Jean Edelweiss Alaine Newington & Ors v Beneficial Finance Corporations Ltd [1997] FCA 24 (30 January 1997)

CATCHWORDS

Trusts and Trustees - whether a trust arose from a conditional contractual obligation to lend money - whether a trust such as that found in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 arose

Equity - Unconscionable Conduct - whether unconscionable conduct - whether there was inequality of information between mortgagor and mortgagee such that the mortgage was in a position of special disadvantage

Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589

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

Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567

Broad v Commissioner of Stamp Duties (NSW) [1980] 2 NSWLR 40

Re Charge Card Services Limited [1989] 1 Ch 497

Re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 30 FCR 491 at 503

Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362

JEAN EDELWEISS ALAINE NEWINGTON, JACQUES BONNET, GENMAN PTY LIMITED v BENEFICIAL FINANCE CORPORATION LIMITED

No. NG 234 of 1993

CORAM: Lehane J

PLACE: Sydney

DATE: 30 January 1997

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )

GENERAL DIVISION ) No. NG 234 of 1993

BETWEEN: JEAN EDELWEISS ALAINE NEWINGTON

JACQUES BONNET

GENMAN PTY LIMITED

Applicants

AND: BENEFICIAL FINANCE CORPORATION LIMITED

Respondent

CORAM: Lehane J

PLACE: Sydney

DATE: 30 January 1997

MINUTE OF ORDERS

THE COURT ORDERS:

1. The respondent, within two weeks from the delivery of this judgment, is to file and serve short minutes of the orders which it contends should be made consistently with these reasons for judgment.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )

GENERAL DIVISION ) No. NG 234 of 1993

BETWEEN: JEAN EDELWEISS ALAINE NEWINGTON

JACQUES BONNET

GENMAN PTY LIMITED

Applicants

AND: BENEFICIAL FINANCE CORPORATION LIMITED

Respondent

CORAM: Lehane J

PLACE: Sydney

DATE: 30 January 1997

REASONS FOR JUDGMENT

LEHANE J: The applicants seek relief against the respondent on the ground of what the applicants claim to have been unconscionable conduct of the respondent. The applicants seek, principally, orders that a "verdict and judgment" in favour of the respondent, ordered by consent on 27 April 1984 in proceedings in this Court, be set aside and that the respondent execute a document in which it consents to the setting aside of a judgment in its favour in certain proceedings in the Supreme Court of New South Wales. The applicants also seek declarations that the agreement leading to the judgment in each of those proceedings has been rescinded and that the applicants are entitled to replead certain causes of action "unimpeded by" the earlier judgments of this Court and the Supreme Court. By a further amended application, which the applicants sought leave to file late in the course of the trial, the applicants seek to add claims that the agreement on which those earlier judgments were based be set aside and that a deed of 6 February 1983 between the applicants and the respondent, the effect of which was to authorise the applicant as mortgagee to take possession of certain properties mortgaged to it by the applicants, be set aside also.

It will be necessary to consider in greater detail the claims made, and causes of action propounded, by the applicants in these proceedings. That can be done intelligibly, however, only against the factual background from which the proceedings have arisen. Although there are several particular aspects of the facts which are the subject of strenuous dispute, most of the essential background is not in contest and is clearly established by the evidence.

Facts

(a) The parties

The applicants during the late 1970's and early 1980's acquired, for renovation and leasing or resale, a number of properties in the Eastern suburbs of Sydney. Miss Newington and Monsieur Bonnet have, throughout the relevant period, lived together as husband and wife. The third applicant, Genman Pty Limited (Genman), is a company which, throughout the relevant period, they have owned and controlled. Although M Bonnet and Genman participated in the property development activities, in the sense that they owned certain of the properties and borrowed money for their acquisition and renovation, Miss Newington had the active conduct of the business. She made the necessary decisions, both major and minor, negotiated with other parties (including builders and financiers) and conducted the day to day management and supervision of the projects.

The respondent (Beneficial) during the relevant period was a finance company. Its head office was in Adelaide (it was a subsidiary of the State Bank of South Australia, as it was then known); it carried on business in New South Wales through a branch office in Sydney. During most of the relevant period Mr Arthur Porter was the Sydney branch manager of Beneficial and his immediate superior was Mr Frank Kelly, the Regional Manager for Eastern Australia. Reporting to Mr Porter, and involved at various times in Beneficial's dealings with the applicants, were Mr William Moss and Mr Joseph Seddon.

(b) The properties

Between 1968 and 1982 the applicants acquired nine properties in the Eastern suburbs. The first property acquired (it was acquired by Miss Newington) was 22 Nelson Street, Woollahra, a terrace house on the corner of Nelson and Queen Streets. At the commencement of the events with which this case is principally concerned, it was substantially unrenovated. The second property, 159 Queen Street, Woollahra (opposite 22 Nelson Street), was purchased, also by Miss Newington, in 1975. Throughout most of the relevant period that property was occupied by Miss Newington and M Bonnet as their home. Next in order of acquisition were two adjoining cottages, numbers 3 and 5 Waimea Avenue, Woollahra. Both were acquired in 1976, the former by M Bonnet and the latter by Miss Newington. Those properties were purchased as investments, to be renovated and then let. They had been renovated, and were let, by 1980. Then, in 1979, Miss Newington and M Bonnet jointly acquired 3 Kellett Street, Kings Cross: that property was renovated by way of conversion into three separate units, that on the ground floor being designed for use as a restaurant. The renovations appear to have been substantially complete at least by 3 March 1982, the date of a valuation by L J Hooker Limited which is in evidence.

Finally, the applicants acquired four large terrace houses in Rockwall Crescent, Potts Point. Each was to be renovated and sold (or possibly leased) as two separate residential units. Miss Newington acquired 12 Rockwall Crescent in June 1980 and 14 Rockwall Crescent in August of that year. In August 1980, M Bonnet acquired 16 Rockwall Crescent; and 10 Rockwall Crescent was purchased in June 1982 by Genman.

(c) Financing Arrangements

It is convenient to begin with the initial application for finance made by the applicants to Beneficial. A somewhat tentative application for finance, to assist with the renovations of 3 Kellett Street and 22 Nelson Street, was made on behalf of Miss Newington by R L Kremnizer & Co, a firm of solicitors, in September 1979, but nothing seems to have come of that. In mid 1980, however, the applicants sought finance from Beneficial first for the purchase by Miss Newington of 14 Rockwall Crescent and, a little later, for M Bonnet's purchase of 16 Rockwall Crescent. Those applications were approved. The amount of the loan approved for Miss Newington was $165,000; the amount to be lent to M Bonnet was $210,000. In each case the term was expressed as a minimum of three months and a maximum of twelve months, and the rate of interest was 18% per annum reducible to 16% on prompt payment. In each case $15,000 of the amount advanced was to be lodged on deposit with Beneficial: in the case of the advance to Miss Newington, the deposit was described in the letter of approval as "for interest purposes" and, in the case of M Bonnet's loan, the deposit was to be "covered by a Deed giving Beneficial the right at its absolute discretion to apply the interest principal (sic) in the event of default". The loan to Miss Newington was to be secured by a registered first mortgage over 14 Rockwall Crescent and also a second mortgage over 3 Kellett Street (the first mortgagee being another financial institution); M Bonnet's indebtedness was to be secured by a first mortgage over 16 Rockwall Crescent, a second mortgage over 14 Rockwall Crescent, a third mortgage over 3 Kellett Street and a guarantee by Miss Newington. The loans were made in accordance with the approvals and the contemplated security documents were executed. It is convenient to defer discussion of the form of those documents beyond noting that Beneficial's securities were of conventional kinds and that the form of them remained substantially constant throughout the course of dealings between Beneficial and the applicants.

