in schedules to the Financial Agreement. Adrian's separate property was defined as including any property, monies or jewellery "gifted or advanced" after the date of the Financial Agreement to Adrian by his parents, including by way of cash payment or direct contribution to the purchase price of any property of the parties and any property received or acquired by Adrian by way of inheritance. 5. The Financial Agreement recorded that Adrian's separate net assets totalled $757,000; that Justine's separate net assets totalled $500; and that their joint net assets totalled $240,649. The joint assets consisted principally of the Darlinghurst apartment, in which their respective interests were recorded as 70 per cent and 30 per cent. The Financial Agreement also provided that "any joint property of the parties" would be divided equally, along with any attached liabilities. Joint property was defined as all the property, resources and interests of Adrian and Justine that were not their separate property, including joint property and assets and liabilities described in a schedule. 6. Finally, the Financial Agreement provided that it was within the contemplation of the parties that Adrian might, in the future, receive substantial property from Vincent and Sareeta, during their lifetime, or consequent upon their death, by way of gift or inheritance. Under the Financial Agreement, Adrian was to remain exclusively entitled, during the marriage and in the event of its breakdown, to any property "so gifted to him". 7. Adrian and Justine were married in October 2003 and, in the early part of 2004, they began to look for a family home. The primary judge held that their intention was to preserve their existing assets and the purchase of a family home was not to be financed by realising their equity, or the equity of Adrian, in any existing asset, such as the Darlinghurst apartment. 8. There was some dispute between Justine, on the one hand, and Vincent and Adrian, on the other, as to the circumstances in which Justine and Adrian became aware of the Property and went about buying it. The primary judge preferred the general thrust of the evidence given by Vincent and Adrian, in circumstances where that evidence was corroborated, in substance, by Adrian's sister, Ranika. 9. Justine and Adrian first noticed the Property one night when they were driving to the home of Vincent and Sareeta for dinner in late October 2004. They were both interested in the Property and agreed that they should inspect it. They inspected the Property together on the following Saturday and discussed attending the auction scheduled for 6 November 2004. 10. Vincent and Adrian said that, following that inspection, there was a discussion about the Property on 3 November 2004, when Adrian and Justine attended the regular family dinner at the home of Vincent and Sareeta. Adrian and Justine told Vincent that they were very interested in the Property. Vincent and Adrian said that all three of them inspected the Property the following day, when Vincent floated the option of purchasing the Property with them. Vincent agreed to commence the process of applying for a loan on their behalf. 11. Justine denied being part of a conversation about the Property on 3 November 2004 and denied attending an inspection with Vincent and Adrian prior to the auction. On her account, the first time she visited the Property with Vincent was on the day of the auction. Justine said that she was surprised when Adrian bid for the Property. She said that she did not know how the deposit was paid or how they could afford the balance of the purchase price. She said that she asked Adrian, who replied that Vincent was making a gift "to them" of $1,200,000. The primary judge found that Adrian probably did not say it was a gift "for them" and more likely simply said that it was a gift from Vincent. 12. The primary judge found it was improbable that there would have been no discussion about the Property at the regular family dinner, either when Justine and Adrian first saw it or after they had inspected it. His Honour found that, even if Justine may have been excluded from discussions about Chaudhary family finances, she was not excluded from specific discussions about the Property. However, his Honour accepted her evidence that she did not inspect the Property with Adrian and Vincent on 4 November 2004. 13. The primary judge was impressed with Vincent as a reasonable, responsible and respectable accountant and family man. His Honour had no doubt that Vincent was very prepared to help his children financially or otherwise, according to his ability, and that, when the Property was discussed, he offered to help financially. His Honour found that Vincent had in mind a figure of up to $1,200,000 from the start, possibly even before Justine and Adrian had set their hearts on the Property. His Honour considered that Vincent may even have floated the idea of buying the Property with them. Vincent said a number of times in his evidence that, had Adrian and Justine been unable to raise finance, he would have bought it himself to provide it as their home. His Honour had no doubt that, given Vincent's contacts with Westpac, he said that he would help Justine and Adrian raise a loan for the balance of the purchase price. His Honour was satisfied that, by the time of the auction, Vincent had decided that he would make a gift, although he had not thought out all of the ramifications of that decision. 14. The primary judge found that Vincent was well aware of the terms of the Financial Agreement that deal with gifts inter vivos and that he was probably relying upon those terms when he decided to make a gift to Adrian, on the basis that the terms of the Financial Agreement would keep the wealth in the Chaudhary family. His Honour considered that the fact that the Purchase Contract was made in the name of Adrian and Justine as purchasers supported the conclusion that the proposed advance was intended to be a gift, part of which was made by the provision of the deposit in the sum of $153,000. 15. Following the auction, Vincent sounded out his contacts at Westpac about a loan for Justine and Adrian for the balance of the funds necessary to complete the purchase of the Property over and above his intended contribution of $1,200,000. Vincent was confident that, if necessary, Westpac would lend him the money and the purchase would be completed. He spoke to Mr Shane Gasperini, a contact and associate of his at Westpac, and informed Mr Gasperini that he would be providing $1,200,000 as a gift to Adrian and Justine. Mr Gasperini said that Westpac would require evidence to that effect in the form of a statutory declaration. 