Supreme Court New South Wales Medium Neutral Citation: Citigroup Pty Ltd (ACN 004 325 080) v Wernhard [2019] NSWSC 132 Hearing dates: 7 and 21 June 2018 Date of orders: 01 March 2019 Decision date: 01 March 2019 Jurisdiction: Equity Before: Slattery J Decision: Declarations made that the plaintiff is entitled to an equitable mortgage over the Watanobbi property and that the mortgage secures all monies owing to the plaintiff under the Second Loan Agreement. The defendants ordered to execute a first Mortgage over the Watanobbi property to secure the defendants' obligations under the Second Loan Agreement; or if in default, that the Registrar in Equity execute the Mortgage in their stead. Plaintiff ordered to give an account to the defendants. The defendants/cross-claimants' Cross-Claim is dismissed. The costs of the proceedings are reserved for further argument. Catchwords: REAL PROPERTY – equitable mortgage – discharge of mortgages – three properties owned by the defendants – defendants enter into loan agreement with plaintiff bank for a line of credit – loan agreement secured by three mortgages over the three properties – defendants request plaintiff to discharge one mortgage, so one of the properties can be sold – plaintiff delivers a Discharge of Mortgage for that property to the defendants – plaintiff also mistakenly delivers to the defendants the two other Discharges of Mortgages – defendants register all three Discharges of Mortgages – one of the properties is sold by the defendants without the plaintiff's knowledge or consent – whether the plaintiff is entitled to equitable relief to have the mortgage reinstated over the remaining property owned by the defendants. Legislation Cited: Associations Incorporation Act 2009 Australian Securities and Investment Commission Act 2001 (Cth), ss 28, 29 Contracts Review Act 1980 National Consumer Credit Protection Act 2009 (Cth) Real Property Act 1900, ss 41, 42 Cases Cited: Bahr & Anor v Nicolay & Ors (No 2) (1988) 164 CLR 604 Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 Breskvar v Wall (1971) 126 CLR 376 Chillingworth v Chambers [1896] 1 Ch 685 Dixon v Barton [2011] NSWSC 1525 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Forsyth v Blundell (1973) 129 CLR 477 Grundy v Ley [1984] 2 NSWLR 467 Hanson v Keating (1844) 4 Hare 1 Lipkin Gorman v Karpnale Ltd [1991] 3 WLR 10 Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41 Perpetual Trustees Victoria Limited v Burns [2015] WASC 234 State Bank of New South Wales v Berowra Waters Holdings Pty Ltd & Ors (1986) 4 NSWLR 398 Stefanetto v Forestry Commission of New South Wales [1975] 1 NSWLR 332 Stern v Macarthur (1988) 165 CLR 489 Taylor v Johnson (1983) 151 CLR 422 Tidd v Lister (1852) 10 Hare 140 Tutt v Doyle (1997) 42 NSWLR 10 Texts Cited: JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) Category: Principal judgment Parties: Plaintiff: Citibank Pty Ltd (ACN 004 325 080) First defendant: Guy Davey Wernhard Second defendant: Eunice Maree Wernhard Representation: Counsel: Plaintiff: P Newton Defendants: In person Solicitors: Plaintiff: Damian Ward, Mills Oakley Defendants: In person File Number(s): 2017/293406 Publication restriction: No Judgment 1. The plaintiff, Citigroup Pty Ltd ("Citigroup") conducts banking operations. In 2005,Citigroup loaned money to Mr Guy Davey Wernhard and Mrs Eunice Maree Wernhard (together "the Wernhards"). Citigroup took first registered cross-collateralized mortgages as security for its loan, over each of three properties owned by the Wernhards: an investment property in Raymond Terrace, another investment property in South Tamworth and the third, their residence, in Watanobbi. 2. In 2012, the Wernhards wanted to sell the Raymond Terrace property. Citigroup agreed, provided the proceeds of its sale were applied to reduce the Wernhards' loan. The sale went ahead. Citigroup's lawyers attended the July 2012 conveyancing transaction following the sale. 3. But Citigroup's lawyers made a costly mistake. In conformity with the Wernhards' request, Citigroup had instructed its lawyers to discharge its mortgage over the Raymond Terrace property but to leave the other two mortgages in place to secure the outstanding loans. But in error, the lawyers handed over to the Wernhards' solicitor the Certificates of Title for all three properties, together with their Mortgages and Discharges of Mortgage in registrable form. 4. Citigroup's mistake is not in issue. It is difficult to see how it could be. At the pre-trial directions hearing on 18 May 2018, the Wernhards conceded that Citigroup had made a mistake in enabling the discharge of the mortgages over the South Tamworth and Watanobbi properties. 5. Remarkably, Citigroup failed to notice this error. Even more remarkably, that failure persisted over 4 years. In September 2016, Citigroup finally demanded reinstatement of its security. 6. But by then, only one property was left. In late July 2012, the Wernhards had discharged the mortgages over the South Tamworth and Watanobbi properties. In May 2013, the Wernhards had sold the then-unencumbered South Tamworth property, without telling Citigroup. The Wernhards applied the proceeds of its sale without Citigroup's prior consent and other than in immediate discharge of their loan obligations to Citigroup. At the commencement of the hearing, they still retained the Certificate of Title for the Watanobbi property. The Court ordered that the certificate be brought into Court, pending the outcome of these proceedings. 7. Citigroup contends, and the Wernhards contest, that the Wernhards knew or had reason to know of its mistake. Citigroup claims it would be unconscionable for the Wernhards now to assert unencumbered title to the Watanobbi property and seeks reinstatement of its mortgage over that remaining property. 8. Citigroup has demanded that the Wernhards re-execute a Mortgage in registrable form, so as to re-instate its security over the Watanobbi property. The Wernhards have not done so. 9. The plaintiff commenced these proceedings by way of Statement of Claim filed on 28 September 2017. Mr Wernhard filed a Defence on 24 October 2017. Mrs Wernhard filed a Defence on 17 November 2018. The Wernhards filed a Cross-Claim on 28 February 2018. Citigroup filed a Defence to the Cross-Claim on 3 May 2018. 10. Mr P Newtown of counsel appeared for Citigroup at the hearing, instructed by Mr Damian Ward of Mills Oakley. The Wernhards represented themselves and were both present throughout the hearing. With Mrs Wernhard's express consent given to the Court, Mr Wernhard spoke in submissions for Mrs Wernhard, as well as for himself. 11. The Wernhards' defence raises a range of issues. Many cannot be recognised as available legal defences to a claim such as Citigroup's. But one constant theme of these defences, is Citigroup's alleged failure from 2014 to consider the Wernhards' alleged entreaties to Citigroup to reduce the complexity of their loan structure. The Wernhards say their entreaties were aimed at reducing their interest burden, particularly because the sole remaining security property was their own domestic residence, the Watanobbi property. 12. But this contention in the Wernhards defence was not clearly expressed as a breach of a particular provision of the loan agreements between the Wernhards and Citigroup. It was expressed at times as a contravention of a statute governing the credit agreements between Citigroup and the Wernhards, but whether Citigroup's conduct can be so characterised is debatable. But the Court nevertheless dealt with the Wernhards' contention as raising an issue that could go to the terms on which equitable relief might be granted to Citigroup, if it were otherwise successful. 13. And the Wernhards have Cross-Claimed. They contend on the Cross-Claim that they have suffered loss and damage by reason of Citigroup's failure from 2014 to consider their entreaties to consolidate their loans. Citigroup contends that the Cross-Claim does not plead any cause of action known to law against it. 14. The main issues for trial are therefore: (1) whether Citigroup is entitled in equity to a mortgage over the Watanobbi property, by reason of Citigroup's mistake; if so, (2) whether the Wernhards should be required to execute a Mortgage to Citigroup in registrable form over the Watanobbi property, as security for monies they presently owe to Citigroup, or does any defence that they raise succeed against Citigroup's claim; (3) have the Wernhards suffered any recoverable loss as pleaded in their Cross-Claim, by reason of Citigroup's conduct after 2014: and (4) by reference to the Wernhards' Defence and Cross-Claim, should the Court impose terms on any grant of relief to Citigroup by reason of Citigroup's conduct after 2014. 15. The following is a narrative of the relevant history. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' contentions are being recorded in these reasons. 16. In order toreduce the risk of identity theft arising from the publication of this judgment, the narrative below does not identify the title particulars of any of the three properties. Nor for the same reason does it identify precise account names or account numbers of any of the bank accounts involved. The Wernhards, Their Three Properties and Citigroup's Mistake – 2005 to 2019 1. Before commencing the narrative of findings, the Court would ordinarily make some preliminary observations about the credibility of various witnesses. But after discussion with the Court at the close of the reading of the affidavit evidence, Mr Wernhard decided not to cross-examine any of Citigroup's witnesses. And Mr Newton of counsel elected not to cross-examine the Wernhards. The case proceeded directly to final submissions. 2. Mr Wernhard made submissions to the Court, during which he explained his pleaded defences and the Cross-Claim, and answered many questions from the Court. 3. Two features of this process were of note. First, Mrs Wernhard was asked by the Court whether she consented to her husband speaking on her behalf and she said she did. From time to time, the Court sought from her clarification whether she continued in that attitude. And she always said that she did. She was at all times present listening to what her husband said, so the Court has treated what he said as said on her behalf as well. 4. Secondly, quite early during Mr Wernhard's submissions, the Court made clear that what he said might be used as an admission in the proceedings. His submissions contained admissions about many matters, including his state of mind at the time of Citigroup's mistake, and about his and his wife's conduct. What he said, in the course of those submissions, has been quoted from time to time by the Court in the reasons below and treated as an admission against him and Mrs Wernhard. 5. But the inferences the Court draws from those admissions can also readily be drawn without reliance upon the admissions. All the admissions really do is strengthen already available inferences against the Wernhards. The Two Loan Agreements – April and October 2005 1. Citigroup commenced providing financial accommodation to the Wernhards in April 2005. The Wernhards were then the registered proprietors of the Raymond Terrace property. Mr Wernhard was the registered proprietor of the South Tamworth property. And the Wernhards were the registered proprietors of the Watanobbi property. Watanobbi is a suburban area on the Central Coast of New South Wales. The Wernhards were living in the Watanobbi property in April 2005 and have lived there ever since. 2. On 29 April 2005, Citigroup provided a line of credit of $85,000 to the Wernhards ("the First Loan Agreement"). The Wernhards mortgaged the Raymond Terrace property as security for monies owing under the First Loan Agreement. On 30 May 2005, Citigroup advanced the sum of $37,947.40 to the Wernhards under the First Loan Agreement. 3. On 14 October 2005, the First Loan Agreement was varied enabling Citigroup to provide a further line of credit to the Wernhards, up to a maximum limit of $524,000 ("the Second Loan Agreement"). As security for the monies owing under the Second Loan Agreement, Mr Wernhard mortgaged the South Tamworth property, and the Wernhards mortgaged the Watanobbi property. The Second Loan Agreement required all three properties to be provided as security for the loan monies owing under it. 4. The $524,000 credit limit under the Second Loan Agreement represented the total borrowing permissible on three separate accounts that the Wernhards held with Citigroup. These three accounts are identified in the table below: Account no. XXXXXX749 $309,000 Account no. XXXXXX200 $85,000 Account no. XXXXXX756 $130,000 1. On 8 November 2005, Citigroup advanced the sum of $386,510.65 to the Wernhards in accordance with the Second Loan Agreement. This was in addition to monies already advanced under the First Loan Agreement. The Wernhards were compliant with their repayment obligations under the Second Loan Agreement until 2017. Sale of the Raymond Terrace Property – December 2011 to July 2012 1. On 26 December 2011, the Wernhards requested a discharge of the Raymond Terrace property mortgage, for the purposes of selling that property to a third party. 2. On 4 July 2012, Citigroup instructed its solicitors, Galilee Solicitors, to discharge the Raymond Terrace mortgage. Citigroup sent a "Securities Release Request Form" to Galilee Solicitors, giving instructions for which securities were to be released upon the settlement of the sale of the Raymond Terrace property. The Securities Release Request Form was clear that the only security being released was over the Raymond Terrace property. This was in conformity with the request made by the Wernhards' solicitors, in a letter of 20 June 2012, to the discharge department of Citigroup, requesting a discharge of the mortgage so the sale of the Raymond Terrace property could proceed. 