Barbaro & Barbaro v Millington [2004] ACTSC 7 (18 March 2004)

Last Updated: 23 April 2004

FRANK BARBARO and JACLYN BARBARO v DONNA MAREE MILLINGTON

[2004] ACTSC 7 (18 March 2004)

DEED - enforcement of debt arising from a deed.

EQUITY - set aside deed - undue influence.

EQUITY - set aside deed - unconscionable conduct.

Civil Procedure ACT [15,801.15]

The Commercial Bank of Australia Limited v Amadio [1983] HCA 14; (1982) 151 CLR 447

Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42

Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395

J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers [No 2] (1993) 46 IR 301

Meagher Gummow and Lehane's Equity: Doctrines and Remedies, 4^th ed

No SC 219 of 2000

Judge: Connolly J

Supreme Court of the ACT

Date: 18 March 2004

IN THE SUPREME COURT OF THE )

) No SC 219 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: FRANK BARBARO and

JACLYN BARBARO

Plaintiffs

AND: DONNA MAREE MILLINGTON

Defendant

ORDER

Judge: Connolly J

Date of order: 10 March 2004

Date of judgment: 18 March 2004

Place: Canberra

THE COURT DECLARES THAT:

1. the defendant is not indebted to the plaintiffs in any manner.

2. there is no charge in force against the property situate at 59 Alpen Street, Spence in the Australian Capital Territory.

THE COURT ORDERS THAT:

1. the order made on 7 April 2000 that the Registrar-General not remove Caveat No 1152034 affecting the property situate at 59 Alpen Street, Spence in the Australian Capital Territory without the consent in writing of the plaintiffs be discharged.

2. the plaintiffs pay the defendant's costs.

1. This is an action in which the plaintiffs seek declarations that the defendant is, pursuant to a deed, indebted to them in the sum of $85,000, and further that pursuant to that deed the defendant charged to the plaintiffs her interest in a residential house in Canberra. The defendant seeks a declaration that there is no debt and that there is no charge on her property, arguing that she was coerced into executing the deed.

2. The matter was commenced by way of an originating application of 5 April 2000. On 7 April 2000 the former Chief Justice ordered interim relief by way of an order that the Registrar-General not remove a caveat, which had been lodged against the title to the defendant's residential property without the consent in writing of the plaintiffs.

3. In his affidavit in support of the application, the plaintiff Mr Barbaro, who gave his occupation as pensioner, said that he had been acquainted with one Robert Buser for some 20 years. He said that he first met the defendant when he was introduced to her by Mr Buser in February 1999 as his girlfriend. He says that during 1999 he had a number of business dealings with Mr Buser, who was at the time operating a used car business in Mitchell and later in Fyshwick in the Australian Capital Territory. He says that his business dealings involved purchasing motorcars from Mr Buser's business, and then re-selling them at a profit.

4. He says that in March 1999 Mr Buser invited him to "invest" his money with him. In his affidavit he says that Mr Buser told him that his used car business was doing well, but that it would do better if he had more capital to purchase vehicles at the Sydney auctions. He says that on asking how much he would need to invest, Mr Buser said -

Why don't you put in $60,000, you'll make fifteen thousand on a good month. If you want some of the money back to build, just give me a month's notice. I'll give you security.

He says that on 3 March 1999 he and his wife sold their residential property at Palmerston and received a total settlement of some $130,941.88. He says that on or about 8 March 1999 he agreed with Mr Buser to invest all of this in the car venture, and on that evening he and his wife met with Mr Buser at a Chinese restaurant and handed over the cheque. He says that the defendant was present on that occasion, but the defendant denies this. He says that on that evening the defendant said, "Thanks for giving Bob a chance". Although I prefer the defendant's evidence on this point, I observe that, even on Mr Barbaro's evidence, all Ms Millington is claimed to have said was "Thanks for giving Bob a chance". This in no way suggests any responsibility for a loan to, or investment with, Mr Buser.