16. On 10 November 2004, some four days after the auction of the Property, Vincent made a statutory declaration. By it, Vincent declared that a gift of $1,200,000 had been made to Adrian and Justine to assist with the purchase of the Property and that the gift was not repayable at any time. Westpac received the statutory declaration by facsimile on 11 November 2004. It was not suggested that either Adrian or Justine knew of the existence of the statutory declaration at the time. 17. Vincent gave evidence that, at the auction and when he signed the deposit cheque, he had not decided on what basis he was going to provide the money. He said that his plan was to delay making a decision about it until the time came to finalise settlement. When he made the statutory declaration, characterising the proposed advance as a gift, that was an accurate record of his intention at that time. 18. Quite clearly, at that stage no gift of $1,200,000 had been made. At most, there had been an advance of the amount of the deposit. However, even if Vincent's intention at that time was to make a gift, the advance of the deposit was, at most, conditional upon completion of the Purchase Contract, as will be explained below. 19. Vincent said that he changed his mind about making a gift following a conversation with friends, including Mr Gasperini, at lunch on Friday 12 November 2004, two days after he had made the statutory declaration. Vincent said that he told those present that he was going to help out Adrian and Justine by "giving" the funds for the purchase of the Property. One of those present asked whether he had thought about what would happen to the money if the marriage broke down and their assets were divided between them. He said that one of the others present said that the money should be secured in some way in case the marriage broke down. Vincent said that, until those things were said to him, he had not contemplated that possibility. 20. Vincent said in an affidavit that, in conversations on the weekend of 13 and 14 November 2004, Adrian raised the topic of "the mechanics" of how Vincent was proposing to advance the money. Adrian raised the need for "a level of protection" and Vincent asked whether he was "worried about anything" to which Adrian responded "no not really". Adrian explained to Vincent that he and Justine already had arrangements in place "for your assets in my name". Vincent did not express surprise at that but said "aren't those agreements enough", to which Adrian replied "who knows?". Vincent suggested that perhaps the advance "should be treated as a loan". 21. Adrian gave no evidence of his own recollection of such a conversation but said that he had read Vincent's affidavit and recalled a conversation to that effect. Evidence in that form would probably be inadmissible and would, in any event, have little weight. However, it was apparently allowed without objection. Neither Adrian nor Vincent was challenged in cross-examination as to the terms of the conversation, although they were cross-examined by reference to contemporaneous documents said to be inconsistent with the conversation. 22. A loan application to Westpac for the balance of the funds necessary to complete the purchase of the Property was signed by Adrian and Justine on 10 November 2004. It was signed on 11 November 2004 by their mortgage broker, Lawfund Australia Pty Ltd (Lawfund), and submitted to Westpac later on that day, by facsimile communication. The communication included a copy of Vincent's statutory declaration. Lawfund also prepared a document dated 11 November 2004 concerning proposed finance from Westpac. The document relevantly provided as follows: Background: Applicants are existing clients with investment property loans. They now wish to move from his parents' home where they live to their own home. To assist them in the purchase his father will be giving them up to $1.2 mil towards the purchase. We enclose a Stat Dec from him stating the funds are non- repayable gift. … Recommendation: Family connection is longstanding and all current commitments have been and are well serviced. We believe application is quite sound and well worthy of your consideration for approval. … 1. A Westpac internal record contains the following note dated 15 November 2004: Contribution to come from family gift of $1.2 mil – Non repayable with Stat Dec held. It appears that some aspects of the statutory declaration were not satisfactory to Westpac since the Westpac internal record contains the following note dated 8 December 2004: … note [the] declaration has been executed incorrectly – Witness has not complete [sic] Full name, Address etc Neither has Declarant – Please ensure this is completed before Settlement. However, another note in the Westpac internal record, also dated 8 December 2004, states "Declaration acceptable". 1. The primary judge drew the inference from those notes that some handwritten endorsements on the statutory declaration were added at some time after 8 December 2004 and prior to completion of the purchase of the Property. His Honour concluded that, by making the handwritten endorsements after 8 December 2004, Vincent confirmed his intention that the proposed advance would be a gift. 2. However, the primary judge clearly erred in drawing that inference. The copy of the statutory declaration that was sent by facsimile communication to Westpac on 11 November 2004 contained the handwritten endorsements. Further, the suggestion that the endorsements were placed on the statutory declaration after 8 December 2004 was not put to Vincent in cross-examination. More significantly, no submission was made to his Honour that such an inference should be drawn. 3. The primary judge accepted that there was a discussion between Vincent and Adrian during the weekend of 13 and 14 November 2004, from which Justine was excluded. They discussed how best to protect the Chaudhary family fortune from the effect of any future breakdown in the marriage of Justine and Adrian. His Honour considered that the discussion may have been prompted by the views expressed by Vincent's friends at lunch on the previous Friday. His Honour was satisfied that Vincent was aware of the steps that Adrian had taken to protect the Chaudhary family wealth, most recently by entering into the Financial Agreement. His Honour found that, prompted by Vincent's friends at the lunch, Vincent and Adrian probably considered whether the Financial Agreement was enough and probably hit upon a "belt and braces" solution. His Honour considered that Vincent had every confidence in Adrian and no concern that he would throw the family's fortune away. However, his Honour held, the risk of irretrievable breakdown of the marriage, although not necessarily a threat at that stage, was obvious to Adrian. 4. On 19 November 2004, Mr Fordham wrote to Adrian and Justine in connection with the purchase of the Property, noting that they were buying the Property jointly and saying that he needed a decision from them as to how they wished to hold the Property. In that regard, he attached a copy of a provision from the Financial Agreement that he said appeared to be the paragraph nearest to their consideration "in this matter". 