It will be recalled that Miss Newington bought 12 Rockwall Crescent shortly before she and M Bonnet respectively purchased 14 and 16 Rockwall Crescent. The purchase of 12 Rockwall Crescent was financed by a loan from Mercantile Pacific Finance Limited, later known as Mercantile Mutual Finance Corporation Limited (I shall refer to it simply as "Mercantile"), for a term of twelve months, secured by a first mortgage over 12 Rockwall Crescent and second mortgages - other lenders held first mortgages - over the two cottages in Waimea Avenue, Woollahra.

In August 1981 Beneficial agreed to increase the amount and extend the term of each of its two loans. The loan to Miss Newington was increased by $194,500, made up of $124,500 for renovation costs, $45,000 to "cover interest repayments" and $25,000 to discharge a third mortgage over 3 Kellett Street held by Australia New Zealand Banking Group Limited (ANZ). M Bonnet's advance was increased by $169,500, made up of $124,500 for renovations of 16 Rockwall Crescent and $45,000 "to be lodged on deposit to cover interest repayments". In each case the term was extended to 8 August 1982; interest was payable at the rate of 22% per annum reducible to 20% on prompt payment and the security was to comprise the mortgages (varied appropriately) of 14 and 16 Rockwall Crescent and 3 Kellett Street; each borrower was to guarantee the indebtedness of the other. One of the conditions of each additional advance was that progress payments, for renovation of the two Rockwall Crescent properties, were to be made only upon appropriate certification by a firm of quantity surveyors, Hugh B Gage Pty Ltd (Gage).

Then in November 1981 the maximum amount of each loan was increased by $20,000, for the purpose of enabling the applicants to pay certain fees and initial renovation costs. The interest rate was increased to 22.5% per annum reducible to 20.5% on prompt payment; other terms remained unchanged.

A number of significant developments occurred in 1982. First, a new lender appeared on the scene: it was a company then called P A K Nominees Pty Ltd (it later changed its name) which apparently acted as nominee for a Victorian institution, Statewide Building Society (I shall refer to it simply as Statewide; the interposition of the nominee is of no significance). In April 1982 Statewide agreed to lend Miss Newington $495,000 on the security of first mortgages of 3 Kellett Street and 3 and 5 Waimea Avenue. The term of the loan was three years and it bore interest at the rate of 17.75% per annum. Also in April 1982, Beneficial agreed to provide two additional facilities.

The principal purpose of the first of those facilities was to discharge Mercantile's mortgage over 12 Rockwall Crescent and to provide funds for the renovation of that property. $170,000 was required to discharge Mercantile's mortgage; $150,000 was to be advanced progressively for renovations; $65,000 was to be lodged on deposit for the payment of interest on the facility; and two separate sums of $45,000 were to be lodged on deposit by way of further provision for interest on the two existing facilities provided by Beneficial. The term of the new loan was to be a minimum of three months and a maximum of twelve months; the interest rate was to be 24% per annum reducible to 22% on prompt payment and there was provision for Beneficial to vary the rate. Advances for renovations were to be made upon certification by Gage, as under the other facilities. In addition to the securities already held, Beneficial was to have a registered first mortgage over 12 Rockwall Crescent and, additionally, a mortgage over 10 Rockwall Crescent (to be purchased by Genman) and second mortgages of 22 Nelson Street, 3 and 5 Waimea Avenue and 159 Queen Street.

Secondly, by a letter of approval dated 21 April 1982, Beneficial agreed to advance a maximum amount of $445,000 to Genman. The purpose of the advance was "to assist in purchase of 10 Rockwall Crescent, Potts Point, for extensive renovation and resale". The term and interest rate were to be the same as those of the loan to Miss Newington; certificates from Gage were required as a condition of advances for renovation; $180,000 was to be advanced on settlement of the purchase, $150,000 progressively for renovations; $65,000 was "to be lodged on deposit at settlement, for interest purposes"; and $50,000 was to be "lodged on deposit at settlement, to meet additional costs in part, as listed in condition 10".

Condition 10, in the light of subsequent events, is of some importance. I think it is desirable to set it out in full:

$50,000 to be lodged on deposit from settlement monies together with a minimum of $200,000 to be lodged by applicant for the payment of costs as listed below. Deposit monies to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest. Costs will be paid upon receipt of invoices, to the satisfaction of Beneficial:

Council rates 10,000

Water rates 4,000

Land tax 2,000

Insurance 4,000

Accountant 10,000

Architect 5,000

Bank Overdraft 20,000

Builder 9,000

Solicitor 5,000

Private loan 101,000

Loan establishment fees 7,500

Interest shortfall

Kellett Street, Waimea Ave 32,500

Renovations 22 Nelson St, 40,000

$250,000

These monies to be held on a separate account to that holding monies for the payment of interest.

The last two items in that list should particularly be noted. The "interest shortfall" relates, of course, to the loan by Statewide secured by mortgages of the properties mentioned; the last item speaks for itself, but it is to be observed that that item is included in a list of "costs" which (the introduction to the list says) "will be paid upon receipt of invoices, to the satisfaction of Beneficial".

Also in May 1982 Mercantile (whose mortgage over 12 Rockwall Crescent was to be discharged) agreed to "restructure" the facilities it had made available to Miss Newington on the basis that a principal amount of $330,000 was to remain outstanding for a term of twelve months, bearing interest at the rate of 24% per annum reducible to 20%, on the security of first mortgages of 22 Nelson and 159 Queen Street. The conditions imposed by Mercantile included what was described as a covenant that the renovation of 22 Nelson Street was to be completed to a good standard by 31 October 1982. It was also a condition that $40,000 was to be lodged with Mercantile for payment of interest. A suggestion was subsequently made that that sum of $40,000 should be lodged with Beneficial, but that suggestion was not carried into effect. Nor, apparently, was it lodged with Mercantile.

On 25 May 1982 Beneficial agreed to vary the loan agreed to be made to Genman by increasing the principal amount by $70,000. That was to provide for a "cost" additional to those already described in condition 10, "renovations and interest shortfall Queen Street". Matters remained, however, in a state of flux until settlement of the various transactions approved by the three financiers took place on 21 June 1982. As a result of the variation to which I have just referred, the terms of Beneficial's approval were that $120,000 out of the advances by Beneficial together with $200,000 to be provided by the applicants was to be deposited for application in payment of the various "costs". But as Mr Moss put it in a memorandum dated 21 June 1982 which carried (dated the following day) the recommendation of Mr Porter and the approval of Mr Kelly:

It was a condition of this loan approval that $120,000 be placed on deposit together with a minimum of $200,000 from clients own funds to meet payment of costs as specified in submission, however due to the timing of this settlement most of the costs contained in this list have in fact been paid on settlement and consequently the only items remaining to be paid are the following:

Interest shortfall on Kellett St

and Waimea Ave $32,000

Renovations to Nelson St, $40,000

$72,000

$50,000 has been lodged from settlement proceeds to cover these costs. Balance of $22,000 would need to be forthcoming from client.

Due to complexities of this settlement and the fact that it has taken ten weeks to settle this matter, during which time holding costs have increased significantly, plus due to minor variations in land tax, rates and solicitors costs, client will not have $22,000 to lodge on deposit at settlement.