3. The overall change to the accounts which was contemplated upon the sale of the Raymond Terrace property was relatively straightforward. It allowed the use of most of the proceeds to pay down account 749. The total outstanding on the three accounts at that time was said to be $500,257. That amount was to be reduced by the crediting of $190,556 (from the Raymond Terrace property), leaving a net outstanding amount of $309,701. Most of that modification occurred by reducing the amount then outstanding on account 749 of $292,288, leaving a post-settlement amount outstanding on that account of $101,897. There was no change to account 200, which remained drawn to $85,000. And account 756 was only reduced by $165 from $122,969 to $122,804. The net change of crediting $190,556 is very close to, but not exactly, the figure which upon the final settlement sheet of the Raymond Terrace property showed; that $189,692.80 was credited to Citigroup upon settlement of that property. 4. The Securities Release Request Form was signed by the Wernhards on 26 December 2011. Their signature is under the section "Discharge Authorisation", in which they authorise Citigroup to discharge the mortgage over the property listed on the form, which is the Raymond Terrace property, upon the payment of funds and applicable fees to Citigroup. It cannot be in doubt from this Securities Release Request Form that the Wernhards were well aware that the Raymond Terrace property was the one which was supposed to be discharged and no other. The Mistake – 13 July 2012 1. The sale of the Raymond Terrace property was completed on 13 July 2012. At settlement, Citigroup received the sum of $189,692.80 from the Wernhards. MBG Lawyers, acting on behalf of Citigroup, delivered to the Wernhards: the Certificate of Title to the Raymond Terrace property, the original Raymond Terrace mortgage, and a Discharge of the Raymond Terrace property mortgage in registrable form. 2. So far this was in accordance with Galilee Solicitors' instructions. 3. Galilee Solicitors were based in Carrington Street in Sydney. They appointed McMahon Broadhurst Glynn Solicitors in Tamworth to be their agents to attend upon settlement. But Galilee Solicitors' letter of 9 July 2012, to their agents in Tamworth, indicated that the firm was enclosing in the original typescript of the letter Mortgages and Discharges of Mortgage for the Raymond Terrace property. But then in handwriting, someone has added the Mortgages and Discharges of Mortgage for the South Tamworth and Watanobbi properties. Whoever added these other documents in handwriting (and presumably enclosed them) made a mistake. That instruction was not in conformity with the authorisation from Citigroup and even the authorisation which had been signed by the Wernhards themselves. 4. Once that error was made, it was carried through to the settlement itself where McMahon Broadhurst Glynn Solicitors delivered the additional documents on settlement to MacLean Curtis & Daley. 5. But McMahon Broadhurst Glynn Solicitors therefore delivered, in accordance with their incorrect instructions, to the Wernhards on behalf of Citibank: 1. The Certificate of Title to the South Tamworth property, the Mortgage over that property and a Discharge of the Mortgage in registrable form; and 2. The Certificate of Title to the Watanobbi property, the Mortgage over that property and a Discharge of the Mortgage in registrable form. 1. The Wernhards admitted that Citigroup had made a mistake. This admission went further and amounted to a concession that, from quite an early time, the Wernhards were aware that Citigroup had made a mistake. At the pre-trial directions hearing held before me on 18 May 2018, the Court sought to ascertain whether the issue of Citigroup's mistake was seriously in issue. The Court received some very candid answers from Mr Wernhard. 2. The following exchange took place, indicating that the Wernhards were aware that the Certificates of Title and Discharges of Mortgages for the South Tamworth Watanobbi properties had been delivered to them by the plaintiff's solicitors by mistake: "HIS HONOUR: Then you sold one of the properties, but you've still got the certificate of title, I think, for the other property? FIRST DEFENDANT: Yes, your Honour. HIS HONOUR: They say that you having that certificate of title is only because they made a mistake, do you agree with that or not? FIRST DEFENDANT: Yes, your Honour. HIS HONOUR: Because they say that they were supposed to give you one certificate of title and one discharge of mortgage and a solicitor messed up and gave you three certificates of title and three discharges of mortgage. FIRST DEFENDANT: Yes, your Honour. HIS HONOUR: What I want to know is, that means you've now got, according to them, you've got one extra certificate of title-- FIRST DEFENDANT: Yes, your Honour. HIS HONOUR: --which they say you shouldn't have. FIRST DEFENDANT: Yes, your Honour. HIS HONOUR: Do you agree or disagree with their point that they made a mistake by giving you three instead of one? FIRST DEFENDANT: I, I agree with that, your Honour. HIS HONOUR: So you agree that they made a mistake by giving you three and not just one? FIRST DEFENDANT: Absolutely, your Honour. HIS HONOUR: All right, well why don't you give it back? FIRST DEFENDANT: Your Honour, they, they - the mistake that they, they made, we, we tried to bring that to their attention on more than one occasion and they refused to actually correct that mistake. We, we have actually-- HIS HONOUR: Well, you're right here, you're telling them and I'm listening too. Why don't you just give it back and the case will be over? FIRST DEFENDANT: Because we can't afford to give it back, your Honour." 1. In yet another exchange between the Bar table and the Bench, Mr Wernhard conceded that, directly after the settlement of the South Tamworth property, he had discussed with his solicitor what should be done with the extra Certificates of Title and whether Citigroup should be told of its mistake. There is no reason to believe that what Mr Wernhard said from the Bar table, though not evidence, is not what actually happened. This material seems to put the realisation, on the Wernhards part, that they had too many Certificates of Title about six or seven months after the settlement of the Raymond Terrace property. But in my view, the realisation must have been almost immediate. There was probably a discussion with the solicitors six or seven months later, but in my view they knew of Citigroup's mistake almost immediately. The text of the exchange is as follows: "HIS HONOUR: That you were not expecting it? FIRST DEFENDANT: Well, no, we didn't expect them to hand over three mortgages. HIS HONOUR: Okay. To be precise, three certificates of title and three discharges of mortgage. FIRST DEFENDANT: Absolutely. HIS HONOUR: You were only expecting to get one, that is the Links Road, that certificate of title and then discharge the mortgage. FIRST DEFENDANT: Absolutely, your Honour. HIS HONOUR: I have to say ‑ and Mrs Wernhard please tell me if you want to say anything independently as well ‑ but you having said that indicates to me that you were aware that the bank had made a mistake. FIRST DEFENDANT: At that time on that day, no, because the solicitors had the documentation. They didn't know ‑ they took it that when we ‑ they didn't know the details of our mortgages. It wasn't until about six or seven months later when I went up to visit our solicitor that he said, "Oh look, what do you want done with the mortgages?" I said, "Well, hang on, what mortgages?" HIS HONOUR: If you didn't realise there was a mistake made at the time of the settlement of the Links Road discharge you became aware at the time your solicitor told you‑‑ FIRST DEFENDANT: Yes. HIS HONOUR: ‑‑that you had too many certificates of title. FIRST DEFENDANT: That's right." 1. This is a logical explanation for what occurred, about which there is very little direct evidence. The solicitors' acting for the Wernhards knew very little about the state of the Wernhards' mortgage accounts with Citigroup. Thus, when the solicitor acting for Citigroup handed over all of the Certificates of Title and Mortgages, it did not immediately raise any concern that a mistake had been made. 2. But very soon, after what had been delivered to the Wernhards' solicitors was clearly understood, the Wernhards became aware that they had too many Certificates of Title. . After Settlement – 19 July 2012 1. On or shortly after 19 July 2012, the Wernhards received a summary from Citigroup describing the effect of the settlement that had occurred on 13 July: the release of the Raymond Terrace property. Citigroup's letter on 19 July 2012, attaching the loan and security summary, was addressed to Mr Wernhard under the hand of Vibha Coburn, Citigroup's Director of Mortgages: "Dear Mr Wernhard, Your partial release of security has been completed We are pleased to confirm that the partial release of the security for your home loan has now settled. At settlement the bank received $0 in consideration for the release of the security over [the Raymond Terrace property]. We have attached a summary that reflects the changes to your home loan. Please read this document carefully and retain it for future reference, as it contains important information that will help you manage your home loan account(s). If you have any questions, please do not hesitate to contact CitiPhone Banking on 13 24 84, 24 hours a day, seven days a week. Vibha Coburn Director of Mortgages" 1. Mr Wernhard is an intelligent person, who the Court judges from its interaction with him and his construction of submissions, was well able to appreciate what this letter meant. The letter made it perfectly clear that the bank thought that a "partial release of security" had occurred at settlement, not a full release of security. 2. The attachment was even more explicit. The attachment lists the remaining securities as both the Watanobbi property and the South Tamworth property and that these properties secured the monies outstanding to Citigroup on three accounts: A/c 749 ($101,897.00), A/c 200 ($85,000) and A/c 756 ($122,804). The attachment reaffirms to the ordinary reader that Citigroup understood that it still retained the South Tamworth and Watanobbi properties as securities for its loans to the Wernhards. 3. The Wernhards do not deny receiving the 19 July 2012 letter and attachment from Citigroup. 4. The evidence strongly supports the inference, which the Court draws, that from soon after 13 July 2012, the Wernhards were well aware that there had been a full release of Citigroup's security on 13 July 2012. 5. This follows from what happened next. It took the Wernhards only nine days from settlement to discharge the mortgages. On 24 July 2012, the Wernhards' solicitors lodged the Discharges of the Mortgage over the South Tamworth property and the Watanobbi property. Both Discharges of Mortgage were registered on 26 July 2012. The Werhards' solicitors must have reported the surprising outcome of the settlement to them and that they were in possession of the Certificates of Title and Discharges of Mortgage for the South Tamworth and Watanobbi properties. The Wernhards needed to be told this, so the solicitors could obtain instructions and be retained to discharge the mortgages that they were not expecting to hold after settlement. 6. The evidence also strongly supports the inference, which the Court draws, that, from their receipt of Citigroup's 19 July 2012 letter, the Wernhards were well aware that Citigroup wrongly and mistakenly believed that its securities over the South Tamworth and Watanobbi properties were still in place: the 19 July letter from Citigroup can be read no other way. 7. But the Wernhards' did not tell Citigroup of its mistake. They took the view that they had no obligation to do so and that Citigroup would have to discover the error for itself. Mr Wernhard says a solicitor advised him that they could take that position. Whatever the merits of that advice in the short term, circumstances changed about 10 months later. The Sale of the South Tamworth Property – May 2013 1. In May 2013, the Wernhards decided to take advantage of their unencumbered title to sell the South Tamworth property, without telling Citigroup. In the interim, Citigroup had not sought to rectify its mistake. In proceeding to sell the South Tamworth property, the Wernhards acted unconscionably. They must have been aware that they were only able to sell the South Tamworth a property free of Citigroup encumbrance, because Citigroup was not yet alert to its mistake. 2. On 24 May 2013, the Wernhards completed the sale of the South Tamworth property to a third party purchaser for $160,000. Of that consideration, the Wernhards directed that $149,924.64 be deposited in Mr Wernhard's name with the Commonwealth Bank of Australia ("CBA"). The CBA deposit slip appears to have been filled out by a solicitor associated with the conveyancing acting on instructions from Mr Wernhard. Mr Wernhard did not tell Citigroup that he had received this money. Although the deposit slip with the CBA on 24 May 2013 is not in his handwriting, the deposit was effectively done under his control. The Transfer for the South Tamworth property was registered on 29 May 2013. 