5. Adrian and Justine replied by letter of 25 November 2004, signed by each of them, saying that they had purchased the Property at auction and that the purchase price was $1,530,000. The letter said that the purchase price together with stamp duty and other costs made up a total of $1,600,000. The letter said that the funds for the purchase would be provided as follows: VJ Chaudhary loan $1,200,000 Westpac joint loan $400,000 The letter said that Adrian and Justine were to take as tenants-in-common as follows: Adrian 1,200 + 200/1,600 87.5% Justine 200/1,600 12.5% This is as per our agreement. Please advise if these instructions are satisfactory. 1. The terms of the letter of 25 November 2004 are significant. First, Justine effectively acknowledged that the whole of the advance of $1,200,000 was being contributed to the purchase by Adrian and that she was contributing no part of that sum. Secondly, and more significantly, Justine and Adrian both acknowledged that the advance of $1,200,000 was a "loan" from Vincent. 2. The reference in the letter from Adrian and Justine to Mr Fordham to "our agreement" appears to be a reference to cl 32 of the Financial Agreement, which provided that each party would retain his or her separate property as his or her own property absolutely. The effect of cl 32 was that, in the event of the breakdown of the marriage of Adrian and Justine, the following would apply: * Adrian would retain Adrian's separate property as his own property absolutely; * Justine would retain Justine's separate property as her own property absolutely; * Any property acquired by either party by way of an increment to his or her separate property or in substitution for any separate property would remain the sole separate property of that party; * If any of Adrian's separate property, such as any real property received by Adrian by way of inheritance or a gift from his parents, was realised and applied to the acquisition of another property then that other property so acquired or the portion of it attributable to the proceeds received from the realisation of any property received by Adrian by way of inheritance would remain the separate property of Adrian; * The net balance of the other property so acquired, if any, which was not attributable to or traced from Adrian's separate property, would be joint property divisible in accordance with cl 33. The effect of cl 33 was that, in the event of the breakdown of the marriage, any joint property was to be divided equally. However, special provision was made for the division of the Darlinghurst apartment according to when the breakdown occurred and whether there were children of the marriage. 1. Clause 39 of the Financial Agreement provided that it was within the contemplation of the parties that Adrian may, in the future, receive substantial property from his parents, Vincent and Sareeta, during their lifetime, or consequent upon their death, by way of gift or inheritance. Adrian was to remain exclusively entitled during the marriage and in the event of its breakdown to any property so given to or inherited by him. 2. Vincent spoke to Mr Fordham after his conversation with Adrian on the weekend of 13 and 14 November 2004 and instructed him to prepare mortgage documents. His instructions were confirmed in writing by letter dated 25 November 2004 saying, relevantly, as follows: I wish to advise that I will be lending to Adrian and Justine $1,200,000.00 to assist in the purchase of [the Property]. I will take out a second mortgage on [the Property] and the funds will be at call with the interest rate set at the 6 month term deposit rate at Westpac Bank. Should I pass away and I have not called upon any or all of the loan then it is my desire to discharge the mortgage and the monies will be considered a gift and form part of Adrian's inheritance from me. Please advise if these instructions are satisfactory and call to discuss any issues you care to raise. 1. The primary judge considered that the third paragraph of that letter was significant as expressing what his Honour considered to be Vincent's actual intent. However, his Honour concluded that there must have been a further conversation with Mr Fordham, when either Vincent or Adrian provided more detailed instructions on the precise terms of the proposed mortgage. 2. In the course of cross-examination, Vincent said that he gave Mr Fordham instructions to prepare the Second Mortgage "to protect my money". The primary judge asked Vincent to identify the risk that he needed protection against. Vincent's response was: In case there is a marriage break up or something of that nature my money is not taken into account for their benefit. 1. His Honour accepted that "protecting money" was Vincent's object, in that a mortgage protects a lender against the risk that the debtor will be unable or unwilling to repay an advance. His Honour understood Vincent to mean that the money would not be taken into account as joint property of Adrian and Justine for division between them in the event of a breakdown in the marriage. That is to say, his Honour considered that Vincent's purpose was to keep the money in the Chaudhary family in the event of a breakdown in the marriage. 2. The primary judge referred to a statement made by Vincent to Adrian and Justine that his concern was that, if anything happened between Adrian and Justine and the Property had to be sold, he would be able to call on the loan, which could be paid back from the sale of the Property. He considered that the statement was consistent with Vincent being happy to give the money, provided it did not pass out of Chaudhary family control in the event of a divorce. His Honour accepted that Justine appreciated that there was going to be a mortgage of the Property in respect of the proposed advance by Vincent but no indebtedness would be incurred by her. 3. Justine denied reading the letter of 25 November 2004 from her and Adrian to Mr Fordham. However, the primary judge rejected that evidence. His Honour found that Justine was a party to a conversation when she was informed of the stratagem of Vincent and Adrian to protect, in the event of a breakdown of the marriage, the gift that Vincent was making to Adrian. His Honour considered that their approach was consistent with the terms of the Financial Agreement and that the terms of the Second Mortgage were broadly consistent with the intent expressed in the Financial Agreement. His Honour accepted that the stratagem was presented to Justine as a fait accompli at the meeting at the home of Vincent and Sareeta before the letters of 25 November 2004 were signed. His Honour accepted that, having satisfied herself that she would not be incurring any additional liability not contemplated by the Financial Agreement, Justine was accepting of the stratagem, although she was not told that the purpose of the stratagem was to quarantine the proposed advance from any claim that she might make in the event of the breakdown of the marriage. 