Mr Moss went on to propose that of the $50,000 thus available on settlement $40,000 be allocated towards completion of renovations at 22 Nelson Street and the balance of $10,000 towards interest shortfalls on Kellett Street and Waimea Avenue (i.e., the Statewide loan). In addition to the matters mentioned in the memorandum, the $70,000 previously earmarked for renovations and interest in relation to Queen Street was at settlement simply added to the advance made on settlement of the 10 Rockwall Crescent transaction, the amount advanced on settlement being therefore $250,000.

The facilities made available by Beneficial for the acquisition and renovation of 14 and 16 Rockwall Crescent remained outstanding. Their terms were varied so that they bore interest at the same rates as the June 1982 facilities. There is no evidence that there was a formal extension of their term beyond 8 August 1982, but nothing seems to turn on that: the common assumption seems to have been that all advances would fall due at the same time, that is on 21 June 1983.

In the upshot, as at 21 June 1982 Beneficial had advanced or agreed to advance $379,500 under the 14 Rockwall Crescent facility, $399,500 under the 16 Rockwall Crescent facility, $475,000 under the 12 Rockwall Crescent facility and $515,000 under the 10 Rockwall Crescent facility. The securities for the various facilities were "cross- collateralised": that is, each mortgage held by Beneficial was available to it as security for indebtedness arising under all the facilities. The mortgages held by Beneficial were a first mortgage over each of the Rockwall Crescent properties and puisne mortgages over each of the other properties, i.e. Nelson Street, Queen Street, Waimea Avenue (both properties) and Kellett Street. A default in relation to any one security was to be regarded as a default in relation to each of them; a default under a prior mortgage of any of the properties was to be treated as default under the following mortgage held by Beneficial and thus as a default under all Beneficial's securities. As I have said, there is nothing unusual or surprising about the terms of Beneficial's mortgage documents; I do not think it is necessary to refer to them in greater detail. It is necessary to examine more closely the terms on which funds advanced for interest and "costs" were deposited with Beneficial. It should first be noted, however, that R L Kremnizer & Co, solicitors, acted for the applicants on the facilities, particularly on the settlement of the various transactions which took place on 21 June 1982, and in relation to the documentation of the transactions.

(d) The deposits

The terms on which moneys were deposited to cover interest payable to Beneficial itself are relatively straightforward. It will be recalled that on the June 1982 settlement $45,000 was lodged to cover interest on each of the facilities for 14 and 16 Rockwall Crescent and $65,000 for interest on each of the new facilities, for 10 and 12 Rockwall Crescent. The conditions attached to the approval letter of 20 April 1982 to Miss Newington for the 12 Rockwall Crescent facility included a condition that:

$155,000 [is] to be placed on deposit at (14%) with Beneficial at settlement for interest repayment purposes to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest.

A further condition divided the total deposit between the 12 Rockwall Crescent facility and the two earlier facilities in the way I have already mentioned. Miss Newington and M Bonnet executed a deed, dated the day of settlement, in relation to the total sum of $155,000 deposited (referred to in the deed as "the deposit"). The deed recited the mortgage of 12 Rockwall Crescent (which it defined as "the said Mortgage") and the mortgages of 14 and 16 Rockwall Crescent (which it called "the said collateral securities"). Its operative provisions are brief. They refer to Miss Newington as the Mortgagor, and provide:

1. THE Mortgagor hereby charges and encumbers the deposit and all interest accruing thereon in favour of Beneficial with the due payment by the Mortgagor to Beneficial of the principal sum and interest and all other moneys secured by the said Mortgage and/or the said collateral securities.

2. BENEFICIAL shall have the right to appropriate from the deposit and accrued interest thereon the amount of any interest payments due from the Mortgagor or the Guarantor to Beneficial from time to time under the terms of the said Mortgage and/or the said collateral securities and the amount of any other moneys which the Mortgagor shall default in paying to Beneficial under the terms of the said Mortgage and/or the collateral securities on the day or days therein prescribed for the payment thereof.

3. THE Mortgagor shall not be entitled to call for a release of this charge nor for the repayment by Beneficial of the said deposit until all moneys secured by the said Mortgage have been fully paid and satisfied PROVIDED ALWAYS that Beneficial may in its absolute discretion repay the deposit with any accrued interest thereon to the Mortgagor at any time whereupon Beneficial shall provide to the Mortgagor a release of this charge.

The terms of that deed are similar to provisions in the mortgages of 14 and 16 Rockwall Crescent charging the initial deposits for interest (of $15,000) and, by virtue of a deed of variation dated 15 September 1981, the further deposit of $45,000 in each case. The mechanism by which the deposit was taken and evidenced was similar also, though it was not in terms provided for in the letters of approval or security documents. It was that each deposit for interest in relation to each facility was recorded in what was described as a "private savings plan passbook", a booklet similar to the common form of savings bank passbook. Credit entries were made in the passbook in relation to deposits to the account and in relation to interest at the agreed rate (in the case of the 1992 refinancing, 14%) accruing on it; amounts withdrawn from the account were recorded by debit entries. The passbooks appear to have been treated by Beneficial as an internal record. They were not given to the applicants, and Miss Newington claims (and I accept) that she had no knowledge of their existence. Mr Porter gave evidence that she knew of them: but I think he was referring to knowledge of the deposits, rather than knowledge of the way in which they were recorded. None of the passbooks relating to the three 1982 deposits making up the $155,000 survive, but records remain in existence which have permitted a "reconstruction" of the accounts and that reconstruction is in evidence.

The sum of $65,000 retained from the advance to Genman on 21 June 1982 was dealt with similarly. The deposit was "charged and encumbered" in favour of Beneficial securing the payment of moneys owing under the mortgage of 10 Rockwall Crescent on substantially the same terms as those which I have quoted above. Again, the deposit was recorded in a passbook: in this case the passbook survives, and is in evidence.

Somewhat greater complexity attends the deposit, ultimately in total only of $50,000, in relation to the "costs": i.e., applying what was described in evidence as the "scheme of Moss" (the proposal in Mr Moss' memorandum of 21 June 1982), $40,000 for renovations to 22 Nelson Street and $10,000 (only) for interest on the Statewide facility. Each of those sums was deposited in a passbook account. The passbook relating to the $40,000, for the Nelson Street renovations, is in evidence and certain entries in it were examined in some detail during the trial. I have already set out condition 10 of the letter of approval of 21 April 1982 which was to the effect that the (then proposed) combined sums of $50,000 and $200,000 were to be lodged on deposit "... to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest". It will be recalled that the $50,000 was later increased to $120,000, but that ultimately a total sum of $50,000 was all that was available for deposit, the whole of that sum being advanced by Beneficial. Genman, Miss Newington, and M Bonnet nevertheless on 21 June 1982 executed a deed with Beneficial in a form which contemplated deposits as required by Beneficial's conditions immediately before the variation recorded in Mr Moss' memorandum. Thus, recital B referred to a deposit of $120,000 and recital D referred to the further sum of $200,000 to be deposited by Genman, Miss Newington and M Bonnet, the two sums together being referred to as "the said deposit". Each recital referred to a deposit "with Beneficial". Clause 1 provided that Beneficial was to be at liberty to place "the said deposit or any part thereof" on twenty four (24) hour call deposit with "any financial corporation"; by clause 2 the deposit and interest accrued on it "by reason of the said twenty four (24) hour deposit" were charged in favour of Beneficial with the payment of the applicants' indebtedness to it; clause 3 gave Beneficial the right to appropriate the deposit and interest towards interest due to Beneficial and any other moneys "which the Mortgagor shall default in paying to Beneficial". Clause 4 then provided for the payment out of the deposit of the "costs" amounting in total to $320,000 and clause 5 provided that the applicants were not to be entitled to call for a release of the charge until all their secured indebtedness to Beneficial was paid. Included in the "costs" referred to in clause 4 were the $40,000 for renovations to 22 Nelson Street, Woollahra and $32,500 (rather than $10,000) for interest payable to Statewide.