3. Citigroup contends that the Wernhards engineered the sale of the South Tamworth property without its knowledge or consent. Evidence strongly supports that contention and the Wernhards have made admissions consistent with it. 4. The proceeds of the sale of the South Tamworth property were dealt with in the following way. On 24 May 2013, the $149,924.64 went into the CBA.From 29 May 2013 through to 22 June 2013, Mr Wernhard made various payments into the Citigroup overdraft account 200. The source of these payments is probably the CBA account. These payments amounted to $150,000, a sum within about $1,000 of the proceeds of the sale of the South Tamworth property. Mr Wernhard has since paid out $67,000 from that account. But of that $67,000, $20,000 remains with the Citigroup accounts. So there was a net subtraction of $47,000 from the proceeds of sale to non-Citigroup accounts. But importantly, Citigroup did not realise that these funds were the proceeds of sale and the Wernhards did not tell Ctigroup. 5. So Mr Wernhard has left within the Citigroup accounts the benefit of $103,000 of the proceeds of sale. Thereafter, the money in the account was used from time to time to make interest payments on the Wernhards' loans on the other Citigroup accounts. Despite the 2017 suspension of the accounts, these payments between the Citigroup accounts were permitted to continue. Consolidating the Wernhards' Loans – July to October 2014 1. After July 2013, the Wernhards no longer owned any investment properties. They resided in the Watanobbi property. In July 2014 they decided, as they described it, to "change their home loan". And they say that they applied to Citigroup to do so on 17 July 2014. 2. But whether or not they did apply to Citigroup is contested. The course of their application is obscure. Documents are missing. Correspondence is unanswered. What actually happened must be assembled from scattered fragments. 3. There is certainly some evidence that the Wernhards had a conversation with a Mr Wesley Stowe at Citigroup, on or before 17 July 2014, about changing their borrowing arrangements. Mr Stowe wrote to the Wernhards that day as follows: "Good afternoon Guy, Please find change to home loan request form as discussed. Once complete, you may email form to homeloanapps@citi.com. Cheers, [signature block of Mr Wesley Stowe]" 1. Unfortunately the change to the home loan request form is not reproduced in the bundle of tendered materials before the Court. But it is evident from the reproduced email that the form was attached. 2. The Wernhards emailed a letter to the plaintiff's mortgage department, on 19 August 2014. They requested that Citigroup modify the loan facility "in order to better manage our finances in the run up to retirement". They requested changes to the following effect, that: firstly, their son be added as a signatory to their account; secondly, the variable mortgage interest rate be changed to a five year fixed interest rate; and thirdly, the plaintiff extend further credit in the amount of $68,000, to pay off a personal loan with Wyndham Vacation Resorts. 3. The text of Mr Wernhard's 19 August 2014 letter was as follows: ""Citibank Pty Ltd Australia August 19, 2014 Mortgage Department Dear Mortgage Department, Re: Account XXXXXX200, Guy & Eunice Wernhard As we advised via telephone in July we are seeking to modify our Home Loan with Citibank in order to better manage our finances in the run up to retirement (possibly during 2017). We have now concluded meetings with our accountant and solicitor and it has been suggested that we request the following. As our business has been expanded to include our son, Tristan Davey Wernhard, who now administers the day to day operations, we wish to add him as a signatory to the account, please find attached the necessary documentation to that end. It is also advised that our solicitor has already established the necessary legal powers for him to administer our estates if such becomes necessary. We also request that our present variable mortgage rate be changed to a five year fixed rate which we understand is today between 4.74 and 4.99%. As we hold two personal credit cards and an unsecured personal loan we wish to apply to have these transferred to Citibank. We have, with thanks to your staff, already paid out the credit cards and so we now ask that consideration be given to extending our mortgage to cover the $68,000 personal loan we have with Wyndham Vacation Resorts. For your records we also advise our home at [address not published], Watanobbi, NSW 2259 is today valued at $420,000. Sincerely, Guy Wernhard" 1. The Wernhards' evidence that they sent this letter to Citigroup can be accepted. The response that followed from Citigroup soon after confirms that it was received. The Wernhards are at or near retiring age, and the letter was a logical one for them to send at that time. 2. The Wernhards received a response from Citigroup, on 1 September 2014. The response explained that, in order for Citigroup to take action, the general requests set out in the Wernhards' 19 August 2014 letter needed to be incorporated into formal Citigroup applications. So a Citigroup mortgage-variations officer, Mr Steve Ewens, wrote back to Mr Wernhard on 1 September 2014, saying: "Hi Guy, Thank you for speaking with me today. From reading your application and speaking with you, there are three things you want to change: 1. Add your son Tristan as an authorised person to transact on your mortgage accounts. 2. Increase your mortgage by $68,000 to pay off a personal loan. 3. Fix the- interest rate for 5 years on either the entire loan amount or a portion of your loan amount. If we are adding Tristan as a borrower for the purposes of the increase, the first request will be done as part of the second request: To complete your second request, Citibank is required to show that the borrowers can afford any increase amount. This is particularly in the form of payslips, tax returns, rental income statements and other forms of income. From speaking with you, you said you do not have access to your tax returns for the past couple of years. Please supply any other form of income you receive. This would be any pension statements, payslips (no older than one month), rental income form or any other evidence of income you have. Please do this for both yourself and your partner Eunice. If the income from yourself and Eunice does not show you can service the increase, you can look at adding your son as a borrower. This means he would also be liable for all loan accounts, but we could also use his income to show servicing. Income evidence we would need from your son would be: last two years of tax returns. If the last two years tax return completed is 2011-2012 and 2012-2013, we would also require BAS for 2013-2014. You also mention that the business recently changed from a sole trading business, to a company. Can you provide details of when the business changed into a company name, the name of the company and what was the name of the sole trading business? We may also need a signed letter from an accountant stating the sole trading business has been converted into a company. We will also need the following sections filled in on the attached 'Citibank Home Loan Application'" 1. The email went on to explain in more detail how the Citigroup home loan application is normally to be filled out. The email also explained what Tristan Wernhard would have to do, and the information he would have to provide, to add himself to the application and to the mortgages. 2. Mr Ewens' letter of 1 September 2014 continued, as follows: "Can you also please confirm if [the South Tamworth property] is being rented and what you estimate the property to be valued at today. We will also need a copy of your personal loan statement that you wish to refinance. Sorry for the long list of requirements, but it can be a little complicated to add a borrower who is self-employed. Please also note the cost to add a borrower is $450, plus any valuation cost. As you have two securities listed, we may have to do a valuation on each property. Valuation costs can vary (depending on location and value), but the minimum cost is $242 per security. Also note, if we are adding Tristan as a borrower, all three of your Mortgage accounts wilt close and we will be opening up new accounts in all three names. All these forms can be scanned and emailed back to this address or faxed. Please let me know if you have any question. Kind regards, Steve Ewens" 1. This letter was generally courteous, polite and apologetic for the amount of information which it was seeking. 2. But it made a very obvious mistake; so obvious that the Wernhards could not have missed it. It assumed that the South Tamworth property and the Watanobbi properties were still Citigroup securities: "you have two securities listed". Any reader in the shoes of the Wernhards would have recognised the mistake: they had sold the South Tamworth property over a year earlier without telling Citigroup. 3. The Wernhards allege that on 19 September 2014, following a review of their Home Loan, Citigroup sent an email notifying them that the review had been completed and that Citigroup had decided "to leave the mortgages as they are". Citigroup denies that it sent an email notifying the Wernhards "to leave the mortgages as they are". 4. When pressed in the course of submissions, Mr Wernhard could not explain what "leave the mortgages as they are" really meant. The expression is contradictory, because there were in fact no mortgages in place. There was nothing to leave "as they are". It is a highly unlikely statement to be made by Citigroup which, after all at that stage, had not discovered its own mistake. 5. The following exchange took place between the Bench and Mr Wernhard, about his contention that Citigroup sent him an email on 19 September 2014, as follows: "FIRST DEFENDANT: The bank, according to ‑ we understood, as I said, on 15th or so of September I believe we received an email from the bank to say ‑ that was from Wesley Stowe to say that the bank had decided to leave the mortgages as they were. HIS HONOUR: 15 September what year? FIRST DEFENDANT: 2014. HIS HONOUR: But your wife is writing to the bank on 13 October, a month later. FIRST DEFENDANT: No. Oh sorry your Honour, it was November. We left in October and we were over in ‑ when was it; October? We arrived in England in November, did we not? SECOND DEFENDANT: Mmm. FIRST DEFENDANT: I'm sorry your Honour, it was a few years back. As we said, we were travelling overseas on that Friday, we had only just arrived back ‑ we had only just arrived in the UK when we received the email. HIS HONOUR: But what was the email a response to? FIRST DEFENDANT: To the paperwork asking them to vary the mortgages. HIS HONOUR: All right. They say there is no such email. They say they've looked for it and there is no such thing. FIRST DEFENDANT: Well they also say there was no such application. This is the situation that most people would find themselves in, I would suggest. HIS HONOUR: But your submissions say that the emails said something to the effect the mortgages can stay as they are. Is that the right wording? FIRST DEFENDANT: That's ‑ yes. They put it in‑‑ HIS HONOUR: What are the words, to the best of your recollection? FIRST DEFENDANT: To the best of my recollection, your Honour, was that they had reviewed the application and it had been decided to leave the mortgages as they are. HIS HONOUR: What does that mean? FIRST DEFENDANT: That there was to be no changes to the mortgage. HIS HONOUR: What mortgages? FIRST DEFENDANT: To the loan agreements. HIS HONOUR: There weren't any mortgages, were there? FIRST DEFENDANT: Pardon your Honour? HIS HONOUR: When you got that email that you say you got 'there will be no change to the mortgages'‑‑ FIRST DEFENDANT: Oh, to the loans or‑‑ HIS HONOUR: What did it say? Your understanding was that all the mortgages had been discharged. FIRST DEFENDANT: Well, they must have reviewed the applications that we put in and decided not to act upon it. HIS HONOUR: What did it say? What did the missing email say? FIRST DEFENDANT: It was very short, it came from Mr Stowe, and as I said it claimed that a view had been made and that ‑ these loans, or the mortgages, I read it to be the mortgages, but everything was to be left as it is, or as it was. Or as ‑ to leave the loans as they are or the mortgages as they are, that's the way I read it; that they decided to make no changes, in other words." 1. The Wernhards contend that they told Citigroup in writing, in October 2014, that the South Tamworth property had been sold in 2013. I do not accept that is what happened. Citigroup showed no reaction to receiving such important information at that time. I infer it did not receive the information then. 2. The Wernhards say that they filled out the Citigroup application forms and submitted to Citigroup, by post on 15 October 2014, all of the documents requested in the 1 September 2014 letter. Citigroup contests thisassertion. Citigroup has good reason to do so. The Wernhards' account of the course of communications after 15 October 2014 strains credulity. 3. The Wernhards' first problem is the 15 October 2014 letter itself. No copy of the letter has been demonstrated to exist. Citigroup does not have a copy. The Wernhards did not keep a copy. 4. The Court is not prepared to infer that this letter was ever sent. There are several reasons for this. First, it is not referred to in any other contemporaneous or subsequent correspondence by Mr Wernhard as having been sent. 5. Secondly, it is strange that the Wernhards did not keep a copy of the material Mr Wernhard says that he sent, so he could talk to Citigroup about it upon receipt. And the Wernhards could have simply scanned and sent back the documents to Citigroup. Mr Wernhard has no difficulty in sending correspondence by email and was familiar with that mode of communication. He is an intelligent and gerenerally careful man. 6. Thirdly, when Mr Wernhard did not hear back from Citigroup, he did not do the obvious: ring or email and say to someone at Citigroup, "Did you get my letter?" Some other form of simple email communication that the other material had been posted and seeking to confirm receipt would be usual, or at least expected, by way of a follow up. Mr Wernhard seemed self-possessed enough to take this simple step. 7. Finally, Mr Wernhard did not behave over the longer term as though he thought that the letter had been sent and received. He did not deal with Citigroup after 15 October 2014; on the basis that letter had been received. Instead he appeared reluctant to deal with Citigroup about his application. 