4. On 1 December 2004, Vincent provided a cheque in the sum of $69,642 to cover the stamp duty on the purchase of the Property. On the same day, Vincent and Justine signed the Westpac Mortgage, probably at the office of Lawfund. 5. At a meeting in Mr Fordham's office on 7 December 2004, Justine signed a document entitled "borrower's acknowledgment". The document was addressed to her and relevantly provided as follows, including her answers: We have offered to provide a loan to you and to others in the letter of offer, which has been sent to you with this letter. Before you sign the letter of offer and return the documents, please read them carefully, answer the following questions, sign this form and return it to us with the other documents. Q1 Are you satisfied that you will receive a direct benefit from this loan? Yes: the purchase and loan are structured on legal advice and in accordance with a pre-nuptial agreement. Q2 Do you know that as a Borrower you are liable for the whole of the amount? Yes. Q3 Did you make your own decision, without influence from another person such as a bank officer or a broker, to be a co-borrower rather than a guarantor of this loan? Yes. YOU MAY WISH TO REFER TO YOUR LAWYER OR FINANCIAL ADVISOR BEFORE SIGNING THIS DOCUMENT. 1. The document was apparently required by Westpac and was witnessed by Mr Fordham. His Honour considered that it reflected Mr Fordham's understanding, and the understanding of Adrian and Justine, that the financial arrangements for the purchase of the Property were structured so as to give effect to the Financial Agreement, including that funds provided by Vincent would be for the benefit of Adrian and not Justine. His Honour found that each of them understood that. 2. The Second Mortgage bears the date 13 December 2004, which is the date of completion of the Purchase Contract. The primary judge accepted that it was Mr Fordham's practice to date mortgages that he witnessed with the date of completion, although the meeting with clients to sign the documents would usually occur some days prior to completion. His Honour held that Adrian and Justine attended Mr Fordham's office on only one occasion to sign documents in connection with the purchase and that that probably occurred on 7 December 2004. 3. The Second Mortgage, which was executed by each of Adrian and Justine, described Adrian and Justine as "the Mortgagor" and Vincent as "the Mortgagee". It provided that the Mortgagor mortgaged to the Mortgagee all of their "estate and interest" in the Property and that the Mortgagor covenanted with the Mortgagee that the provisions set out in annexure "A" and memorandum Q860000 were incorporated in it. 4. Annexure "A" to the Second Mortgage contains the following express covenants: 1. The Mortgagor Adrian Bikram Chaudhary will pay to the Mortgagee the principal sum of One million two hundred thousand ($1,200,000.00) dollars or so much thereof as shall remain unpaid, on demand. 2. Notwithstanding anything hereinafter contained the Mortgagor shall be entitled to discharge this mortgage at any time during the term of the Mortgage by the payment of a. Interest due to the next due date for payment; b. Payment of any outstanding amounts due under this mortgage; c. The principal sum then outstanding and the Mortgagee shall accept such sum in such time in full discharge of the Mortgagor's obligation under this security. 3. The Mortgagor will observe the provisions set forth in the Memorandum filed in the Registrar General's Office as Number Q860000 which provisions are deemed to be incorporated herein. ... 5. The parties acknowledge that the co-borrower Justine Meredith Williams-Chaudhary shall have no personal liability under this security and her liability shall be limited to the right of the lender to exercise a power of sale in respect of the property secured under this mortgage. 1. There are anomalies in the drafting of those provisions. In cl 1, Adrian is described as "the Mortgagor" without mention of Justine. Further, Justine is described in cl 5 as the "co-borrower", when on no view was she borrowing anything from Vincent. The joint letter to Mr Fordham of 25 November 2004 indicated that Adrian was to be the recipient of the whole of the $1,200,000, since his share of the tenancy-in-common was calculated on that basis. It is clear that, whether or not the advance was a loan or a gift, it was not intended to be a loan to Justine and she was not to be treated as contributing any part of that sum to the purchase price of the Property. It may, therefore, have been more appropriate to refer to Justine as "co-mortgagor", since it is clear that the intent of the Second Mortgage was to give Vincent a security interest in the whole of the Property and not simply in Adrian's undivided share. 2. The primary judge was greatly impressed with Mr Fordham as a witness. His Honour considered that, from the content of Mr Fordham's legal work in evidence and from his bearing and demeanour in the witness box, Mr Fordham was "the very model of a conscientious and intelligent suburban solicitor". While Mr Fordham did not have a specific memory of every detail of the meeting with Adrian and Justine, and did not make a file note, he explained his usual practice. Based on that practice, he explained the terms of the Second Mortgage to Justine at the meeting. Mr Fordham said that it has never been his usual practice to have a client sign a document without explaining the effect of the document to the client. Justine gave evidence of Adrian exhibiting menacing body language that caused her to cry. Mr Fordham said that if Justine acted in the way she described, he would have reported the matter to Vincent and would not have allowed her to sign the mortgage. Mr Fordham had no recollection of Vincent telling him that he intended to make a gift and was sure that he had not received instructions that Vincent intended to make a gift. He said that otherwise he would not have prepared the mortgage. 3. The primary judge accepted Justine's account of Adrian expecting her to go along with him in matters financial. However, his Honour did not accept that Justine was "ambushed" with the Second Mortgage or that she became distressed, as she alleged, or that she was pressured by Adrian to sign the Second Mortgage. His Honour was satisfied that a solicitor of Mr Fordham's experience and integrity would not have allowed a client in the state in which Justine says she was, to sign an important legal document. 4. Completion of the Purchase Contract took place at 2pm on 13 December 2004. The balance of the purchase price was paid by bank cheques provided by Westpac for the sum of $400,000 and by Vincent for the sum of $977,714.42. On 20 December 2004, Adrian and Justine became registered proprietors of an estate in fee simple in the Property as tenants-in-common in the shares indicated above and the Westpac Mortgage was registered. 