Miss Newington's evidence was that she was, at the time, unaware of the "scheme of Moss" and certainly there is no evidence of any communication of it to her. I cannot accept, however, that she - and thus the applicants - were not aware of the substance of what had happened. It is apparent from the material in evidence that what precisely was to happen on settlement was the subject of continuing discussion and negotiation, in which the applicants' solicitors, R L Kremnizer & Co, were involved throughout. Miss Newington knew, of course, that the applicants had not in fact from their own funds deposited $200,000 with Beneficial. The applicants also were told - and in any event, they must I think have already known - that the amount actually advanced on settlement was $250,000, not $180,000 (their solicitors' statement of account dated 5 July 1992 made that quite clear). It is also evident from the solicitors' statement of account that various costs, a number of them substantially corresponding to those listed in condition 10 of the April approval, were indeed paid on settlement. Those which could not be paid on settlement (apart from renovation costs and interest relating to Queen Street) were, obviously, those items had not yet been incurred or become due - i.e., costs of renovation of Nelson Street (which had not substantially commenced) and future interest payable to Statewide. Simple arithmetic indicated that the amount of the agreed facility remaining available for deposit was the sum of $50,000.

The applicants had executed the deed relating to "said deposit"; the applicants' solicitors, by a letter of undertaking to Beneficial dated 21 June 1982 (the date of settlement and of the deed) indicated that they understood that the deed had been executed in a form which contemplated or required a deposit, from the applicants' funds and out of the advance to be made by Beneficial, of a total sum of $320,000; by that letter they undertook on behalf of the applicants to pay certain sums at or immediately following settlement "in consideration of Beneficial Finance Corporation Ltd not calling upon the Mortgagor and Guarantors to deposit the sum of $320,000 with Beneficial Finance Corporation Limited under the terms of a Deed of Deposit between the parties dated 21st June 1982". Of particular importance, however, is Miss Newington's own evidence. In the course of cross-examination she said that she knew that $50,000 was to be lodged, $40,000 of which was for renovations to Nelson Street. Her evidence was that she did not know that the two sums of $40,000 and $10,000 were to go into savings accounts or into "separate pots"; but, for reasons which will appear, I do not think that that is significant. The proper conclusion, in my view, is that at settlement on 21 June 1982 the combined sum of $50,000 was deposited with Beneficial on the terms of the deed of charge.

(e) The period from July to December 1982

There are some conflicts in the evidence as to the events of this period. Particularly, the evidence of Miss Newington is that on several occasions, the first of which was early in the period, she asked Beneficial to "release" money to enable the renovation of 22 Nelson Street to proceed. Mr Porter denies that any such requests were made before December 1982. Miss Newington says that she was assured by both Mr Porter and Mr Moss on numerous occasions that Beneficial was "in touch with" Mercantile and Statewide and that if necessary Beneficial would pay moneys due to those two mortgagees. In that respect, her evidence conflicts with that of both Mr Porter and Mr Moss. I shall return to those conflicts later in these reasons.

Meantime, what is not in controversy is that building work on the Rockwall Crescent properties proceeded somewhat slowly and fell behind schedule. There is also no doubt that during this period the applicants fell into arrears in paying interest due to both Mercantile and Statewide. It is clear from correspondence which is in evidence that default in payment of interest due to Statewide occurred as early as 31 July 1982. On 13 December 1982 Mercantile threatened legal proceedings unless overdue interest for October and November was paid. By December Statewide was also threatening legal action. Additionally, the applicants fell into arrears in payment of insurance premiums. It is evident that by the end of 1992 the financial situation of the applicants was quite parlous. They sought to relieve the situation by applying to the ANZ for a substantially increased overdraft; there was correspondence between the ANZ and Beneficial in which Beneficial indicated that it was prepared to consent to an increased, secured, overdraft. Ultimately, that proposal did not proceed; why it did not proceed is not entirely clear on the evidence, but the evidence (other than some assertions by Miss Newington) does not suggest that the reasons included anything that Beneficial did or failed to do. Particularly, the documentary evidence suggests that Beneficial indicated that it was prepared to consent to an increased overdraft, but that no documents were ever presented by the ANZ for its signature.

(f) "Accounts"

Before dealing with the events of January 1993, it is convenient to refer to a factual matter about which there is substantial controversy.

Up to and including December 1982 Beneficial sent to the applicants regular statements (apparently monthly, though not surprisingly given the lapse of time there are some gaps in the documents in evidence) a statement relating to each loan account. Each statement indicated the account (described by reference to the property in Rockwall Crescent to which it related), the maturity date of the loan on that account and the applicable interest rate. It then set out the transactions which had occurred on the account during the month: particulars of further advances, interest charges and stamp duty were shown as debit entries and payments received as credit entries. The opening and closing balances for the month were stated. Details of the way in which interest was calculated for various periods during the month were specified, as was the amount of interest payable. Where interest was paid from an amount on deposit with Beneficial, that fact was recorded, with a stamped indication that the statement was "for record purposes only". Those statements "for record purposes only" were in fact addressed to the collection manager of Beneficial but copies were sent to the applicants: they were among the documents which the applicants discovered in these proceedings. The applicants did not receive statements in relation to the deposit accounts. They knew, of course, the initial amount of each deposit and the loan account statements told them what amounts had been debited for payment of interest and they would have been able, therefore, to make a rough calculation of what was likely to be left: they were not told, however, what interest had been credited to the deposit accounts.

The applicants had also, in relation to money advanced for building purposes, the claims by the builder, Hexton Pty Limited (Hexton).

Miss Newington's evidence is that on numerous occasions, commencing in the first half of 1981 and then throughout 1981 and 1982 and afterwards, she asked officers of Beneficial for "accounts", although she also said that there was no problem about interest or about accounts until about August 1982. She claimed that most of the requests were made to Mr Porter but that some were made to Mr Moss as well. Her evidence is not entirely clear as to precisely what she claims to have had in mind when she asked for "accounts": but what she claims to have sought can, accurately enough for present purposes, be described as a full accounting of the applicants' position with Beneficial on all their accounts. Her evidence is that on some occasions she was told by both Mr Porter and Mr Moss that accounts could only be provided when Beneficial got its own accounts in order (in case of Mr Moss) or had "done" the accounts (in case of Mr Porter). Mr Porter in his statement read as his evidence in chief denied the relevant parts of the conversations recounted by Miss Newington. He was by no means severely tested in cross-examination on the subject; he maintained his denial that Miss Newington frequently asked for accounts but conceded that she had made some requests. The relevant proportion of his evidence was as follows:

You see, she had asked you for what she described as accounts, often, did not she? - No

She asked you more than one [sic]? - Yes

It was firmly fixed in your mind, was not it, that there was a difference between the statements that she was getting and what she thought to be accounts? - Nothing was fixed in my mind at all. She very rarely asked the question and didn't raise in my mind what she was specifically talking about. As far as I was aware, she had accounts.

They being the statements that she got? - The statements, and any supporting documentation with the builder which is normally the responsibility of the developer who does the job.