8. The Wernhards did not hear from Citigroup about its securities for another two years. Citigroup's lawyers, Mills Oakley, finally wrote to them on 21 September 2016, notifying that they acted for Citigroup and that the Wernhards were required to take all steps to re-execute a mortgage over the Watanobbi property. The mistake had been discovered; but only then. The Wernhards take issue in their submissions with aspects of the Mills Oakley letter. Their contentions on this subject are dealt with later in these reasons. 9. After discussions between Citigroup's solicitors and the Wernhards' then solicitors (Duncan Maclean Lawyers), on 8 March 2017, the plaintiff's solicitors sent to the defendants' solicitors a draft Statement of Claim and foreshadowed that the plaintiff would commence proceedings for re-instatement of its mortgage over the Watanobbi property. 10. On 23 March 2017, Citigroup wrote to the Wernhards warning them that the re-draw facility on their accounts would be suspended in 30 days. The effect of the suspension was that they would be prevented from drawing down any funds from these Citigroup facilities, but would not be prevented from making deposits to their Citigroup accounts or moving money between accounts. Citigroup purported to do this under the terms of its existing loan facilities, as it did not hold security and the Wernhards had declined to re-instate Citigroup's security over Watanobbi property. 11. Citigroup suspended the Wernhards' re-draw facility on their accounts in May 2017. This effectively prevented the Wernhards from drawing further cash and cheques or making further direct debts from the suspended accounts, thereby increasing the level of indebtedness of the accounts. However, transfers of monies between the Wernhards' accounts were still able to be made and were made. In particular, monies continued to be drawn to meet mortgage repayments to Citigroup, until July 2017 when the Wernhards ceased making re-payments. 12. The Wernhards telephoned Citigroup when they found out that their accounts were unavailable to transfer a repayment to their Ready Credit Account. They were told by a Citigroup call centre representative that they had to send a letter to Citigroup asking for their suspension to be lifted, but in the meantime they had to return the executed mortgages as demanded. 13. On or about 1 June 2017, the Wernhards indicated to Citigroup that they would like to "simplify [their] Citigroup mortgage loan into a single account". On 2 June 2017 Citigroup suggested the type of facility that met the Wernhards' criteria, which also had more favourable rates and fees than the existing facility, and sent them information and documentation for the purpose of enabling such an application to be considered. One of the terms and conditions Citigroup requested was the reinstatement of the mortgage, the subject of these proceedings. 14. By email sent 5 June 2017, the Wernhards thanked Citigroup for its assistance, indicated they wished to consolidate their home loan accounts in accordance with the suggestion by Citigroup, and requested documentation to enable them to make the necessary application. It appears that the documentation was subsequently sent to and received by the Wernhards. 15. But the changes to the accounts were not implemented. The Wernhards subsequently indicated that they wished to be compensated by Citigroup for alleged losses. 16. On 30 June 2017, the Wernhards claim that they were required to stop trading due to their re-draw facility being suspended. 17. From 4 July to 3 August 2017, the parties corresponded and met in relation to: (1) Citigroup's request for re-instatement of its mortgage over the Watanobbi property; (2) the request/application by the Wernhards to change or modify their loan structure; and (3) the Wernhards' claim for compensation. 18. The proposal to consolidate the Wernhards' accounts with Citigroup did not proceed. Citigroup did not accept the Wernhards' demand for costs and damages, and wished to have its first mortgage over the Watanobbi property reinstated. (1) Is Citigroup Entitled to Equitable Relief for Mistake? 1. Equity has well established jurisdiction to recover money and other assets paid or transferred by mistake. Equity's jurisdiction exists both exclusively and concurrently with the common law. Here, Citigroup's mistake was to deliver two Certificates of Title and two Discharges of Mortgage to an agent for the Wernhards, which it did not intend to deliver. 2. Citigroup held registered first Mortgages over the two properties and held their Certificates of Title, pursuant to its right under those mortgages. It would ordinarily have rights of possession and recovery of the Certificates of Title under the mortgages. But all of Citigroup's legal rights under the mortgages were brought to an end when the Discharges of Mortgage were handed over and then registered in July 2012. Citigroup has presently no subsisting legal right under the mortgages to recover the Certificates of Title. Citigroup is therefore thrown back upon its equitable rights. 3. The starting point for analysis is the Register itself. The Register is conclusive as to the nature and order of all the interests in the land, Real Property Act 1900, ss 41 and 42 being central to the concept of indefeasibility of title: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22. But the Register is not a complete answer to claims of personal equities affecting a proprietary interest in the land. Here, Citigroup says a personal equity arose against the Wernhards as a result of its mistake and the extenuating consequence upon that mistake. 4. The act of registration of the discharge of Citigroup's first mortgages over the South Tamworth and Watanobbi properties destroys the charge previously binding on those properties and the land ceased, at law, to be charged with the monies secured by the mortgage: State Bank of New South Wales v Berowra Waters Holdings Pty Ltd & Ors (1986) 4 NSWLR 398 ("Berowra Waters"). Once the land ceased to be charged with the monies secured by the mortgage, a new indefeasibility title arises: Grundy v Ley [1984] 2 NSWLR 467 and Berowra Waters. 5. Citigroup's claim is based on the doctrines of unilateral mistake. The Wernhards were not involved in the mistake, either in creating it or in participating in it, and there was no evidence that they were similarly mistaken. To establish a right to equitable relief for unilateral mistake, a plaintiff must establish that the other party knew or had reason to know of the mistake in question: Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 and Tutt v Doyle (1997) 42 NSWLR 10 ("Tutt"). 6. It is not necessary for the new registered proprietor to be aware of the mistake at the moment of the transaction involving the mistake. It is sufficient that by the time the registered proprietor later comes to deal with the property, that the registered proprietor is aware of the mistake, such that it would be unconscionable to assert an unencumbered title to the property: Tutt. 7. Handley JA's judgment in Tutt well summarises equity's broad jurisdiction to relieve for mistake, in any circumstances where it would be unconscientious for a person to avail themselves of the legal advantage they have obtained through the mistake: "The Doyles' cause of action falls within the principles established in Taylor v Johnson (1983) 151 CLR 422, although the facts in this case are significantly different. There was no mistake in relation to the terms or effect of the contract of sale of 3 April 1989. The Doyles' mistake related to the effect of the transfer delivered on settlement as a result of their earlier mistake in signing the plan of subdivision which enlarged lot 3063 to 2.76 hectares. The majority judgment in Taylor v Johnson included (at 432-433) the following principle: 'The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake ... about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake ....' However the majority also endorsed wider principles which entitle a court of equity to grant relief for unilateral mistake in cases not covered by this principle. They approved (at 431) the statement by James LJ in Torrance v Bolton (1872) LR 8 Ch App 118 at 124, that the power to set aside a contract for unilateral mistake was based on the ordinary jurisdiction of equity "to deal with" any instrument or other transaction "in which the court is of the opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained". They also approved the decisions in Riverlate Properties Ltd v Paul [1975] Ch 133 at 145 and Thomas Bates & Son Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 at 514-516; [1981] 1 All ER 1077 at 1085-1086, where rectification, and not rescission, was granted on this ground. They noted (at 432) that in the United States and Canada: '... the rule that relief from contractual obligations on the ground of unilateral mistake will be granted where enforcement of the contract would be unconscionable is well established.' In those jurisdictions relief is available where one party "knows that the other party ... might well be mistaken" or "had reason to know of" the other's mistake (at 432). The Doyles' claim was "a mere equity" and not an equitable estate or interest in the land: see Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) (1965) 113 CLR 265 at 277-278, per Kitto J. Accordingly they bore the onus of establishing that the Tutts knew, or had reason to know, that the Doyles were, or might well be, mistaken. The Tutts were not required to establish that they were bona fide purchasers for value without notice of the Doyles' mistake. The relief sought by the Doyles therefore required close attention to be given to the situation immediately before and at settlement of the purchase which took place on 23 October 1989. The Doyles had no personal equity against the Tutts unless the latter knew or had reason to know of the mistake prior to completion . On completion, the Tutts received a registrable transfer, and s 43A of the Real Property Act 1900 protected them against notice received thereafter before the transfer was registered. (my emphasis)" 1. A registered proprietor's indefeasible title is subject only to an in personam claim against the registered proprietor: Breskvar v Wall (1971) 126 CLR 376 at 384-5. The personal equity asserted against the registered proprietor may arise from the conduct of the registered proprietor both before and after registration: Bahr & Anor v Nicolay & Ors (No 2) (1988) 164 CLR 604 at 638; [1988] HCA 16. 2. Here acting against conscience founds the personal equity. For the Wernhards to treat the Watanobbi property as unencumbered is inconsistent with good conscience. The Wernhards dealt with the South Tamworth property as though it was unencumbered, to the point of selling it free of any mortgage. They were aware of Citigroup's mistake when they so dealt with the South Tamworth property. They therefore sold it contrary to good conscience. The strong inference arises from this conduct that, unless relief is given here, they could deal with the Watanobbi property equally inconsistently with Citigroup's rights. 3. No third party interests compete with Citigroup, in addition to the Wernhards, in relation to the Watanobbi property. The Wernhards have not taken out other mortgages over the property before Citigroup filed its caveat and launched these proceedings. There is no obstacle to the relief Citigroup sought being granted. 4. What Kind of Mistake Enlivens the Doctrine? In Dixon v Barton [2011] NSWSC 1525 ("Dixon"), Ward J (as her Honour then was) observed that the binding of a registered proprietor's conscience, due to a mistaken discharge of mortgage, may arise after the event exhibiting the mistake. Her Honour said (at [79]): "[79] Mr Einfeld submits that in the case of both mortgages it would be unconscionable for Mr Barton to assert unencumbered title to the property by reason of the mistake of the Investors' solicitors, in circumstances where Mr Barton was made aware or had reason to be aware (on 6 July 2011) of their mistake. (In this regard, I note that there seems to be no reason why Mr Barton's conscience would not equally be affected even if no knowledge of the mistake was received until a later point in time, unless by then Mr Barton had acted in some way in the belief that the discharge was not mistaken so as to render it not unconscionable for him to rely on the unencumbered title.)" 1. And the grant of relief for mistake, where there is an unconscientious reliance upon legal rights, was referred to in Stern v Macarthur (1988) 165 CLR 489; [1988] HCA 51 in terms that include the concept of "misadventure", as part of the idea of mistake: and see Ward J's observations in Dixon at [80]. 