5. On 13 April 2005, Mr Fordham and Adrian discussed the Second Mortgage. Adrian subsequently provided a cheque for the stamp duty and registration fees in respect of the Second Mortgage. A fine was payable to the Office of State Revenue because the stamping was out of time. Mr Fordham paid the fine and Adrian reimbursed him on 15 April 2005. On the same day, Adrian instructed Mr Fordham not to lodge the Second Mortgage for registration but to keep it on the file until a decision was made about registration. 6. On 27 April 2007, Mr Fordham wrote to Adrian asking him to arrange for Vincent to contact him so that he could close the file. In evidence, Mr Fordham said that he was concerned that a million dollars had been handed out with no real security. On 8 May 2007, Vincent attended Mr Fordham's office to discuss the question. Mr Fordham confirmed the terms of the discussion by letter to Vincent dated 11 May 2007, which was relevantly in the following terms: The present position is: 1. The mortgage in the form I provide has been completed and has been stamped. 2. The mortgage has not been lodged for registration, nor has a caveat been entered on the title to protect your position. As discussed you need to consider whether you wish to protect your substantial advance of $1.2m by lodging a caveat or registering the mortgage, but either action will, of course, potentially put the current lenders to Adrian and Justine on notice of this borrowing and may cause them certain financial difficulties. I have had the benefit of perusing the pre-nuptial agreement and that document provides for an equal division of the assets acquired by the parties after June 2000 but prior assets remained in the names of the parties and family inheritances remain with the party who received it. This property is, of course, jointly owned and on the decease of either party the other will be the absolute recipient of the property, subject to its liabilities. Unless I hear from you with other directions I will take the view that you will take the risk of leaving the mortgage unregistered, notwithstanding the substantial loan that you have made. 1. By email dated 15 May 2007, Adrian pointed out to Mr Fordham that the Property was held by him and Justine as tenants-in-common in the proportions of 87.5 per cent and 12.5 per cent respectively. Adrian said that the effect was that his will would dictate where his portion went and that that was an extra layer of protection to the Second Mortgage. On 21 May 2007, Mr Fordham wrote to Vincent noting that he made an error in his letter of 11 May 2007 and that the Property was owned as to 87.5 per cent by Adrian and as to 12.5 per cent by Justine. 2. The primary judge concluded that, when Vincent advanced the sum of $1,200,000, he intended to make a gift to Adrian and that, when he received the benefit of that advance, Adrian intended to accept it as a gift. His Honour pointed to several factors as follows: * Adrian contemplated from the beginning of his relationship with Justine that he was likely to receive a substantial gift or transfer of wealth from his parents during his lifetime; * Vincent readily offered to help to purchase a home in a fixed amount that he clearly already had in mind; * Adopting the form of a mortgage was an afterthought rather than an integral part of the decision to advance funds to help with the purchase; * Clear statements were made by both Vincent and Adrian to Westpac that the advance was a gift; * Those statements were made by or on behalf of both of them more than once during the currency of the conveyancing transaction; * The principal concern of Vincent and Adrian was to protect that portion of the family wealth invested in the Property from a claim by Justine in the event of a marriage breakdown; * The sole purpose of the Second Mortgage was to provide an extra level of protection over and above the protection that may have been provided by the Financial Agreement; * Vincent was content that the advance should be treated as part of Adrian's inheritance, should Vincent die prematurely; * Vincent was content not to take legal advice to register the Second Mortgage or protect it with a caveat until after the marriage broke down; * Adrian was concerned that the total arrangement be "structured" in accordance with the Financial Agreement, supported by the Second Mortgage to protect the asset and not just the money; and * Vincent and Adrian decided to "treat" the advance "as a mortgage", suggesting that they decided to deal with the advance as a loan only "as a matter of form, not substance", to give effect to their stated purpose of obtaining extra protection against the risk of dissipation of the family wealth in a divorce settlement. His Honour accepted that none of those factors on its own would be decisive or conclusive evidence of intention but that, taking them all together, he was convinced that the advance was a gift rather than a loan. 1. The primary judge's conclusion is curious in two respects. First, Vincent's undisclosed subjective intention is not in any way determinative of the question of whether or not the advance constituted a gift or a loan. Secondly, since Vincent and Adrian each wanted to obtain protection against the risk of dissipation of the family wealth in the event of a divorce settlement, they clearly did not want the advance to be a gift to Adrian, such that it would be property of Adrian that could be available for partition in proceedings in the Family Court. 2. The primary judge concluded further that, even if the advance was a loan, it was an unjust contract in accordance with the relevant provisions of the Contracts Review Act. That question is addressed below. The Appeal 1. In his amended notice of appeal of 24 February 2017, Vincent relies on 10 grounds. The grounds may be reduced to five issues, which may be restated as follows: 1. The primary judge erred in concluding that the advance made by Vincent was a gift to Adrian, in circumstances where his Honour accepted that, prior to completion of the purchase of the Property, it was agreed that the advance would be secured by mortgage, a matter that was communicated to Justine. 2. The primary judge erred in failing to hold that, in the absence of any suggestion of sham, the effect of the Second Mortgage was to create an obligation on the part of Adrian to repay the sum of $1,200,000 and to pay interest and that that obligation was secured on the Property, albeit that Justine had no personal liability for repayment of the advance or interest. 3. The primary judge erred in concluding that any contract between Vincent and Justine was unjust in the circumstances in which it was made, in that Justine's right to possession of the Property, as a tenant-in-common, was foregone once default occurred in the payment of the sums secured by the Mortgage. 