Mr Moss does not deal, in his statement, with the portions of Miss Newington's statement in which she alleged the conversations about accounts, except that he denies a remark attributed to him that Beneficial's accounts were "in a mess". That denial was not challenged in Mr Moss' cross-examination.

I shall defer, for the present, attempting to resolve the conflict of evidence about "accounts".

(g) Events of January and February 1983

At least two important meetings took place between Miss Newington and officers of Beneficial during January 1983. There may have been a further meeting in February. There is considerable dispute about the detail of what occurred, but a good deal is uncontroversial. Miss Newington says that the first meeting took place on 12 January and that she was invited to it by Mr Porter (she claimed in cross- examination to have been invited by Mr Seddon as well, but that is a matter of no significance for present purposes). Neither of those two matters is substantially in contest. Nor is it in contest that the meeting was attended, on the Beneficial side, by Mr Porter and probably Mr Seddon, by Miss Newington and also by representatives of the builder, Hexton. There was discussion, apparently somewhat inconclusive, about disputes which had arisen between Miss Newington and Hexton, delay in the building works and a likely need for more "building money". Miss Newington's evidence was that Hexton complained about what they saw as Beneficial's tardiness in making payments. The detail of what was said while the Hexton representatives were present is not, in the end, significant. Miss Newington's account, which in this respect is not disputed and I think accords with the probabilities, is that after some time the Hexton representatives left the meeting.

There then ensued discussion about the financing. Miss Newington was told that she was in default, the default being failure to pay interest due to Mercantile and Statewide. Miss Newington suggested in evidence that the alleged default may have been broader than that but the evidence of Mr Porter is to the contrary as are, I think, the probabilities: that default clearly existed, the other financiers had made it clear in vigorous terms that they proposed to take action if the default were not remedied and as a matter of fact no default had yet arisen in payment of any moneys due to Beneficial. Miss Newington's evidence is that there was then discussion about the execution of a deed. Mr Porter was not clear whether that discussion occurred at that or a later meeting; the probabilities are, I think, that on this matter Miss Newington is right, though in the end whether a particular part of the conversation took place on 12 January or somewhat later does not greatly matter. There is agreement that Mr Porter expressed a desire on the part of Beneficial, despite the default, to help; the way in which he suggested that be done was that the applicants sign a deed. Given what occurred later, I think the nature of the proposed deed must have been explained: what was proposed was a deed under which the applicants surrendered to Beneficial possession and control of the properties - i.e. the terrace houses in Rockwall Crescent - of which Beneficial was first mortgagee. Miss Newington's evidence, and again I think it is probably correct, is that she was actually handed the proposed deed at a further meeting later in January. It was agreed (at least) that she might, before signing it, seek advice from her solicitor, Mr Kremnizer. It is also clear that Mr Porter was anxious, subject at least to Miss Newington obtaining her solicitor's advice, that the deed be signed promptly, and no doubt he said so. It is not in dispute that Miss Newington later, but before signing the deed, obtained advice from Mr Kremnizer about it; nor is there any doubt that subsequently the deed was signed by each applicant and returned to Beneficial.

The document is dated 6 February 1983. It may not have been effective as Miss Newington's or M Bonnet's deed, neither of their signatures being witnessed (the common seal of Genman appears to have been regularly affixed), but neither party sought to rely on that and I think nothing turns on it. The provisions of the document are brief, clear and unambiguous: a solicitor called upon to review and advise on it could have been in no doubt about its effect. Clause 1 contains an acknowledgment that Beneficial is entitled to the use, possession and management of the mortgaged properties and may collect and receive rents and income and exercise its powers arising from the mortgagors' defaults; the mortgagors are required to execute attornments and directions to tenants; there is provision for the application of rents and income received in payment of costs and expenses reasonably incurred by Beneficial, interest and principal. Clause 2 requires the delivery to Beneficial of leases, tenancy agreements and licences. By clause 3 the mortgagors consent to entry of judgment for possession in favour of Beneficial. Clause 4 contains an acknowledgment by the applicants that the powers given to Beneficial under the deed are in addition to its other rights, powers and remedies as mortgagee. Finally, clause 5 provides for payment by the applicants of Beneficial's costs.

It is perhaps worth pointing out, because the matter received some attention during the trial, that the recitals contain a mistake: recital B says that the applicants have defaulted, among other things, by failing to pay interest to Beneficial. It should be pointed out also, however, that the position was accurately expressed (though perhaps somewhat elliptically: it is easy enough to see how the mistake in drafting may have arisen) in Beneficial's written instructions of 14 January 1982 to its solicitors:

Please note the clients are in arrears with the first mortgages on the collateral security but currently interest is up to date on our prime security because it was advanced at settlement.

Miss Newington's evidence was that she was threatened and intimidated by Messrs Porter and Seddon during the January meetings. Her statement records, interspersed with commentary, the substance of the conversations which she says took place at the two meetings. I shall set out in full the conversations as Miss Newington recounted them, omitting the commentary. Miss Newington records the conversation on 12 January, after the representatives of the builder left, as follows:

Porter said: "You are in default and you have heard the builders and you might need extra building money."

I said: "No way, I haven't used all my building money. I am not in default."

Seddon said: "We can hold up building money until you are in default and we will make you in default."

Porter said: "Just sign a Deed and it will save the expense of expensive variations and the necessity to go to head office for approval."

I said: "This is madness, I am not in default. I cannot possibly be in default. I haven't used all the money."

Porter said: "Just sign a Deed. We can force you into default."

I said: "You can't do that Arthur."

Seddon said: "Yes we can and we will by not paying the money to Mercantile and Statewide. We wont [sic] pay the other mortgagees. We wont [sic] pay the builder and it will be impossible for you. We wont [sic] release the money for Nelson Street either"

Both of them said:

"You'd better co-operate otherwise we will make it difficult for you."

I said: "I better [sic] talk to Robert Kremnizer about this."

. . .

Porter then said:

"I think it's O.K to see Robert and get independent advice."

I said to Porter:

"What sort of a Deed, what are you going to do with a Deed?"

Porter said; "It's just to cover us. We'll just keep it in a draw [sic] in case we need it later."

I said to Porter:

"It does not mean B.F.C could take over our houses, does it? Or sell us up?"

Porter said: "Of course not."

I said: "But we are not in default Arthur and we'll be finished before June when I will sell and refinance. What about the accounts."

Porter said: "You might well be in default later. We can make you in default. It is better to sign a Deed and we will release the money for interest payments that are in arrears to Mercantile and Statewide and sign the second mortgage documents for the ANZ Bank, or we can make it very difficult for you. I think you must co-operate."

I then said to them both:

"I would like a complete accounting because two of the properties are nearly finished and the others are not far behind. I will be selling 10 and 12 and keeping the other two so I will require a complete accounting."

Porter said: "It is O.K it will all be done we just got back from holidays Jean. We'll get back to you."

I then said to Seddon:

"Look the builders are wrong about the cost of this building the quote is only $100,000.00 for each house and I've got $150,000.00 set aside for each house."

Porter said: "Jean you are in default. There can be all sorts of delays if we want."

. . .

I said: "Oh well if you think that's the best way to co-operate, otherwise I will be put into a lot of trouble. I trust you."

Her account of the later meeting, which she says occurred on 21 January, is as follows:

On this occasion I was handed a deed. Seddon handed me the Deed and:-

He said: "Here is the Deed. Sign it."

I said: "No, I want to read what this is all about."