5. Mr Barbaro says that shortly after this Mr Buser said that the business was slow, and that he could only pay him $4,000 a month, saying "It's only while it's tough, once it's good we'll be alright again". He received a payment of $4,000 cash in April, and another in May of 1999. He says that in June no payment was received, and he demanded his money back. He says that in July 1999 he attended at the home of the defendant and Mr Buser, and said to the defendant "Bob's behind in his payments, give me the keys to your cars". The defendant confirmed that this occurred, and that she did give him the keys. Mr Barbaro is a tall and powerfully built man, and the defendant said that she was in fear of him and allowed him to take the cars. It is common ground that Mr Barbaro, shortly after, discovered that one of the cars was owned by and registered to the defendant rather than Mr Buser's business, and that car was returned.

6. In her affidavit of 2 February 2001 the defendant said that between March and May 2000 she noticed Mr Buser "coming under increasing stress, and that on 27th May 1999 he collapsed at work and was taken to Calvary Hospital by ambulance". She says that over the period March 1999 to March 2000, when he left Canberra, she saw Mr Buser "bruised and battered" on a number of occasions, and believes that this was as a result of dealings with Mr Barbaro. She did not say that Mr Barbaro ever directly threatened her.

7. Mr Barbaro denied that he had made threats to Mr Buser, but he gave quite extraordinary evidence that in about October 1999 he had been engaged with Mr Buser in some debt recovery activities in the Cooma region. He says that Mr Buser told him that he had to go to Cooma to collect some money for a vehicle that Mr Buser had sold. He says that they went through a number of gates looking for a property, and that after he got out to open a gate Mr Buser shot at him twice in the back. He says that he dived for the ground, and that Mr Buser then approached him with the gun, and that Mr Buser then placed the gun in his, Mr Buser's, mouth. He says he talked Mr Buser down, and then took the gun, which had one round jammed in the chamber, and then brought Mr Buser back to Canberra. He says that on the drive back "I would have slapped him a few times, yes" (T 26). He says that he then went to the pub and at this point realised that he had been hit by the bullets. He went to a doctor. He tendered an x-ray dated October 1999 to confirm the presence of bullets in his back. This matter was never reported to the police. He was asked whether he threatened or assaulted Mr Buser after the shooting and replied "I would have abused him, yes" (T 27).

8. It seems to me that there was ample evidence from Mr Barbaro to justify the defendant's fear, even in circumstances where I am satisfied that Mr Barbaro did not directly threaten her with violence. She was entitled to believe that he was a violent man, on the basis of her observations of violence that had occurred to Mr Buser. She also knew of the shooting incident, and so would be entitled to have some fears about Mr Buser's tendency to violence as well.

9. Mr Buser had been issued with a subpoena to give evidence but did not attend. He had been tracked to an address in Queensland, and a person claiming to be Mr Buser contacted the court and made enquiries about the subpoena. The matter was adjourned to enable Mr Buser to be located, and a warrant was issued. However Mr Buser was unable to be located and so no evidence was available from him. In February 2004 the solicitor on the record for the plaintiffs filed a notice of motion to be removed from the record, and this was so ordered by the Master. On the resumed hearing of the matter on 9 March 2004 there was no appearance for the plaintiffs, and Mr Byrne, for the defendant, proceeded to conclude Ms Millington's evidence.

10. Mr Barbaro in his affidavit says that he received no further money from Mr Buser. He says that in December 1999 he told Mr Buser that he would have to sign over to him his interests in all the cars in the yard. Mr Buser agreed to this and also agreed to pay Mr Barbaro an additional $85,000 to resolve the matter. It was never entirely clear whether the transaction was to be regarded as a loan or an investment. On Mr Barbaro's evidence, the original proposal was for $60,000 to generate a return of $15,000 per month, which amounts to $180,000 over 12 months at an effective interest rate of 300 percent.

11. Mr Barbaro says that on about 24 December 1999 he told Mr Buser that he had to see his (Mr Barbaro's) then solicitor, Mr Phillips, "to sign over the houses as security for the rest of the money you owe me". He says that when the deal was originally proposed Mr Buser had claimed to have interests in property in Queensland and Cooma. Mr Barbaro says that he believes that on 4 January 2000 the defendant and Mr Buser attended the offices of his solicitor, and both signed a deed of indebtedness, in which the defendant charged her interest in the residence towards repayment of the debt of $85,000.

12. Annexed to Mr Barbaro's affidavit was a typed form of a deed of loan. It is typed as a deed between the plaintiffs and Mr Buser, but Ms Millington's name has been added by hand. It identifies the sum of $85,000 as being owed, and lists, in handwriting, three residential properties identified as security, one of these being the defendant's home. It is dated 4 January 2000, and Mr Phillips in his affidavit says that that was the date on which it was executed.