4. The primary judge erred in concluding that the appropriate relief in respect to the injustice found by his Honour was an order that Vincent execute a discharge of the Second Mortgage, rather than defer the exercise of the power of sale conferred on Vincent by the Second Mortgage. 5. The primary judge erred in concluding that the Second Mortgage and any loan contract were unjust on a basis that was not pleaded, was not argued by Justine and was not explained in his Honour's reasons. 1. Those five issues can conveniently be dealt with under two heads. The first head relates to the question of whether the advance by Vincent was a gift rather than a loan. The second head concerns relief under the Contracts Review Act, on the assumption that the advances are properly to be characterised as loans rather than gifts. Loan or Gift 1. The advances made by Vincent were made by three payments. First, he drew a cheque payable to the agent for payment of the deposit. Second, he paid the stamp duty on the Purchase Contract and costs in connection with the purchase. Finally, he advanced the balance of the purchase price apart from the amount of the loan from Westpac. 2. In relation to the deposit, it is significant that Vincent did not make an advance direct to Adrian or to Adrian and Justine. Rather, he paid a sum of money direct to the agent following the successful bid at auction. Certainly, that payment was made at a time when Vincent had evinced to Adrian and Justine the intention of making a gift. However, the funds that were provided by way of deposit did not become the absolute property of anyone. 3. The appropriate characterisation in relation to the funds that were the subject of the deposit is that they were the subject of a conditional gift by Vincent to Adrian. The condition was that completion of the Purchase Contract take place in accordance with its terms. By reason of the Purchase Contract, the vendor acquired rights in relation to the deposit. Those rights, however, were contingent. If the purchase was completed in accordance with the Purchase Contract, the vendor was entitled to have the deposit paid over, subject to any right of the agent to deduct a commission. If, by reason of default on the part of Adrian and Justine, the purchase was not completed in accordance with the Purchase Contract, the vendor had a contingent right to forfeit the deposit and the agent would be required to account to the vendor for the deposit. However, if, by reason of default on the part of the vendor, the purchase was not completed in accordance with the Purchase Contract, the deposit would be repayable to Adrian and Justine. In that last circumstance, the deposit would return to Vincent, since it is clear that Vincent did not evince any intention to make an absolute gift of the deposit to anyone. 4. Thus, the funds provided by Vincent for the deposit were in the nature of a conditional gift to Adrian. The condition was that completion of the Purchase Contract take place in accordance with its terms. In fact, the Purchase Contract was completed in accordance with its terms. That might suggest that the gift became unconditional. However, the conditional nature of the gift allowed the character of the payment to change by reason of subsequent agreement between the parties. It is clear that, when Justine agreed that the $153,000 should be part of the loan to Adrian, secured by a mortgage over the Property (including her interest in the Property), that is what happened. The character of the payment changed by agreement, such that the amount of the deposit was treated as part of the loan made by Vincent to Adrian. 5. The question of whether or not the advances made by Vincent are to be properly characterised as loans or gifts depends upon a consideration of what was said and done by Vincent and is not to be determined by reference to any uncommunicated subjective state of mind about which inferences may or may not be drawn. The characterisation of the advance must depend upon the objective evidence as to what was said by Vincent to Adrian and Justine and what Vincent did, including, for example, by way of documentation. While Justine's subjective understanding may have some relevance to the question of whether any transaction was unfair in the circumstances in which it was made, for the purposes of the Contracts Review Act, it can have no bearing on the characterisation of the advances. In order to determine how the advances should be characterised, either as a loan or as a gift, the relevant question is what was said and done by Vincent, on the one hand, and Adrian and Justine on the other. 6. By the time of payment of the stamp duty and costs and the payment of the balance of the purchase price on completion of the Purchase Contract, Vincent had made it unequivocally clear to both Adrian and Justine that he was intending that the whole of the contribution that he was making towards the purchase of the Property was to be by way of loan. Adrian was to have a personal obligation to repay the loan in specified circumstances. On the other hand, Justine was to have no personal liability in respect of the loan. That that was the arrangement between the parties is unequivocally clear from the terms of the Second Mortgage and the other communications to which Vincent, and Adrian and Justine, were parties. 7. Thus, either on Wednesday 17 November 2004 or over the weekend of 20 and 21 November 2004, Vincent had a conversation with Adrian and Justine. Vincent said that he and Sareeta wanted to help the two of them and that he had about $1,200,000 that he could make available to them. He said that it would make sense to utilise the whole amount so that they could minimise the loan that they needed from Westpac. 8. Vincent stated in his affidavit that Adrian said that he would only accept the money from Vincent if there was a level of protection put in place for the advance. He said that if something happened between Justine and him, he wanted Vincent's money returned to him. He said that Justine and he had also discussed it and that Justine had said that that was fine but she did not have any money to repay Vincent. Adrian said that the money to repay was in the value of the Property, which should be sufficient security for Vincent's loan, to be secured by a mortgage. Vincent then said that he would get Mr Fordham to prepare an agreement and a second mortgage and asked whether Adrian and Justine were happy for him to do that. 9. When Justine asked whether she and Adrian would have to pay interest on the loan, Vincent said that they could perhaps set an interest rate for the loan but that he would give them some time to settle in and start their family before he expected any repayments. Adrian said that after five years they should be able to make repayments. He also said that he wanted Vincent to earn a return on his money and that they would use the time to "pay down" the loan from Westpac. In that way, he said, they could refinance if needed since Vincent needed to have "an exit plan". 