I began to look at the Deed and I saw that it said that I was in default and the word possession was used.

I said: "Hang on this looks as though you are taking all my houses."

Porter said: "No, no, look trust us, we are only helping you. If you sign this Deed we'll just keep it in the draw [sic]."

I said: "Oh well, I'm not sure about signing the Deed because it says I'm in default and I am not. Anyway I think I better [sic] go and see Robert about this."

Seddon and Porter then said:

"O.k, but this is all you can do, this is what you have to do. You haven't any alternative. If we want we can stop all the building works."

I said: "But look, you wouldn't do that, I'm not in default."

Porter said: "Look Jean, we are only trying to help you, we just want you to sign this document so the work can be finished before the mortgages expire and in this way you will not have to get any variation."

Seddon said: "You better do [sic] what Arthur wants. You better sign [sic] that Deed or otherwise things can be made very, very difficult for you and you will be in default and we will sell the houses even if they are not finished."

I said: "But there is still money in our accounts. I would feel better if I talk to a lawyer about this. It doesn't mean that Beneficial would take our houses, does it, or change the standards of the building or sell us up?"

Porter said: "Of course not, Jean. We are pleased with the project. I showed it to Ken Williams before Christmas. I just don't want you to have any delays, that's why we are offering to help you. I think it's O.K to see Robert and get legal advice. I will organise to release the interest payments. We are in contact with Mercantile, don't worry about their notices, just sign the Deed. Of course Jean you both would retain control of the building site and finish the project to your standards. Nothing has changed."

Seddon said: "This is going to be your last chance. You better hurry up [sic] and sign the Deed."

Miss Newington was cross-examined at length about her accounts of the meetings but maintained their accuracy. Mr Seddon's evidence can be dealt with briefly. It was to the effect that these meetings constituted his introduction to Miss Newington and the projects; he had had nothing to do with them previously. His recollection of the meetings was very limited. He denied the particular remarks attributed to him. Mr Porter's evidence as to the conversations differed in a number of significant respects from that of Miss Newington. He also was tested in cross-examination, at some length, as to his account of the conversations. He denied, and maintained his denial, that the conversations took place as recorded by Miss Newington. Particularly, he maintained that Miss Newington did not deny that she was in default. He denied making any threats to the effect that Beneficial could force the applicants into default. He said that no question arose as to payment of interest to Mercantile, because no money was held by Beneficial for the purpose of paying interest to Mercantile. He agreed that he had encouraged Miss Newington to sign a deed, but only, he said, on the basis that she first obtained independent legal advice: the suggestion that she obtain advice, Mr Porter maintained, was made by him; Miss Newington had responded to that suggestion, he said, by asking which solicitor she should use. He denied saying that Beneficial would keep the deed "in a draw" but agreed that he may well have said that Beneficial did not propose immediate sales. He denied that Miss Newington made any request for accounts but agreed that he may have mentioned that he had just returned from holiday. He denied that he had used the expression "trust us" or that Miss Newington had said "I trust you". He denied that he had said that the applicants would retain control of the building site but agreed that he may have said that within reason standards would be maintained.

Once again, I shall defer attempting to resolve the conflict of evidence.

Before leaving this episode, I should mention Miss Newington's account of her meeting with Mr Kremnizer (and record that, although there was no suggestion that he was unavailable, Mr Kremnizer did not give evidence). Miss Newington says that she told Mr Kremnizer that she was not in default, that Mr Porter had told her that Beneficial would not simply take and sell up the houses and that she did not have any accounts. She says that during their meeting Mr Kremnizer had a conversation by telephone with Mr Porter. At the conclusion of the meeting, according to Miss Newington, Mr Kremnizer reiterated advice which he had given before speaking to Mr Porter, that:

You must do what Arthur wants. You have no alternative but to sign it.

(h) February to December 1983

On 2 February 1983 Gage, apparently on the instructions of Beneficial, sent to Mr Seddon what was described as a revised construction valuation for each of the four Rockwall Crescent properties. In each case Gage reported an increase in construction costs, made up of a combination of additional work and price fluctuations. For 10 Rockwall Crescent the additional amount was $31,415.00 making a total revised construction valuation (as it was described) of $196,415.00; for 12 Rockwall Crescent the additional amount was $31,877.00 making a total revised amount of $196,877.00; for 14 Rockwall Crescent the additional amount was $46,429.00 making a revised total of $180,619.00; and for 16 Rockwall Crescent the additional amount was $45,834.00, the total revised amount being $178,834.00. A report dated 4 March 1983 from Hexton to Miss Newington indicates, as well, that Hexton's "total valuation of project" had increased substantially over its original budget.

Miss Newington's evidence was that, despite the execution of the deed, no change occurred in the way in which the construction projects were managed: she continued to manage the projects as before. Mr Porter's evidence in chief was that after the deed was signed Mr Seddon took over the management of the renovations of the Rockwall Crescent properties. That topic was not explored at length with Mr Porter in cross-examination; he did, however, say that Miss Newington's attribution to him of the remark "of course Jean, you would both retain control of the building site and finish the project to your standards" was partly correct and partly incorrect. In re- examination he explained that answer as follows:

Well, they're both partly incorrect in the sense that it was certainly our intention to finish the job to the standards that Miss Newington was suggesting within commercial reasonableness. The first part was completely incorrect in the sense that she was aware at all times that while we were happy with her to be involved in the project, which I must admit is not a usual thing for a mortgagee to do, but we were happy to do that, but the ultimate decision making rested with ourselves and therefore it wasn't a shared arrangement on these decisions or whatever she is suggesting there.

Mr Seddon gave evidence that between 6 February 1983 and 11 May 1983:

"... Hexton remained the builder on each of the sites. In this period I did not instruct the builder as to what he should do. This was done by Newington."

Mr Seddon's evidence was, however, that he was in charge of monitoring the regular reports from Gage and authorised the making of payments to Hexton; those payments were, as Mr Seddon put it, made from Beneficial's own funds. Again, this was not a matter on which Mr Seddon was tested in cross-examination.

Whatever precisely may have happened, it is clear that Miss Newington's displacement by Beneficial, as mortgagee in possession under the deed, was far from complete. That is evident from the fact that Hexton continued to direct reports and correspondence on the projects to her. It is particularly starkly demonstrated by the fact that, following a serious deterioration in the relationship between Miss Newington and Hexton (Miss Newington's evidence was that Hexton was "robbing" her and that she told Mr Seddon so) she dismissed Hexton by a letter, couched in strong terms, dated 11 May 1983. The letter is worth quoting in full, because it strikingly illustrates the extent of the authority which Miss Newington still assumed:

I refer to our telephone discussion on Tuesday, 10th May 1983 and note your advice that your require a progress payment in the sum of One Hundred and Sixtytwo thousand fifteen dollars & thirtyeightcents ($162,015.38). As you are aware the matter of aggregate progress payments made to date is in dispute; on my calculations the next progress payment cannot possibly be in excess of $30,000, which is owed to subcontractors. I trust that you are also aware that Mr Ted Douglas has conceded that there are numerous errors and duplication of accounts payable. Furthermore, I have evidence that accounts have been fabricated on admissions of Mr Terry Reeve.

I have this day inspected the site and note that the job has been closed down.

This will serve notice on you that I hereby terminate any agreement with Hexton Pty Ltd and advise that I have this day changed all locks on each property.

Any attempt to re-enter the premises by your staff, employees, agents or servants will be deemed to be an act of trespass on your behalf. In the event that entry is made to the premises for the purpose of removal of any material, it will be my intention to commence legal proceedings forthwith for break and enter and stealing, as well as trespass.