13. The defendant acknowledges that she placed her signature on the deed. She says that this occurred on Christmas eve, 24 December 1999. Her affidavit states -

On Christmas eve 1999 I received a telephone call from Bob at my work in the morning. He said that Frank Barbaro had given him half an hour to get me into Barbaro's solicitors' offices to sign over to him property owned by me. I said that I was not signing anything and was too busy to leave work. Bob nevertheless attended on my place of work a little later in the morning and was obviously distressed, and still insisting that I attend on Barbaro's lawyers and sign some documents. I asked Bob to wait outside and ring a solicitor for advice because I was not going to sign. When my lunch break came I was rushed into Civic by Bob and was told on the way that Barbaro had made further threats to harm Bob, his nephew, his niece and his mother. I was further told that he had said that I would be eating my food through a straw for the rest of my life if I did not sign the documents that day. I kept saying I didnt want to sign anything, I was crying and extremely distressed. I had no time to think or contact a solicitor myself. On arrival at the offices of Vandenberg Reid I waited briefly in the reception area, was taken into an office and was shown a piece of paper that I did not read. I was still crying and said to the solicitor that I did not want to sign the paper. I said to Bob that if he made me sign he would never see me again. I heard the solicitor say that as soon as the document was signed he was instructed to ring Mr Barbaro and let him know. On hearing that name I grabbed a pen, signed the document, removed my engagement ring, threw it at Bob and left the office, still in tears.

14. In his evidence-in-chief Mr Phillips acknowledged that the deed was in fact executed on 23 or 24 December 1999, as stated by the defendant, and not on 4 January 2000, the date affixed to the deed.

15. Mr Phillips acknowledged in his evidence-in-chief that the defendant did not appear to be pleased to be there, and was reluctant to sign the document. Initially he said that he advised her to get independent legal advice, and was then permitted to have recourse to some contemporary notes that he took. After looking at his notes he says that he told Ms Millington that the effect of the deed was to acknowledge a debt of $85,000, and to create a charge over her property. He said (T 116) -

She acknowledged that she understood the effect of the document. I did - and this was the point I'd recommended she obtain independent legal advice, and I said "You shouldn't sign this document without obtaining such advice". She went on at first - and I think this is when the conversation took place between she and Buser that she - Bob Buser, that she said at that stage she didn't really want to sign the document.

16. He said that he told Ms Millington that she should not sign if she felt under pressure, and that she replied "I haven't got any choice, have I?". He continued (T 117) -

I said " Well, you do have a choice: you can take independent advice or you can take the document away". I wasn't prepared to - I said "You do have a - no one is forcing you to sign this document". She said "What if I take this away over New Year?" and I said "Well, I'll simply ring my client and say that Bob Buser signed the document, it's been signed by him but you haven't signed it". It was at that point - and this happened very quickly after that statement, she said, "Well, give me the document and I'll sign it now.

17. Ms Millington gave evidence that once Mr Phillips said that if she did not sign the document Mr Barbaro would be told, she immediately signed because of her fear of Mr Barbaro. I accept that Mr Phillips did not know of this threat, but he clearly did know that she was reluctant to sign and was of the view that she had no choice. The document was signed. How the date of 4 January came to be placed on the deed remains a mystery.

18. The defendant's case, shortly put, is that the deed was obtained by coercion, and that it would be unconscionable for the plaintiffs to rely on the deed. Any debt owed by Mr Buser to the plaintiffs is a matter between those parties. I am satisfied on the evidence that the monies were advanced by the plaintiffs to Mr Buser personally, and not to the defendant. Any debt remaining is a debt owed by Mr Buser personally to them. The only reason that the plaintiffs have a claim against the defendant is because she executed the deed on 24 December 1999, in circumstances where, I am satisfied, she was coerced. She feared that if she did not sign, she would be exposed to violence. It is not her case that there was any direct threat from Mr Barbaro, and I accept this. I accept that Mr Barbaro was truthful when he said in his evidence that he never threatened Ms Millington.