2. Ward J in Dixon (at [81]) said, of a mistake that was very similar in nature to that which occurred here (the premature and erroneous handing over of Discharges of Mortgage, Mortgages and Certificates of Title), that such errors fall well within the kind of mistake against which equitable jurisdiction will relieve: "[81] I see no reason in principle why a mistake as to the legal consequences of a particular action or (as is the case here) as to the time at which a party is obliged under a particular contract to take certain action (such as the delivery of an executed discharge of mortgage) could not ground an in personam claim for relief if it would be unconscionable for the other party in the circumstances to take advantage of that mistake. (It is, of course, possible that where the mistake is one of law it might be harder to establish that the other party knew or had reason to know of the mistake, but that is a different issue.)" 1. The authorities do not limit the possible forms of actionable mistake to mistakes of fact, as distinct from mistakes of law: Dixon at [80]. 2. Here Citigroup's mistake seems just to have been the giving of an erroneous instruction at settlement, or, alternatively, the erroneous interpretation of an instruction on settlement. Which of these two represents the mistake made may not much matter. They are mistakes of fact – about the correct instruction. This was more than misadventure. It is a mistake contrary to Citigroup's rights under the mortgages and the Loan Agreements to retain the Certificates of Title. It is a classic basis for the exercise of the Court's jurisdiction to relieve for mistake. Subject to the matters considered below, prima facie, the Court should grant Citigroup the relief it seeks. 3. Citigroup has made out its primary case for relief. But the Court has not yet considered the terms on which such relief might be granted. That is best considered after the Werhards' submissions in defence and on their Cross Claim are examined. (2) The Wernhards' Defence 1. Mr Wernhard handed up a written outline of submissions to which he spoke in his final address for himself and Mrs Wernhard. Their submissions raised a number of points, not all of which had been pleaded, but which Citigroup's counsel, Mr Newton, indicated did not take Citigroup by surprise. The submissions proceeded on that basis. 2. Classifying the Wernhards' submissions into recognised legal categories was difficult. The Court has endeavoured to select the main points that Mr and Mrs Wernhard argued by reference to the subject matters that they raised, rather than by reference to the answering of legal questions. The Court has approached analysis that way in this case, because the resulting structure more closely follows the Wernhards' complaints and will therefore be easier for them to follow. Even though some of what they put seemed to the Court to be irrelevant as a defence to the case that they were attempting to meet, the Court has nevertheless sought to deal with all the material they advanced, as it was advanced. 3. The Wenrhards' submissions were directed to the following matters, which will be dealt with below in turn. 1. Reliance on Report 410. 2. Citigroup's letter of 21 September 2016. 3. The Citigroup letter of 23 March 2017. 4. The Wernhards' Alleged Offer of Equity to Citigroup. 5. The Proceeds of Sale of the South Tamworth Property. 6. The Alleged Breach of ASIC Report 410 Principles of Fairness. 7. Allegations of Fees for No Service. 8. Allegations of Breach of Fiduciary Duty. 1. (1) Reliance on Report 410. A number of the Wernhards' submissions in defence referred to a report of the Australian Securities and Investments Commission ("ASIC"), Report 410 entitled, "Review of 'Low Doc' Home Lending Following the Introduction of the Responsible Lending Obligations". This ASIC report represents a review of whether lenders that provide 'low doc' home loans were complying with the responsible lending obligations set by ASIC. This report will be referred to in these reasons as "ASIC Report 410". This report presents the findings of what it describes as "a targeted review" and it identifies a number of examples of how credit licensees could reduce the risk of non-compliance with responsible lending obligations. 2. The ASIC Report 410 was not at first available to the Court when Mr and Mrs Wernhard began making their submissions. So the Court called for a copy; and it was handed up by consent. A document such as the ASIC Report 410 would not ordinarily be a source of legal authority for final submissions in contested litigation of this kind. But it was used by the Wernhards to refer to certain case law and principles of law that were identified in it. So the Court has treated it as such a resource as well. That being said, many of the principles that the Wernhards seek to draw from the ASIC Report 410 do not constitute a compelling answer to Citigroup's case. 3. Drawing on ASIC Report 410, the Wernhards' submissions focus on the principles Spigelman CJ (as his Honour then was) stated in Perpetual Trustee Company Limited v Albert and Rose Khoshaba (2005) 14 BPR 26,639; [2006] NSWCA 41 ("Khoshaba") in relation to a practice sometimes described as "asset lending". The Wernhards cite the statement of Spigelman CJ in Khoshaba (at [128]): "128 To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA." 1. The Wernhards describe this statement as "a key point" in their case and submit that the Chief Justice's reference to the public interest: "raises a number of enquiries that relate directly to the reason why we are standing before you today". 2. But apart from pointing to this statement, the Wernhards' submissions do not make good a case of asset lending. There is no evidence that the Wernhards could not afford these loans. Quite the contrary, they seem to have taken a responsible and successful approach to meeting their financial obligations to Citigroup. There is little or no evidence of default between 2005 and 2012. The Court infers that the lending was within the Wernhards' financial capacity. 3. The Wernhards also say, based on ASIC report 410 (para 12, page 11), that the bank's "poor record keeping practices" places "credit licensees at risk of not being able to demonstrate they have complied with their responsible lending obligations". They refer to Heenan J's decision in Perpetual Trustees Victoria Limited v Burns [2015] WASC 234 and cite it for the proposition that banking lending practices must be fair. Specifically the Wernhards submit that: "the plaintiff did not either recognise or attempt to correct their mistake for over four years". 4. This unabashed submission fails at the threshold. It can be accepted that Citigroup must conduct itself in accordance with its loan agreements. Those agreements incorporate the Banking Code of Practice, which mandates fair conduct by banks. But in my view, the Wernhards cannot be heard to complain of unfairness due to Citigroup not informing them of Citigroup's mistake, when the Wernhards well knew that Citigroup had made that very mistake and that they had kept Citigroup in ignorance of its mistake whilst they dealt with one of Citigroup's security properties to its disadvantage. 5. (2) The Mills Oakley letter of 21 September 2016. Next, the Wernhards address Citigroup's lawyers' letter to them of 21 September 2016. The full text of the letter is set out below. "Dear Mr and Mrs Wernhard, Citigroup Pty Ltd – Citibank loan to you About 4 October 2005 you entered into a 'Citibank – 2-One-Facilty Agreement Details' ('agreement') a copy of which we attach. It provided for a loan issued to you by our client of $524,000 as a revolving line of credit. That loan was to be secured by mortgages over properties owned by you as set out in page 8 of 13 of that agreement. These properties were: a. [address not published], Raymond Terrace NSW 2324, [title details not published] b. [address not published], South Tamworth NSW 2340, [title details not published] c. [address not published], Watanobbi NSW 2259, [title details not published] In or about July 2012 it was intended by Citigroup and you that the mortgage of the South Tamworth property would be discharged and you would sell that property paying an amount from the proceeds of sale to Citigroup in reduction of the amount of the debt. Inadvertently, all three (3) mortgages were discharged. We understand you have since sold the Raymond Terrace property. It is apparent that there has been no repayment to Citigroup of the loan from the proceeds of that sale. While Citigroup acknowledges that you have made repayments under the loan agreement from time to time, it was the common intention of the parties at all times for the properties at Raymond Terrace and Watanobbi to be secured against the loan. As you now only hold title to the property at Watanobbi, we request that you confirm as a matter of urgency that you will take all steps and do all things to enter into a further mortgage over that property for the purposes of performing the loan agreement between you and Citigroup. If we do not hear from you in seven (7) days to this effect, our client will need to take steps to protect its interests. We trust however that this will not be necessary and look forward to your prompt response confirming your willingness to re-execute mortgage and other documents in compliance with your obligations under the loan agreement. Please ensure you contact me using the contract (sic) details set out on page 1 of this letter within 7 days. Yours faithfully, DAMIAN WARD PARTNER" 1. The Wernhards take issue that this Citigroup letter declares that the Wernhards should: "as a matter of urgency…take all steps and do all things to enter into a further mortgage…for the purposes of performing the loan agreement". The Wernhards submit that Citigroup's declaration in the letter that there existed, as at the date of the letter, "a matter of urgency" is, as they said (in their own words) to the Court: "a specious argument your Honour as it had apparently taken the plaintiff more than four years to address the fact that a mistake had been made by the plaintiff". This appears to be a contention that Citigroup pursued misleading and intimidatory correspondence with the Wernhards by declaring the situation was urgent. 2. The Wernhards have not accurately characterized this letter. Nor is their argument an answer to Citigroup's claim against them. By the time Citigroup's lawyers wrote this letter of 21 September 2016, considerable time had passed in which Citigroup was without its first mortgage security, which it had lost by mistake and which, for the reasons stated earlier in this judgment, it was entitled in equity to have restored by the Wernhards. At the time of writing the 21 September 2016 letter, Citigroup would have been as entitled to equitable relief as it is now. The letter was in the nature of a warning to the Wernhards to get on with addressing this issue, otherwise Citigroup would commence proceedings. In my view, it was a reasonable and not inappropriate communication, given Citigroup's available legal remedies at the time. Had it not been written, the Wenhards would have had a different complaint: that Citigroup had peremptorily and without warning commenced these proceedings. 3. The Wernhards next contended that the paragraph of Citigroup's 21 September 2016 letter commencing "In or about July 2012…" and ending "…of the amount of the debt" was likely to mislead them, or at least be capable of inducing error on their part. 4. The Wernhards submit that: "it is clear from the plaintiff's own evidence that these statements [in this paragraph of the letter] are incorrect and therefore considering the circumstances under which they have been made, it may be inferred that the best that can be said about them is that they are an example of conscious inattention or incompetence". 5. A problem with this submission is that the material in this paragraph of the 21 September 2016 letter appears to be accurate, apart from inverting references to the South Tamworth and Raymond Terrace properties. But the Werhards well knew what had happened to each of these properties and could not have been misled by this error. 6. Moreover, the 21 September 2016 letter is expressed in a reasonable tone and otherwise states bare facts that have now been established in this Court by the evidence. I do not see how the letter can found any allegation of "conscious inattention or incompetence". Even if it did found such a contention, the Wernhards' submissions do not explain how such defects in the letter would absolve them of liability to Citigroup in these proceedings. 7. The Wernhards' next argument from the Citigroup letter of 21 September 2016, is to focus upon the statement within it: "it is apparent that there has been no repayment to Citigroup of the loan from the proceeds of that sale", referring as it does to the sale of "the Raymond Terrace property". The Wernhards submit that this statement is untrue. 8. It was literally untrue. It was a mistake. The letter has wrongly substituted the Raymond Terrace property for the South Tamworth property. Citigroup was credited with the proceeds of sale of $189,692.80 of the Raymond Terrace property. The basis of the alleged untruth is the Wernhards' contention: "as the record will show and when the imposition of the 7 day time limit is taken into account, such can be inferred that this letter is an attempt to mislead since the imposition of a very restrictive timeline to cover a mistruth is a tactic that has long been recognised as one which is very capable of inducing error". 9. The Wernhards' submission that this sentence is misleading is not made out. The Wernhards were well aware which property had been sold in 2012 (Raymond Terrace) and which had been sold in 2013 (South Tamworth). Any reasonable reading of the letter with their knowledge of the facts would have resubstituted one for the other. 