Furthermore, it is my intention to commence legal proceedings seeking damages whilst the job remains closed. In this regard I advise that interest incurred on the site is estimated in excess of $1,000 per day.

It is clear that Beneficial at least acquiesced in what Miss Newington thus did. There is no evidence that anyone on its behalf made even the mildest protest.

There then occurred, however, a very substantial change. On 13 May 1983 Beneficial, by a document signed by Mr Seddon and headed "agreements to act as builder and foreman" appointed Mr Wayne Dunne "to act and generally supervise for Beneficial Finance Corporation Limited the works currently in progress at the properties 10-16 Rockwall Crescent, Potts Point". It is quite clear that from that time, although Miss Newington continued to visit the site and to have conversations with Messrs Porter and Seddon, her influence over what happened at the site substantially ceased. Certainly she had no longer any semblance of control. Mr Dunne submitted accounts on a weekly basis to Beneficial. Mr Seddon was responsible, on behalf of Beneficial, for checking what was done and authorising payment. The practice of obtaining regular certificates from Gage ceased; on 23 June 1983, however, Gage wrote to Beneficial, as follows:

Following recent on site meetings with Mr. Wayne Dunn [sic] the present builder for this above project, and after examining a schedule of work to complete the said project prepared by Mr. Dunn we advise the following. The schedule of work appears reasonable both in cost and the time allowed in which to obtain from council a certificate of compliance (317A). In the schedule of works is a contingency sum of $8,000.00. It is expected that this allowance may be used to bring the project up to 317A standards should the local council require further works to be carried out not presently envisaged by Mr Dunn.

On 5 July 1983 Gage wrote again to Beneficial listing a series of claims of Mr Dunne for services and materials and stating that they appeared to Gage to be reasonable and in order. Work on the Rockwall Crescent properties was completed in August 1983 and Mr Seddon proceeded to attempt to market them.

Towards the end of July 1983 Beneficial also engaged Mr Dunne to renovate 22 Nelson Street. Mercantile, it will be recalled, was the first mortgagee of that property. On 28 July 1983 Mr Seddon recommended that "Mr. W. Dunne who has demonstrated his ability in the Rockwall Crescent buildout" be employed to renovate the Nelson Street property to a high standard and that, if necessary, Beneficial pay outstanding interest owed by the applicants to Mercantile in order to obtain their acquiescence in the "buildout" and their permission for Beneficial to control the marketing of that property. On 27 July Gage had already inspected the property with Mr Dunne. By a letter of 29 July 1983 Gage reported on the works necessary to renovate the property in a manner consistent with the Heritage Act 1977 . Gage estimated the cost at $79,770.00. Mr Seddon's proposal was accepted and work on the project commenced. Gage was employed to certify Mr Dunne's progress claims. On 8 September 1983 Gage wrote to Beneficial expressing concern about the escalating cost of work. The letter referred to a number of items on which work had commenced but which had not been included in the original estimate and a number of respects in which items were being installed and finishes applied of a quality substantially greater than the "minimum quality finish" originally specified. Work, however, proceeded and Gage continued to provide reports of its regular progress inspections, several of them noting additional work done or items installed which had not been provided for, or of a quality substantially in excess of items provided for, originally. The work was completed towards the end of October at a total cost of $190,346.88.

There is no doubt that Miss Newington disapproved of the way in which Mr Dunne completed the work at Rockwall Crescent and that she complained to Mr Porter about some aspects of it. There is equally no doubt that she was vigorously opposed to Mr Dunne's employment to renovate 22 Nelson Street. It is not in dispute that Mr Porter made it clear to Miss Newington that Beneficial was satisfied with, and supported, what Mr Dunne was doing. There are some matters also, about which Miss Newington complains, as to which the dispute between the parties concerns the construction to be placed on the facts, rather than the facts themselves. Thus, there is no doubt on the evidence that at about the time when Hexton was dismissed considerable damage was done to the Rockwall Crescent properties, including to work already completed. Miss Newington blames Mr Dunne; Beneficial's witnesses say that the damage was of a kind which frequently happened upon the dismissal of a builder, particularly in circumstances where subcontractors had not been paid in full. Equally, there is no dispute that during Mr Dunne's regime at least a large proportion of the payments by Beneficial for the renovation works was made in cash, and some of it was paid to members of the Police Force. Miss Newington's evidence suggests that this practice facilitated the improper inflation of amounts paid (for example, payments to "phantom" employees under false names) and impropriety. On the other hand, the evidence of Beneficial's witnesses, particularly Mr Porter (though there is evidence of some concern expressed by Mr Seddon about lack of "control"), is that there was nothing unusual in what was done; Mr Dunne's accounts were properly checked and authorised; and the policemen concerned were off duty and employed (as it was said it was, surprising as it may be, not uncommon practice at the time) to assist in maintaining security at the site. Thirdly, Miss Newington complained that Mr Dunne was not a licensed builder. Indeed, on the evidence, he was not. Mr Porter's evidence, however, was that, in effect, Mr Dunne's role was supervisory and that a licensed builder was engaged as well: it may be said in passing that who that licensed builder was is by no means clear; if a presence at all, he was at most a shadowy one.

Miss Newington made a number of other allegations, some of them very serious, about, or involving, Mr Dunne. She accused him, for example, of stealing property, particularly building materials, from the site; she said that he threatened her with a gun and boasted of carrying guns for the purpose of intimidating people working on the site; she said that, after she had been assaulted by two youths not far from Nelson Street, Mr Dunne told her that the assault was intended to teach her to keep away from the Nelson Street building site. Miss Newington alleged that, at about the time when work on Nelson Street was to begin, Mr Dunne made this suggestion to her (which she rejected):

If you let me sabotage the wiring and the plumbing, I can stay on site until Christmas. I will give you $10,000.00 if you will allow me to do this.

She claimed that Mr Seddon had confirmed her suggestion that Mr Dunne had been employed to renovate 22 Nelson Street because Mr Dunne had "got" Mr Seddon "off" a "drunk driving charge". She said that Mr Seddon had told her at the same time that Mr Dunne had a lot of influence with Beneficial and could do what he wanted. Miss Newington alleged also that Mr Dunne had boasted of police and underworld connections. She claimed to have informed Mr Porter and Mr Seddon of all these matters, and recounted in detail conversations in which she claimed to have done so. Both Mr Porter and Mr Seddon denied those conversations. In particular, Mr Seddon denied in evidence in chief, and in cross-examination firmly maintained his denial, the conversation in which a "drunk driving" charge was referred to and in his evidence in chief also denied in terms the allegation that Mr Dunne had "got" him "off" such a charge, a matter on which he was not challenged in cross-examination (and it is fair to say that I have no hesitation in accepting Mr Seddon's account of the matter).

On 14 September 1983 Mr Seddon prepared a handwritten memorandum for Mr Ian Williams, who had some three months earlier been appointed the state manager of Beneficial for New South Wales. In that memorandum Mr Seddon claimed during the previous three weeks to have been harassed by threatening phone calls concerning the applicants' accounts, and to have had since then a number of calls from Miss Newington complaining of:

(a) Her treatment by our nominated builder Mr W Dunne. She claims he is rude & threatens her.

(b) The fact that Dunne has been given a relatively free hand in the choice of fixtures & fittings and other items which she believes should be consulted on [sic] and which A Porter agreed to do.

The memorandum continued:

In her latest call to me Miss Newington made the following comments:

(1) She is afraid of Dunne.