10. Vincent said that he was not so concerned about making a return on the money but that, if anything happened between the two of them and the Property had to be sold, he would call on the loan, which could be paid back from the sale. Adrian said that that was a good solution and that, in that way, Vincent was protected and he and Justine did not have to worry about making large mortgage repayments to Westpac. He asked Justine whether she was happy to move forward along those lines. 11. In his affidavit, Vincent said that Justine responded that she was, but had a few questions. She asked what would happen if for some reason Vincent called on the loan or sought repayments without the Property being sold. She said that there was no way that they could make repayments. She also said that if the house was sold and there was not enough money to cover Vincent's loan, she would be unable to pay Vincent back. Adrian said they could do it so that only he was responsible for paying back Vincent's loan, the consequence being that even if the Property was sold and there was not enough money, the burden would fall on him to pay Vincent back. Justine replied "OK" and said that that removed the obligation on her to repay any shortfall on the loan. 12. On 25 November 2004, in response to Mr Fordham's letter of 19 November 2004, Adrian and Justine confirmed that the funds for the purchase would include a "loan" of $1,200,000 from Vincent. It appears to be common ground that the reference to that arrangement being "as per our agreement" is a reference to the Financial Agreement. The primary judge attached significance to the fact that the phrase "Adrian's separate property" was defined as including "any property, moneys or jewellery gifted or advanced after the date of this Agreement to Adrian by his parents". His Honour focussed on the word "gifted", but appears to have ignored the word "advanced". Thus an advance by Vincent was entirely consistent with the Financial Agreement. 13. The Second Mortgage, which was executed by both Adrian and Justine, provided that each of them, as Mortgagor, mortgaged to Vincent, as Mortgagee, all of their "estate and interest" in the Property. The mortgage also provided that Adrian and Justine, as Mortgagor, covenanted with Vincent, as Mortgagee, that the provisions set out in the annexure and memorandum Q860000 were incorporated. By cl 1 of annexure "A", Adrian promised to pay to Vincent the principal sum of $1,200,000. By cl 5, the parties acknowledged that Justine would have no personal liability under the security and her liability would be limited to the right of Vincent to exercise a power of sale in respect of the Property. 14. In addition, cl 6 of memorandum Q860000 provided that, upon default being made in payment of the principal sum or any part thereof, or of the interest thereon or any part thereof, Vincent, as Mortgagee, would be at liberty to exercise all or any of the powers of a mortgagee immediately upon or at any time after default, subject however to compliance with any requirements of the Real Property Act or the Conveyancing Act. Clause 11 provided that all powers, rights and remedies implied in favour of or conferred upon mortgagees by the Real Property Act or the Conveyancing Act were to be an enlargement and not in curtailment of the powers, rights and remedies conferred by the mortgage. 15. The primary judge in fact concluded that the sole purpose of the mortgage arrangement was to provide an extra level of protection over and above that that might have been provided by the Financial Agreement. That conclusion is in direct conflict with his Honour's conclusion that the advances by Vincent constituted a gift to Adrian. In the absence of any suggestion that the arrangements were a sham, it must be concluded that the only way in which the mortgage arrangement could provide an extra level of protection was to characterise the advances as a loan to Adrian secured by the Second Mortgage. 16. While Vincent may have intended at the time of the auction to make a gift, it is clear that he abandoned that intention well before completion of the Purchase Contract. The advance was not made until completion. By that time, it is clear beyond doubt that Vincent, Adrian and Justine all understood that the advance was to be by way of loan repayable on demand and secured by the Second Mortgage. The primary judge erred in concluding that any part of the advance of $1,200,000 constituted a gift to Adrian. Contracts Review Act Claim 1. By her cross-claim filed on 24 March 2015, Justine sought, in the alternative to a declaration that the advance was a gift and an order requiring Vincent to cause the Second Mortgage to be discharged, relief under the Contracts Review Act. She sought a declaration that the procuring of the Second Mortgage and "the loan dated 13 December 2004", which she defined as "the contract", was unconscionable and unjust for the purpose of the Contracts Review Act in addition to an order setting aside "the contract". 2. The primary judge dealt with the claim under the Contracts Review Act on the basis that Justine was bound by the terms of the Second Mortgage. His Honour concluded that "the relevant contract" was the arrangement made in November 2004 between Vincent and Adrian, on the one hand, and Justine, on the other, the substance of which was the agreement that Vincent's gift to Adrian would be protected by a mortgage to which Justine would be a party, and the Second Mortgage itself. 3. In her statement of cross-claim, apart from alleging an estoppel, which was not made out in the proceedings before the primary judge [10] and was not the subject of the appeal, Justine alleged that she was "forced to give a mortgage in favour of" Vincent, and that Adrian placed her in a position of duress, "wherein she was subjected to unfair pressure and undue influence", and forced her to give a mortgage and to sign various documents in circumstances where she was subject to a special disability. The primary judge rejected those allegations. Nevertheless, his Honour concluded that Justine's agreement to the Second Mortgage was "an unjust contract" because the purpose of the Second Mortgage was to deprive her of any right to relief against Adrian's share of the Property under the terms of the Family Law Act, as well as her right to possession arising from her title as a tenant-in-common, without the provision of any tangible benefit in return. 