10. The Wernhards next draw attention to the sentence of the 21 September 2016 letter in the eighth paragraph as follows: "As you now only hold title to the property at Watanobbi, we request that you confirm as a matter of urgency that you will take all steps and do all things to enter into a further mortgage over that property for the purposes of performing the loan agreement between you and Citigroup." 1. The Wernhards point to this statement to show that Citigroup recognised that the Watanobbi property was their sole residence. They submit that Citigroup must therefore recognise the obligations that lie upon a lender in dealing with the sole residence of a borrower and that Citigroup sacrificed those obligations in its demand for urgency. The Wernhards contend that, once it is recognised by Citigroup that this was their sole residence, it could not satisfy the provisions of the Explanatory Memorandum to the National Consumer Credit Protection Act 2009 (Cth) ("National Credit Act"), which the Wernhards claim states in paragraph 3.68, as follows: "The minimum requirements as satisfying reasonable enquiries about the consumer's requirements and objectives will be to understand the purpose for which the credit is sought and determine if the type, length, rate, terms, special conditions, charges and other aspects of the proposed contract meet this purpose or put forward credit contracts that do not match the consumer's purpose." 1. Leaving aside for a moment the issue of whether this standard does apply to new lending to a consumer, the Wernhards' contention rather misses the important point that the Citigroup's lawyers' 21 September 2016 letter was not an offer for Citigroup to enter into a further credit arrangement with the Wernhards. The letter is not part of a fresh application by the Wernhards under the National Credit Act. Rather, Citigroup is merely foreshadowing it will pursue its equitable rights to reinstate the original mortgage security, in order to support its existing loan agreement with the Wernhards. 2. The Wernhards' next argument is difficult to understand. They submit: "as the plaintiff had failed to correctly identify the reasons for the defendants to adhere to the demands of this [the 21 September 2016] letter, the defence was clearly unable at this time to satisfy its terms and were therefore forced to wait as the plaintiff corrected their narratives". This seems to be a contention that the Wernhards were not able to provide the requested mortgage over their Watanobbi property, because Citigroup had not explained clearly that it had made a mistake. This, according to the Wernhards, leads to the conclusion that they could wait until Citigroup "corrected their narrative". 3. This inverts the proper order of things. The Wernhards knew of the mistake. If the Wernhards disagreed with this letter, reason suggests that a simple reply, expressing the nature of their disagreement, was required of the Wernhards. 4. The Wernhards next make a general observation that the kinds of Citigroup failures, that they refer to in their submissions about the 21 September 2016 letter, have given rise to concerns of the kind the Banking Royal Commission (which was running at time that this proceeding was heard) have raised about the banking industry generally. These are concerns that the: "cultural factors in the banking and financial sectors services institutions may have contributed to the systemic failures that have been observed". 5. Contentions of alleged "systemic failure" are irrelevant to establishing any defence the Wernhards are fielding to the relief sought in this case. No more relevant are the Wernhards' contentions about "cultural factors" within banks generally that are said to stem from "arrogance and complacency". 6. Moreover, the letter that Mills Oakley sent on behalf of Citigroup to the Wernhards on 21 September 2016 does not demonstrate arrogance, complacency or any adverse "cultural factors". It merely represents a conventional pre-litigation warning, that gave the Wernhards a choice of engaging with Citigroup before legal action. They chose not to do so. 7. (3) The Citigroup letter of 23 March 2017. The Wernhards' submissions move to Citigroup's letter of 23 March 2017. The text of this letter is as follows: "Dear Guy & Eunice, Home Loan Account Number/s [details not published] Accountholder/s: Guy Wernhard and Eunice Wernhard We are writing to advise the re-draw facility on the above account will be suspended thirty (30) days from the date of this letter as per Section 37 of your Home Loan Facility Agreement Terms and Conditions. This means that no further cash, cheques or direct debits can be drawn on the account (except for the direct debits already in place to make repayments to other accounts belonging to this facility). Please contact us on 1300 300 470 from 9.00am to 5.00pm EST if you have any questions. Yours sincerely, Ashley Cole Head of Credit Operations" 1. The Wernhards submit that Citigroup's notice of suspension of its "revolving mortgage account" in this letter was "intimidatory". The alleged intimidation is said to arise from the fact that the Wernhards were "financially compliant with the loan repayments" and because Citigroup "had prior to [this] letter placed a caveat over the Watanobbi residence and prior to this actioned no financial loss to [Citigroup] had occurred or had been threatened". 2. This leads to the Wernhards submitting that this letter demonstrates "arrogance and complacency" and that, to the extent the letter gives notice of suspension of the Wernhards' accounts, it fails "the public interest test of honesty, efficiency and fairness". The Wernhards complain that, when Citigroup did go on to suspend their accounts and "seize their assets", this can be characterised as "an avoidance culture tactic and as such the plaintiff left themselves open to the allegation that this act was a failure to act fairly and reasonably towards the Wernhards in a consistent and ethical manner. In doing so they failed to consider the Wernhards' conduct, the plaintiff's conduct and the contract between the parties". 3. These arguments are ineffective as a defence. First, they overlook that the Wernhards were not compliant with their mortgage obligations to Citigroup. The Wernhards had continuously failed to disclose to Citigroup the whereabouts of the Certificate of Title to their Watanobbi property. 4. The Wernhards next submit, because "equity in fairness is a shared responsibility", that the public interest demands that "we accept the responsibility to oversee our own interests" and the only way that this can be done efficiently "is to oppose those cultural practices that place avoidance and incompetence before people". 5. This text seems to be founding a submission that Citigroup itself was responsible, through its own incompetence, for the error that occurred in handing over the Certificates of Title by mistake and it should take responsibility for that error. 6. But it is difficult to see how the Wernhards have lost money through this error or have any real basis for complaint about it. Indeed, it can reasonably be argued that Citigroup, by bringing these proceedings, is recognising that an error has occurred and seeking the Court's remedy to correct it. And a casual error in a solicitor's office, rather than the bank itself, hardly fits a categorisation of "systemic incompetence". 7. In my view, the circumstances here fall into equity's classic remedial jurisdiction for mistake and Citigroup's general law right does not mean that it has to accept the consequences of its solicitor's error, without seeking to restore the status quo ante or something close to that. 8. (4) The Wernhards' Alleged Offer of Equity to Citigroup. The Wernhards next embark upon what they describe as an attempt on their part "to prevent…escalation" and how they "attempted on a number of occasions to provide [Citigroup] with equity along with the opportunity to correct its practices before [Citigroup's] mistake was discovered and recovery proceedings commenced". This seems to be a contention that the burden of these proceedings are not the Wernhards responsibility, because they did offer satisfactory equity to Citigroup to correct the error that had occurred. 9. The evidence does not measure up to this submission. The Wernhards cannot prove that they sent any correspondence offering substitute equity to rectify the error which had occurred in July 2012. There was an unsatisfactory dispute about whether they had sent correspondence to Citigroup offering to negotiate. But the Court is not convinced that they did so at any time before the Mills Oakley letter of 21 September 2016. 10. Moreover, an offer to negotiate is not an offer to provide substitute security. Furthermore, this may only go to the question of the costs of these proceedings, because the equity to which Citigroup is entitled is a mortgage over the Watanobbi property. It is not compelled to receive substitute equity. 11. (5) Proceeds of Sale of the South Tamworth Property. The Wernhards' dispute Citigroup's claim that it received no monies from the sale of the South Tamworth property on 24 May 2013. In their final submissions, the Wernhards point to alleged evidence of telephone calls to Citigroup advising of the proposed sale, and then after the sale, as they put it to: "garner instructions for the depositing of the money received from the said sale". The Wernhards submit that copies of their bank statements show that the proceeds of that sale were deposited to Citigroup's account. 12. The Wernhards have submitted CBA bank statements showing a deposit of $120,000 to Citigroup, allegedly resulting from the South Tamworth property sale. But it was unclear during final submissions whether or not the monies deposited to this account were in reduction of the loan. Citigroup disputes that they were credited to the loan. So the Court ordered further submissions on the issue. 13. The result of those submissions presents quite a different picture. The picture so presented appears in the Court's earlier factual narrative and shows that, although some of the proceeds of sale were paid into the Citigroup accounts, Mr Wernhard dealt with the money to maintain control over it. Until Citigroup froze the Wernhards' accounts, the now claimed proceeds of the South Tamworth sale were never either identified by the Wernhards to Citigroup as proceeds of the sale of the South Tamworth property, or placed under Citigroup's control to allow it to pay down the outstanding balance on the Werhhards' accounts. 14. The Wernhards also make the quite distinct point that there was no money owing on the mortgage on the South Tamworth property as it "had [been] owned outright by the Wernhards at the time of the agreement in 2005" and had only been added to the security as requested by Citigroup as for the security to the loans already represented by the Raymond Terrace and Watanobbi properties. 15. This argument is not persuasive. The fact that the South Tamworth property was later added as additional security when they owned the property outright does not mean, as the Wernhards contend, that it "should also be noted at this time that there was no monies owing on this mortgage". The cross-collateralisation that occurred when the South Tamworth property was added as security meant that the total monies owing by the Wernhards to Citigroup was secured over all three properties. 16. (6) The Alleged Breach of ASIC Report 410 - Principles of Fairness. The Wernhards contend that, after depositing with Citigroup the monies from the sale of the South Tamworth property, they requested that one of the mortgages be "paid out and closed". The Wernhards complain that Citigroup told them that this option was "not available as it was required by the agreement of 2005 that at least $25,000 was to remain in each of the accounts". The Wernhards say that they were thereby led to believe by Citigroup that the 2005 agreement required that "all three loan accounts had to remain active for the life of the agreement". They say they understood that the Raymond Terrace mortgage account was still active for this reason, even though it had been fully paid out in 2012. The Wernhards point out that the settlement statement for the Raymond Terrace property dated 13 July 2012 shows that Citigroup received $189,692.80 credited to account 749 (CB365). The settlement statement of 13 July 2012 certainly directs that on the balance due on settlement to the vendor of $207,569, a cheque of $189,692.80 was due to be sent to Citigroup. 17. The Wernhards contend that, at the time of settlement of the Raymond Terrace property, they had three mortgage accounts with Citigroup as follows: 1. Account 749, the Watanobbi property, then current limit $292,288. 2. Account 200, a revolving mortgage, with current limit of $85,000. 3. Account 756, the Raymond Terrace property, with a current limit of $122,969. 1. The Wernhards argue that, by reference to ASIC Report 410, Citigroup did not ensure that it understood their requirements and objectives and the relative importance of product features and cost, "as well as the consumer's medium to long term objectives, particularly in instances where it may be difficult or costly for a consumer to move into another product at a later date": ASIC Report 410 – September 2014, Part C, page 18. 2. The Wernhards then put their argument a different way. By reference to ASIC Report 410, (at [87]), they contend that they were not given sufficient information about lower interest rate home loans that might be available to them if they were able to provide the required financial information, irrespective of whether they had applied for a more expensive loan and they were not given the flexibility to switch from a 'low doc'home loan to a non 'low doc' home loan at no additional cost, once sufficient financial information was provided. 