19. He also denied threatening Mr Buser, but I must take into account here the extraordinary story, not referred to in his affidavit, of the shooting incident in October 1999, and his evidence that as a consequence he "slapped" Mr Buser. When it was put to him that after this incident he threatened or assaulted Mr Buser, he said, "I would have abused him, yes". Ms Millington gave evidence that she observed Mr Buser bruised and battered, and was told by him of threats, both to him and to her, from Mr Barbaro. I accept her evidence that this is what Mr Buser said, and I accept that she believed this.

20. Ms Millington gave evidence of the circumstances of the signing of the deed which was quite consistent with the evidence of Mr Phillips, save that she said that she was never advised to consult a lawyer. Given that she acknowledges that she was in an agitated state at this meeting I accept Mr Phillips' evidence that he did advise her of her right to independent advice, and indeed said that this was advisable. Mr Phillips' evidence of her reluctance to sign the deed is otherwise consistent with her evidence. They both agree that she asked what would happen if she did not sign on the day, and that he then told her that he would tell Mr Barbaro that she had not signed. I accept that Mr Phillips was not saying this intending to convey any improper threat. He did not know that she had been told by Mr Buser that if she did not sign Mr Barbaro would assault her, and she would be eating through a straw for the rest of her life. But I accept that this is what she understood, and upon being told that Mr Barbaro would be told immediately if she did not sign, she signed the deed out of fear.

21. The question is not whether the plaintiffs obtained the signature of the defendant to the deed by threat or coercion, because it is common ground that there was no direct threat. The question is rather whether it would be unconscionable to allow them to take advantage of the deed in the circumstances where the defendant signed the deed because of what her then partner, Mr Buser, told her about threats of violence, both to him and to her, from Mr Barbaro.

22. The distinction between undue influence and unconscionability was well explained by Mason J in The Commercial Bank of Australia Limited v Amadio [1983] HCA 14; (1982) 151 CLR 447 at 461 where his Honour said -

Although unconscionable conduct ... bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.

23. The jurisdiction of courts of equity to relieve against unconscionability was described by Deane J in that case (at 474) as follows:

The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it.

24. Although the defendant's principal argument is that the deed should be set aside on the basis of unconscionability, it seems to me that the alternative ground, that of undue influence, is also available. The learned authors of the fourth edition of Meagher Gummow and Lehane's Equity: Doctrines and Remedies state (at 15-150) -

The equitable doctrine extends to cases where the party exerting the undue influence was not the direct recipient of the disponor's property. It extends to set aside transactions involving third parties in the following capacities: (a) where Y under the influence of X disposes of his property to Z, it does not appear necessary that the third party Z act in concert with X provided, presumably, he is not a purchaser from Y without notice of X's influence; (b) where Y under the influence of X enters into obligations to Z which will be to the benefit of X, for example, where Y guarantees the bank overdraft of X ...

25. It seems to me that the latter position describes what happened here. I accept the evidence of the defendant that she only acted because Mr Buser had told her of threats of violence if she did not sign the deed. By signing the deed and exposing her property, Mr Buser of course obtained a significant benefit. This, it seems to me, clearly amounts to undue influence. In Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42 at 51 Starke J stated that -

The inference of undue influence operates not only "against the person who is able to exercise the influence", but "against every volunteer who claimed under him, and also against every person who claimed under him with notice of the equity thereby greeted, or with notice of the circumstances from which the court infers the equity".

26. It seems to me that in this case the plaintiffs, having instructed Mr Phillips to obtain the defendant's signature to a deed of guarantee, in circumstances where Mr Barbaro had acknowledged a degree of violence towards Mr Buser and where he knew that Mr Buser was himself prone to violence, and knowing that the only link between the defendant and the debt was that the defendant was Mr Buser's girlfriend, can be said to fall within this latter category where the undue influence of one party can vitiate a contract or deed between the person under the undue influence and a third party, and this is sufficient to set aside the deed.

27. However, if I be wrong on this point, it seems to me that the defendant has also made out the case that the deed should be set aside on the related doctrine of unconscionability.

28. The plaintiffs engaged Mr Phillips and instructed him to draw up the deed. All of the evidence seems to show that the inclusion of the defendant in the deed occurred at the last moment. The deed was drafted and typed as between the plaintiffs and Mr Buser only. The defendant was added by a handwritten amendment. Mr Phillips acknowledged in cross-examination that he did not have instructions to include the defendant in the deed until shortly before Christmas eve 1999, and this is of course consistent with the handwritten amendment to the deed. He had very scanty knowledge about the origin of the debt, and agreed that a loan at the rate of 300 percent would be extraordinary and something he had never seen.