4. The primary judge concluded that "the contract" was unjust, essentially for the reason that it required Justine to forego her right to possession of the Property as a tenant-in-common if Vincent and Adrian chose "to trigger" the legal requirements for the exercise of a power of sale in the event of a breakdown in her marriage to Adrian. That in itself seems to involve a misapprehension. Adrian had no right to trigger anything. It was a matter for Vincent to make demand for repayment of the loan to Adrian, if he chose to. 5. The primary judge went on to say that, in those circumstances, even assuming the advance was a loan to Adrian only, it was not reasonably necessary for the protection of the legitimate interests of either Vincent or Adrian to require Justine to give up valuable proprietary rights. His Honour considered that such a provision was completely unreasonable because its purpose was to dispossess Justine in the event of a breakdown in the marriage at a time, given her comparative economic disadvantage, when she was likely to be most vulnerable because of her status as a homemaker and a mother. That was not the case that was pleaded by Justine in her cross-claim. Further, it was not a case advanced by her in her submissions. In any event, it is misconceived. 6. The primary judge accepted that Justine knew that she was giving a mortgage over her interest in the Property, even though she was not incurring a personal obligation to repay Vincent the amount of the loan or any interest due to Vincent under the mortgage. She must be taken to have understood that the mortgage included her interest in the Property as security for the obligation Adrian had to repay the loan to Vincent. It is not necessarily unjust, even where the co-mortgagor has no personal obligation to repay the loan, to stipulate that upon the other co-mortgagor defaulting, the mortgagee may exercise the power of sale so as to bind the first co-mortgagor's interest. Such a stipulation is unlikely to be unjust if the first co-mortgagor is not subjected to undue pressure, derives a benefit from the arrangement and understands the nature of the arrangement. 7. But for the advances totalling $1,200,000, Justine would not have had the opportunity of acquiring a 12.5 per cent interest in the Property. She incurred a joint liability to Westpac in respect of the loan of $400,000 but, apart from that, she was not exposed to a personal liability to repay moneys used to acquire the Property. The loan made by Vincent to Adrian was repayable on demand, and the Second Mortgage was given over the whole of the Property to secure that loan. Justine had no personal liability to repay the loan from Vincent and understood the nature of the arrangement by which her interest in the Property constituted part of the security for Vincent's loan. In those circumstances, there was nothing unjust in any contract between Justine and Vincent, or between Justine and Adrian, on the one hand, and Vincent, on the other, in relation to the advances by Vincent or the Second Mortgage. Interest 1. Vincent's only claim in the Common Law Proceedings was for possession of the Property. He did not seek judgment for the sum alleged to be owing by Adrian under the Second Mortgage. 2. As indicated above, the Property was sold after orders were made by the primary judge. Vincent subsequently amended the relief sought by him by filing an Amended Notice of Appeal on 24 February 2017, by which he claims declarations that, prior to the sale of the Property, the Second Mortgage secured a debt of $1,200,000 plus interest and that, after the sale of the Property, he is entitled to a charge over the net proceeds of sale to secure a debt of $1,200,000 plus interest. 3. Under cl 4 of Annexure "A" to the Second Mortgage, Adrian promised to pay interest on the principal sum, if so demanded by Vincent, at the rate of interest equal to the six month term deposit rate of Westpac payable during the currency of the loan and varying in accordance with the changing rates of Westpac. The parties have agreed that the amount of interest to which Vincent would be entitled, on the assumption that the Second Mortgage is valid according to its terms, would be $474,696.99 as at 8 June 2017 and that interest would accrue at the rate of $59.17 per day thereafter. Thus, the amount that would have been required to discharge the Second Mortgage is $1,533,834.26 plus interest, from 8 June 2017 until the date on which orders are made in the appeal, at the rate of $246.57 per day (the Secured Amount). Conclusion 1. It would follow from the above that the primary judge erred and should have concluded that the advances of $1,200,000 made by Vincent constituted a loan to Adrian, secured by the Second Mortgage but without any liability on the part of Justine to repay the amounts of the loan or interest. His Honour also erred in so far as he concluded, albeit contingently, that any arrangement between Vincent and Justine was unjust within the meaning of the Contracts Review Act. 2. The following orders should be made: 1. Appeal allowed. 2. Orders of the primary judge be set aside and in lieu thereof: (1) Declare that a sum equal to $1,674,969.99 plus interest, from 8 June 2017 until the date of these orders, at the rate of $59.17 per day, be paid to the plaintiff out of the controlled monies account established pursuant to the order made by the Family Court of Australia on 16 June 2016 in proceedings between the first respondent and the second respondent. (2) Order the second defendant pay the plaintiff's costs of the proceedings. (3) Order that the proceedings be otherwise dismissed. 3. The second respondent pay the appellant's costs of the appeal. ********** Endnotes 1. Chaudhary v Chaudhary [2016] NSWSC 1423 at [4]. 2. See, for example, Senate Economic References Committee, Out of Reach? The Australian housing affordability challenge (May 2015). According to the Grattan Institute, 58 per cent of Australians aged 25 to 34 owned their own home in 1986. By 2016 that figure had decreased to 45 per cent, with the decrease being particularly marked over the last decade. See J Daley, AAA Housing for older Australians, (Grattan Institute, June 2017). 3. See Eberstaller v Poulos (2014) 87 NSWLR 394; [2014] NSWCA 211 at [14]-[15]. 4. See R v Commonwealth Court of Conciliation and Arbitration; Ex parte Barrett (1945) 70 CLR 141 at 154; [1945] HCA 50; CGU Insurance Ltd v Blakeley [2016] HCA 2 at [28]; 90 ALJR 272. 5. See Grace v Grace (2014) 85 NSWLR 688; [2014] NSWCA 86 at [16]. 6. See Fountain v Alexander (1982) 150 CLR 615 at 624; [1982] HCA 16; The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 209; [1984] HCA 82; Bate v Priestley (1989) 97 FLR 310 at 329-330; [1990] FLC 90-508. 7. Fountain v Alexander (1982) 150 CLR 615 at 624; [1982] HCA 16; The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 209; [1984] HCA 82; See also Bate v Priestley (1989) 97 FLR 310 at 327, 329-330; [1990] FLC 90-508. 8. See The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185; [1984] HCA 82. 9. See The Queen v Ross-Jones; Ex parte Green (1984) 156 CLR 185 at 196-198, 210-211; [1984] HCA 82; Bate v Priestley (1989) 97 FLR 310 at 330-331; [1990] FLC 90-508. 10. See Chaudhary v Chaudhary [2016] NSWSC 1423 at [111]. Amendments 20 September 2017 - Amendment made to order 2(1) 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: 20 September 2017