3. The Wernhards argue that the National Credit Act commenced in July 2010, before they were corresponding with the bank to vary their mortgages. 4. The Wernhards submit: "Here it can be argued that as the plaintiff's release of the mortgages occurred after the introduction of the National Credit Act it is questionable whether the plaintiff would be able to reissue or rely upon the loan agreement of 2005 without further due diligence. If such is so discovered then it could also be argued that as the defendants only owned the one property in 2014 when due diligence was followed, the purpose of the loan would have rolled to three loan accounts into one and as the defendants did at this time have a LVR of 70.38 per cent they were eligible for such consideration". 1. But this argument mischaracterises what happened in 2013. There was not a "release of the mortgages" as though this was some voluntary act of Citigroup to unilaterally return the mortgages. What happened was clearly a mistake. It was not an intentional release. Given it was a mistake, and given that the Court has found that the Wernhards must have become aware that it was a mistake, Citigroup's equitable right to the restoration of the mortgage subsisted immediately in place of the mortgages. Secondly, the Wernhards attempt to sketch themselves as innocent first time home applicants for a loan with a single domestic property in 2014: "the defendants only owned the one property in 2014 when due diligence was followed, the purpose of the loan would have rolled to three loans into one". 2. But the Wernhards only had one property because, without telling Citigroup, they had unconscientiously taken advantage of Citigroup's ignorance of its own mistake in releasing securities, by selling the South Tamworth property. 3. The authorities that the Wernhards rely upon are of little assistance to them. The Wernhards cite passages from Lord Goff's judgment in Lipkin Gorman v Karpnale Ltd [1988] UKHL 12; [1991] 3 WLR 10 where his Lordship said, "where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution". Although this is a statement in the context of restitution, it is cited by the Wernhards in defence of this claim for equitable relief. But any such principle is inapplicable, even by analogy, because the Wernhards are not innocent defendants. In my view, they have acted unconscientiously. 4. But aspects of what the Werhhards raise under this heading lead to questions that need to be addressed when Citigroup is required to do equity as the price of having a grant of equitable relief. These aspects are considered later in these reasons. 5. The Wernhards attempt to deflect a conclusion of unconscionability by arguing that they have "acted honourably throughout this saga in that at all times and they have adhered to the public interest criteria of shared responsibility". The Court is not sure what "shared responsibility" means in this context. But if it allows the Wernhards to pursue self interest in selling the South Tamworth property without telling Citigroup, then that is what the Wernhards did. They did not pay down the loans with the proceeds of the South Tamworth property. 6. Finally, the Wernhards contend that they took care "to consistently advise the plaintiff of any changes to property ownership in a timely manner". But they did not do that: they did not immediately tell the plaintiff about the sale of their South Tamworth property. They then say that they took care "to deliver to the plaintiff all the monies that the agreement of 2005 demanded", but whatever demands might have been theoretically possible under the loan agreements, Citigroup was not in a position to demand the proceeds of sale of the South Tamworth property, because it was unaware of the sale. 7. Their statement that "they have acted at times to secure their own interest" presents a truer picture. They did just that when they sold the South Tamworth property. 8. The Wernhards submit that they did make "a number of attempts over the years to draw the plaintiff's attention to shortcomings within the loan accounts". They say that "the plaintiff either ignored or dismissed all such entreaties, thus apparently failing to undertake necessary due diligence". But the Wernhards did not inform Citigroup of its mistake at any time before the Mills Oakley letter of September 2016. There were no "entreaties" by the Wernhards to tell Citigroup about its mistake. 9. (7) Allegations of Fees for No Service. The Wernhards argue – adopting the language of the recent Banking Royal Commission – that Citigroup is guilty of charging "fees for no service". It is not clear to the Court whether the Wernhards were, by using this phrase, characterising Citigroup as breaching its loan agreements or contravening legislation that applied to the loan. But whatever else might be said about this argument, it does not accurately characterise Citigroup's conduct towards the Wernhards. 10. The Wernhards founded this point on the home loan summary attached to the letter Citigroup sent to them on 19 July 2012, after the settlement of the sale of the Raymond Terrace property. This letter lists the remaining securities as the Watanobbi property and the South Tamworth property. As the Court's earlier reasons point out, this letter reaffirms to the ordinary reader that Citigroup's understanding was that it still retained the South Tamworth and Watanobbi properties as securities for its loans to the Wernhards. 11. But the Wernhards complain that the document shows the Raymond Terrace property account 756 is still listed with a net change in balance of only $165.00, leaving an amount outstanding of $122,804. The Wernhards submit "that the plaintiff's failure to pay out this loan account as would be reasonably expected, is tantamount to imposing a fee for no service in that the plaintiff would be arguably be charging client's ongoing fees without providing responsible financial advice or service". 12. It is difficult to understand how Citigroup could pay the account out without receiving identified funds from the Wernhards. Unfortunately the Wernhards' submissions do not identify what money they say should have been credited to their accounts to enable Account 756 to be closed. The settlement statements from Raymond Terrace show that $189,692.80 was credited. The total outstanding was reduced by about this amount at that time. But if they are relying on other money from the sale of the Raymond Terrace property they have not identified it. This uncertainty can be cured by ordering Citigroup to give a full mortgagee's account to the Wernhards, so that there can be no further debate about what has or has not been paid to Citigroup to reduce the amount outstanding on the Wernhards' accounts. This matter is considered later in these reasons as a term of a grant of relief to Citigroup. 13. This is not obviously a case of charging fees for no service. As it presently appears to the Court, prior to a mortgagee's accounting, Citigroup merely left the structure of three accounts the way it was before the sale of the Raymond Terrace property and charged account fees on all three. The question may arise whether Citigroup could have closed one of the accounts, upon applying the proceeds of sale of the Raymond Terrace property to the total loans. That is yet to be considered. 14. (8) Allegations of Breach of Fiduciary Duty. The Wernhards argue that Citigroup breached its fiduciary duty to them and did so "cynically". The Wernhards submit, quoting ASIC Regulatory Guide 205.62 (page 18), that Citigroup had an obligation to operate "efficiently, honestly and fairly". They submit that was not done here and that Citigroup exploited their vulnerability. This contention seems to be based on the same material as before: that Citigroup did not consider the Wernhards' application to consolidate their loans. This argument is largely answered by the Court's previous findings and conclusions: (1) that the Wernhards did not make an application to consolidate their loans; and (2) their own conduct was unconscientious and what Citigroup did was largely responsive to their conduct. 15. But there is another answer. A bank does not ordinarily owe its customer a fiduciary duty (or a duty of care) unless special circumstances introduce fiduciary obligations (or a duty of care) between them: Beneficial Finance Corporation Limited v Karavas (1991) 23 NSWLR 256 (at [176]). Citigroup did nothing here to change the ordinary non-fiduciary relationship with these customers. 16. At the time of the sale of the South Tamworth property, the relationship was anything but fiduciary. The customers, the Wernhards, were not then in a vulnerable position, vis-a-vis the bank. The Wernhards knew a great deal more than Citigroup about its security over their properties, and with that knowledge they decided to deal with one of those properties other than under Citigroup's directions. 17. The Wernhards seek to support their argument by relying upon passages in the judgment of Spigelman CJ in Khoshaba to the effect that the overall conduct of parties resisting findings of unjustness under the Contracts Review Act (1980) "is highly relevant and often determinative" of relief under that act. But in my view, these passages do not assist the Wernhards' fiduciary duty argument. (3) The Wernhards' Cross-Claim 1. The Wernhards' Cross-Claim principally deals with two matters that do not overlap substantially with the matters already addressed as part of their defence. The first is a claim for losses said to be associated with the Central Coast Community Shed ("the Community Shed"). The second is remedies said to be available under the National Credit Act. These will be dealt with here in turn. 2. The Cross-Claim – the Community Shed. The Wernhards say they were always compliant with their lending obligations. They contend: (1) that Citigroup's May 2017 suspension of their accounts was a breach of its loan agreements with them; and (2) loss thereby resulted from their being forced to put on hold their arrangements with a not-for-profit organisation called the "Community Shed" that was situated in Wyong. 3. The facts about the Wernhards' involvement in the Community Shed are generally uncontentious to the extent they are known. On 28 September 2015, Central Coast Community Shed Incorporated was registered as an incorporated association in New South Wales, under the Associations Incorporation Act 2009. This incorporated association is not a party to these proceedings, although it appears to have some connection to the defendants'/cross-claimants' claim for damages. 4. The Court accepts that the Wernhards were appointed as co-managers of the Community Shed on 28 September 2015, and that, as a result, they were required to manage and operate a truck, run by the Community Shed and manage its day-to-day operations. The Wernhards operated the truck through Account 200, supported by their Ready Credit Account. The Wernhards complain that these arrangements had to be put on hold as a result of their account suspension. 5. It can also be accepted that the Community Shed is a non-profit incorporated association, that provides a range of community services to people on the New South Wales Central Coast. The Community Shed is not a registered charity. It raises funds instead from a range of commercial enterprises that are listed in the evidence. The Wernhards complain that running the Community Shed is expensive and that is why the rolling facility was necessary. 6. The Community Shed was meeting its rental obligations which were up to date until 3 July 2017, some two months after Citigroup suspended the Wernhards' accounts, including Account 200. The Court accepts this resulted in the Wernhards having to take a decision to substantially restrict the truck hire conducted by the Community Shed. It can further be accepted that, as a result of the suspension, the Wernhards helped the Community Shed cope with the situation by deploying their own savings to fund the operations of the Community Shed for a few months. 7. The Wernhards cannot recover loss on this part of the Cross-Claim without showing that Citigroup was in breach of its loan agreements with them. But the Cross-Claim fails at this preliminary point. Citigroup was justified in suspending the Wernhards' accounts as they were in breach of the loan agreements. 8. When the legitimacy of Citigroup's suspension action was challenged, Citigroup's lawyers took this position and wrote to the Wernhards on 3 August 2017: "In the circumstances where it became apparent that (our client) had a significant unsecured loan regardless of the circumstances in which that arose the action taken to freeze your accounts was entirely reasonable and within the applicable contractual terms". 