29. It seems to me that it must have been perfectly apparent to Mr Phillips, through whom the plaintiffs were acting, that Ms Millington was reluctant to enter into the deed. He knew the effect of the deed, and says that he explained it to her, and I accept this. It was his evidence that he was uncertain about the precise nature of the loan between Mr Buser and his clients, and so he proceeded as though this deed was in the nature of a guarantee by Ms Millington of Mr Buser's debt. Such an arrangement requires special care by a legal adviser (Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395). It is apparent that she was still reluctant to sign, and although he says that she was not crying, I accept her evidence that she was upset and distraught at the time. His evidence that she was "reluctant to be there", and "had no choice" is consistent with this finding. I accept his evidence that he told her that she could obtain independent advice, and should do so.

30. However, it is his evidence, as well as hers, that she said she had no choice. She asked what would happen if she took the deed away, and he told her that he would advise Mr Barbaro of this. She then signed it. It should have been apparent to Mr Phillips that she was not voluntarily entering into this arrangement, and in these circumstances the party obtaining the benefit of the guarantee of the debt cannot, merely by stating that the guarantor should obtain legal advice, avoid the consequences of the unconscionable deed.

31. It seems to me that it would be unconscionable to permit the plaintiffs to hold the defendant to this deed.

Relief

32. The relief sought by the defendant is a declaration that she is not indebted to the plaintiffs in any manner, and as the only source of the indebtedness is the deed, which I would set aside both on the basis of actual undue influence and unconscionability, I so order. Interim relief was obtained, on the basis of the existence of the deed, by way of an order from the former Chief Justice that the Registrar-General not remove the caveat lodged by the plaintiffs against the defendant's residential property title without the consent of the plaintiffs. As I have set aside the deed, it seems to me that it is appropriate for me to set aside that order. It is then open to the defendant to apply to the Registrar-General to set aside the caveat, on the basis that there is in force a declaration that there is no indebtedness.

33. The defendant sought costs on an indemnity basis. It seems to me that this would only be appropriate in circumstances where the plaintiff was directly responsible for the threat or undue influence. In this case I accept that there was no direct threat by Mr Barbaro towards the defendant. The plaintiffs had instructed their solicitor to obtain security for Mr Buser's debt, and it was on the basis of the deed executed by Mr Buser and the defendant that they brought this action. On its face the deed was effective, and they were accordingly entitled to rely on it. On the hearing of the action I have found that the defendant should not be held to the deed, and it would follow that the defendant, being wholly successful on this point, is entitled to costs in the ordinary manner, but it does not seem that this of itself entitles the defendant to indemnity costs, even where, as here, the plaintiffs appear to have in effect abandoned the proceedings by not appearing and taking any part in the proceedings of 9 March 2004. Indemnity costs are awarded where a party refuses a reasonable order of compromise, or where the unsuccessful party, properly advised, should have known they had no chance of success (J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers [No 2] (1993) 46 IR 301, see generally Civil Procedure ACT [15,801.15]). I am not satisfied that indemnity costs are appropriate here.

Order

34. I delivered my order on 10 March 2004 and indicated that I would publish my reasons at a later date. These are my reasons.

35. The Court declares that:

1. the defendant is not indebted to the plaintiffs in any manner.

2. there is no charge in force against the property situate at 59 Alpen Street Spence in the Australian Capital Territory.

The Court orders that:

1. the order made on 7 April 2000 that the Registrar-General not remove Caveat No 1152034 affecting the property situate at 59 Alpen Street, Spence in the Australian Capital Territory without the consent in writing of the plaintiffs be discharged.

2. the plaintiffs pay the defendant's costs.

I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 18 March 2004

Counsel for the plaintiffs: No appearance on 9 March 2004. (Represented by Mr  R Thomas on 18 and 19 June 2003.)

Counsel for the defendant: Mr I Byrne

Solicitor for the defendant: James A Horniblow

Date of hearing: 18 and 19 June 2003, 9 March 2004

Date of order: 10 March 2004

Date of judgment: 18 March 2004