1. Citigroup's suspension was justified by the Wernhards' conduct. Citigroup's Home Loan Facility Agreement incorporates general conditions specific to the revolving loan account that the Wernhards had with Citigroup. Citigroup had a right to suspend the Wernhards' revolving loan account under clause 38 of its general conditions, which provided as follows: "38 SUSPENSION OF THE REVOLVING LOAN ACCOUNT 38.1 We can suspend your right to draw on the revolving loan account if: (a) you are in default (see clause 12); (b) we are notified by any of you or a security provider directly or through a legal representative that a dispute exists between any of those persons in relation to any matter connected with this agreement; or (c) we believe on reasonable grounds that you or a security provider intends to act or has acted inconsistently with the terms of this agreement or a security; or (d) you have a regulated contract, in the circumstances set out in clause 37.4 38.2 Suspension of the right to draw means that we may: (a) decline to pay any cheque presented; (b) decline to make any other payment requested or authorised by you; and (c) put any other stop on the account access that may be available to us." 1. Clause 38.1(c) is at least a sufficient basis for Citigroup to activate a clause 38 suspension in this case. By withholding the Certificates of Title of the South Tamworth and the Watanobbi properties, and selling the South Tamworth property without unequivocally committing the proceeds to Citigroup, the Wernhards "were acting inconsistently with the terms of the Second Loan Agreement which required them to provide these securities to Citigroup and Citigroup could reasonably believe that – which is to be inferred from its correspondence with the Wernhards. 2. Citigroup did not breach the terms of its lending by invoking the suspension, the Cross-Claim does not found any viable claim in damages for such a breach and so none of the claims, in my view, succeed. 3. The Wernhards then take a different tack on this aspect of their Cross-Claim. They argue that Citigroup's conduct has been unreasonable. They say that Citigroup's refusal to address the loan accounts in 2014 meant that the Wernhards monthly loan repayments totalled $3,438.19 by May 2017. This can be compared to a standard home monthly repayment of $1,810. The Wernhards' combined monthly income at this time, it can be accepted, was $3,405 and presently they owe a total amount to Citigroup in the order (they calculate) of $313,000. The Wernhards argue that the Community Shed has accrued debts totalling $11,649, because the truck hire was not fully viable until February 2018 and they had to expend $8,000 to assist the Community Shed to transition away from the truck hire. 4. The Wernhards' ultimate submissions are that the accumulation of these debts was not "due to any malfeasance on the part of the Wernhards". They say that the debts came about "as a domino effect when standard practice was invoked". 5. Whether or not the Wernhards are responsible for all the debt that has accumulated in their name is beside the point for their Cross-Claim. They were in breach of their loan obligations by withholding the Certificates of Title. Citigroup's suspension of their accounts was justified. 6. The Cross-Claim – the National Credit Act. The Wernhards have filed a Cross-Claim against Citigroup. They allege that, amongst other things, Citigroup has breached provisions of the National Credit Act. 7. The Cross-Claim relates entirely to a period after August 2014, when the Wernhards they say they applied to Citigroup to consolidate their loans. In substance, the Cross-Claim was alleging a dereliction in duty on the part of Citigroup in addressing that application. This aspect of the Wernhards' claim is attended by a number of difficulties. 8. The Cross-Claim, filed 28 February 2018, claims loss of income, damages and the "repayment of mortgage and associated bank fees, charges and interest with regard to the plaintiff's inferred non-compliance under the National Credit Act (2010)." 9. The pleadings relevant to this part of the Cross-Claim allege that: "4. The Defence claims the plaintiff or its intermediaries in 2014 failed in its fiduciary duties towards Mr and Mrs Wernhard in that it can be inferred that the plaintiff failed to take appropriate steps to satisfy all its statutory obligations under Section 28 and 29 of the National Credit Act (2010). 5. It can also be inferred that the plaintiff failed to comply with its general conduct obligations under the National Credit Act (2010) on a number of occasions since 2013. Such failure due to incompetence through conscious inattention by the plaintiff was exasperated by the freezing of all the defendant's accounts on 1 May 2017. The defendants were not in default of any contractual requirements but mortgage facilities were withdrawn and the defendant's (sic) assets were commandeered." 1. The matter was argued with reference to ss 28 and 29 of the National Credit Code (found in Schedule 1 of the National Credit Act), rather than ss 28 and 29 of the National Credit Act itself. It is not obvious how the Wernhards' allegations of non-compliance with sections 28 and 29 of the National Credit Code (found in Schedule 1 of the National Credit Act) assist them. National Credit Code, s 28 prescribes the maximum amount of interest charges that may be imposed under a credit contract. National Credit Code, s 29 provides that a credit provider must not, at any time before the end of a day to which an interest charge applies, require payment of or debit the interest charge. 2. Assuming for the purpose of argument that the National Credit Code applies to the loan agreements made in 2005 (the National Credit Act was assented to on 15 December 2009 and commenced on 1 July 2010 throughout Australia), the facts alleged in the Cross-Claim and the evidence do not support a claim of non-compliance with sections 28 and 29. 3. At the pre-trial directions hearing on 18 May 2018, the first defendant foreshadowed a case that the loan is not suitable for purpose in breach of the Australian Securities and Investments Commission Act 2001 (Cth), ss 28, 29. But this case was not pursued at trial. 4. The cross-claimants are not entitled to any relief under these provisions. 5. In summary the Wernhards have not established that they are entitled to any of the relief claimed in the Cross-Claim. (4) Should Relief be Granted on Terms? 1. In order for Citigroup to seek equity it must do equity. This doctrine is frequently applied: Tidd v Lister (1852) 10 Hare 140, at 152; 68 ER 872, Chillingworth v Chambers [1896] 1 Ch 685, Forsyth v Blundell (1973) 129 CLR 477, at 504 and Stefanetto v Forestry Commission of New South Wales [1975] 1 NSWLR 332. 2. But the doctrine has limits. The Court is confined in the exercise of its discretion to imposing terms that the defendant could have enforced in a suit instituted for that purpose. This protects against the Court imposing arbitrary terms upon the grant of relief that are not justified by the defendant's existing legal or equitable rights: Hanson v Keating (1844) 4 Hare 1 at 6; (1844) 67 ER 537 at 539. The same idea has pithily been put this way: "the maxim requires the plaintiff to do equity, not justice": JD Heydon, MJ Leeming, PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths), at page 77. 3. The Court will order that Citigroup's relief will be granted on terms. The Wernhards will be ordered to have the benefit of an accounting of all charges upon, and all amounts credited to, their mortgage account with Citigroup, as a term of the grant of equitable relief in this case. It is clear that there are misunderstandings already about the state of accounts between this equitable mortgagor and of mortgagee, and this should not be allowed to continue as it will only lead to further confusion and potentially further litigation between these parties. 4. Accounts between mortgagor and mortgagee are commonly ordered in redemption and foreclosure actions, or where a mortgagee has exercised a power of sale. But here the Court is ordering the reinstatement of a security and it is critical as between these parties for it to be well understood what Citigroup alleges is the precise amount outstanding on the mortgage, at the moment of reinstatement, and the reasons for Citigroup reaching that amount. The ordering of accounts at this time will serve the useful purpose of preventing future disputes. Accordingly, as a condition of the grant of relief, the Court will order that Citigroup provide an account of all interest and other charges on the loaned facility, together with all amounts credited to the loan facility. 5. No other term should be imposed. The Court contemplated the possibility of ordering Citigroup to engage with the Wernhards about simplifying their loan structure as a condition of the grant of relief. But the Court decided against that course, in part because Citigroup has shown a willingness to engage in such discussions already and those negotiations have stalled in large degree, because the Wernhards have taken a position within them which has been unsuccessful in these proceedings. The resolution of the issues decided by this judgment should give the parties an opportunity to engage in fresh discussions about simplifying the Wernhards' loan structure, without the need for formal orders from the Court about that subject. Costs and other Issues. 1. Citigroup has been wholly successful. Although relief has been granted on terms, the terms are not particularly onerous and reflect a mechanism to reduce the confusion on the Wernhards part about how much is due under the Second Loan Agreement and the mortgage. The account is not being ordered because of any wrongdoing on the part of Citigroup. In fact, there is evidence that Citigroup attempted to negotiate with the Wernhards about simplifying a loan structure, but was unable to progress the negotiations because the Wernhards were taking the position that they would not restore the mortgage and wanted compensation. 2. The Wernhards will be ordered to pay Citigroup's costs of these proceedings on the ordinary basis. Unless a special costs order is applied for, this costs order will be operative within 14 days. 3. There is another caveat on the title to the Watanobbi property, apart from the caveat Citigroup has lodged to protect the interest it claims in these proceedings. The other caveat was lodged in 2013 on behalf of Gertrude Ursula Willis, Mr Wernhard's mother. The caveat records that she claims a life estate in equity over that property. But during the hearing, Mr Wernhard informed the Court that his mother had died in 2017 and that there should be no difficulty removing the caveat. 4. With this in mind, the Court will make orders for the removal of this caveat from the title to the Watanobbi property. Conclusions and Orders 1. For these reasons, the Court makes the following orders and directions: 1. Declare that the property identified as "the Watanobbi property" in the reasons for judgment given today (and full title particulars to the Watanobbi property appear in the Statement of Claim) is subject to an equitable mortgage in favour of the plaintiff in priority to any other subsisting equitable interest in the Watanobbi property; 2. Declare that the equitable mortgage, the subject of declaration (1), secures the payment by the first and second defendants to the plaintiff of all monies under the loan agreement the plaintiff and the first and second defendants made on or about 14 October 2005, in which the plaintiff agreed to provide a line of credit to the first and second defendants with a credit limit of $524,000 and which is referred to from time to time in reasons for judgment published today as "the Second Loan Agreement"; 3. Subject to Order 4 of these orders, order that the first and second defendants execute within 28 days of the date of these orders: 1. a mortgage in registrable form in the same terms as contained in Mortgage No. AB956188, to stand as security for the payment of all monies owing by the first and second defendants to the plaintiff under the Second Loan Agreement; and 2. a withdrawal of the caveat claiming an interest in the Watanobbi property on behalf of Gertrude Ursula Willis. 1. The obligation of the first and second defendants to comply with Order 3 is dependent upon the plaintiff providing to the first and second defendants within 21 days of the date of these orders an account of: (a) all advances of principal and all interest and other charges incurred by the defendants under the Second Loan Agreement; and (b) all amounts credited to principal or interest to reduce the amount outstanding under the Second Loan Agreement; 2. Upon proof satisfactory to the Registrar in Equity of compliance with Order 4 by the plaintiff and upon proof satisfactory to the Registrar of non-compliance with Order 3 by the first and second defendants, the Court authorises the Registrar to execute (a) the Mortgage in registrable form and (b) the withdrawal of caveat, required by order (3) hereof, in substitution for the first and second defendants executing the same; 3. Grant leave to the plaintiff to uplift the Certificate of Title to the Watanobbi property from the Registrar in Equity, to enable registration of the Mortgage the subject of order (3) of these orders upon the provision to the Registrar of a receipt for the same from the solicitor on the record for the plaintiff in these proceedings; 4. The Statement of Claim is otherwise dismissed; 5. The Cross-Claim is dismissed; 6. Order the defendants/cross-claimants to pay the plaintiff/cross-defendant's costs of these proceedings, but any party may apply for a special costs order within 14 days of the date of these orders; and 7. Grant liberty to apply until 30 April 2019 to all parties in relation to the implementation of these orders. ********** Amendments 11 March 2019 - 76: typographical amendments to "discovered" and "only" 18 March 2019 - [48], [96], [130], [162], [166], [176] "Citgroup" changed to "Citigroup" [108] delete "the" before Spigelman CJ. [108] change Koshaba to Khoshaba, twice [155], quoting Lord Goff, change "suffer injustice" to "suffer an injustice", change "justice" to "injustice". [190] change Investment to Investments in the name of the Australian Securities and Investments Commission Act. 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: 18 March 2019