(2) He has threatened her.

(3) You are "afraid" of him.

4 Beneficial should not employ a man who pays the police cash to act as security guards when "off duty".

(5) She has requested a full accounting on all moneys expended on her account including who has been paid and why labourers & painters are paid "cash" and why police were paid.

6. She claims she intends to go to Adelaide on Tuesday & speak to Ken Williams of these things. She says Dunne is a "gangster" and is ripping her off.

Once again, I shall defer further comments on these matters.

During this period a number of other significant events occurred. First, Statewide, as first mortgagee, sold 3 Kellett Street, following an auction, on 23 June 1983. Statewide had intended to sell the two cottages in Waimea Avenue as well: they were to be auctioned on 17 June. On the recommendation of Mr Seddon, however, Beneficial decided that it would be desirable in its interest as second mortgagee for it to control the Kellett Street auction (in the sense of setting the reserve price), and for the auction of the Waimea Avenue properties to be deferred. Statewide agreed to those proposals on condition that Beneficial pay outstanding interest owed to Statewide, the amount of which was $88,423.64; Beneficial did so. The Kellett Street property was sold for $385,000. Subsequently, on 23 September 1983, 5 Waimea Avenue was sold for $135,000. The net proceeds being insufficient to discharge the debt owed to Statewide, Beneficial did not receive any part of them.

Secondly, in mid 1983, Mr Ian Williams was (as I have mentioned) appointed state manager of Beneficial for New South Wales. From about June he took over the supervision of the applicants' accounts: Mr Seddon reported to him. From that time, accordingly, Mr Porter ceased to have responsibility for the accounts; he resigned from Beneficial in August. Miss Newington's relationship with Mr Williams was not a happy one. Her evidence was that she had a meeting early in July with Mr Williams at which Mr Seddon was present. She set out in her statement details of the conversation which, she said, took place. Her account is that Mr Williams, among other things, said that Miss Newington was in default; that he was going to give her two weeks to vacate Queen Street (where Miss Newington and M Bonnet still lived and over which Beneficial held a second mortgage only); that "a woman like you should not be owning houses. You should be in a back room in Newtown and I will put you there"; that Beneficial did not have to give Miss Newington accounts; that Miss Newington was "nothing except a little Hitler"; that Mr Williams had seen the gun which Mr Dunne was said to have; and that:

The accounts are in such a mess we can not give them to you at this stage anyway. We will take everything. You can not fight the big boys.

Miss Newington claims to have asked for accounts; to have accused Mr Dunne of threatening people, of stealing property and of boasting that he would keep the job going to at least Christmas "or till he spends a million"; and to have said that she would "have to go to the Head Office in Adelaide". She claims that in later conversations Mr Porter gave her some support to her suggestion that she go to Adelaide and offered to draft a letter for her to take. Mr Williams was not called. Mr Seddon had no recollection of the alleged meeting, though he said that he might have introduced Miss Newington to Mr Williams; particularly he had no recollection of the particular matters said by Miss Newington to have been discussed and said that he was sure that, if the statements which she recounts were made, he would remember them. Mr Porter agrees that Miss Newington discussed with him the possibility of going to Adelaide; he says that he discouraged her from doing so, on the ground that it would be futile; and he denies that he drafted, or offered to draft, any letter.

Thirdly, Mercantile, as first mortgagee of 22 Nelson Street and 159 Queen Street, took proceedings to recover possession of those properties. The proceedings were commenced in the Common Law Division of the Supreme Court of New South Wales in March; service was not effected until about June. There followed various interlocutory skirmishes, the detail of which no longer matters. Default judgments were obtained; Miss Newington applied to set them aside; on 2 December 1983 Yeldham J ordered a concurrent hearing, on 13 December, of the applications to set aside the default judgments and Mercantile's substantive proceedings in ejectment. On 13 December 1983 Miss Newington, in circumstances to which it will be necessary to return, was without counsel; an application for an adjournment was refused and Yeldham J proceeded to hold that Miss Newington had no defence to Mercantile's proceedings and ordered the issue forthwith of writs for possession; the writ relating to 159 Queen Street was not to be executed for a period of 28 days. Miss Newington gave evidence of a number of conversations in which, she said, both Mr Porter and Mr Seddon had assured her that Beneficial was in touch with Mercantile, that she was not to worry, that if necessary Beneficial would pay outstanding moneys owing to Mercantile and, on 4 July, that Mr Porter had "taken the Queen Street, and Nelson Street, properties off the market". Mr Porter and Mr Seddon denied those conversations. Miss Newington also recounts the following conversation with Mr Dunne:

On 21 September 1983, I received Writs of Possession for Nelson Street and my home at 159 Queen Street. I then went across to 22 Nelson Street, and spoke to Dunne about the notice I received and Mercantile's Judgment.

Dunne said: "Sure, Bennies got Mercantile to do their dirty work. Wait, I will ring Williams and let him know you are here. You can listen."

I then heard Dunne say: "Ian, Jean Newington is on the site. She is very upset at the trick we played on her".

I heard Williams say to Dunne: "Wayne, do whatever you have to do to get her off the site. You know what I mean."

Finally, in November 1983 Beneficial served on the applicants notices, under s 57(2)(b) of the Real Property Act 1900 (NSW), of Beneficial's intention to exercise its powers under its mortgages.

(i) Litigation; settlement and consent orders; judgments

In mid 1993 Mr Kremnizer ceased to act for the applicants. Miss Newington says that this occurred when she sought his assistance in relation to the proceedings commenced by Mercantile and that Mr Kremnizer then told her that he was on Beneficial's panel of solicitors, that he had had received instructions from Beneficial to draw s 57 notices to be given to the applicants and that he had refused to act for either party. Miss Newington then instructed a Mr Harold Baker. He, Miss Newington alleged, did not properly carry out her instructions and, a short time afterwards, ceased to practise. She then instructed Mr Richard Licardy.

On 7 December 1983 Mr Licardy, on behalf of the applicants, filed a statement of claim in the Common Law Division of the Supreme Court of New South Wales. I shall refer to the proceedings thus initiated as the applicants' Supreme Court proceedings. In the statement of claim the applicants claimed to have suffered damage because of an alleged breach of contract by Beneficial in failing to advance moneys to renovate 22 Nelson Street and to pay interest to Mercantile; and because of breach of warranty inducing the applicants to enter into the deed of 6 February 1983, the alleged warranties being that the purpose of the deed was to permit Beneficial to advance moneys to the applicants without the necessity of arranging variations of mortgages, that if the deed were signed Beneficial would advance sufficient funds to permit the completion of renovations at Rockwall Crescent and Nelson Street and that Beneficial would not exercise its power of sale. It was then pleaded that those representations were made fraudulently or recklessly and that they were misleading or deceptive; loss was claimed to have resulted from Beneficial taking possession of the Rockwall Crescent properties and from its alleged negligence in managing the renovations of those properties and of 22 Nelson Street.

I have mentioned the proceedings before Yeldham J, on 13 December 1983, in Mercantile's ejectment actions. Mr Licardy had briefed senior and junior counsel in those actions. They were unavailable on 13 December. Largely because of difficulty in finding sufficient funds to ensure payment of counsels' fees, Mr Licardy was unable to engage other counsel to appear before Yeldham J. Mr Licardy informed Yeldham J that he had not obtained counsel and that his instructions were to seek an adjournment or, if an adjournment were not granted, to withdraw. An adjournment was refused, Mr Licardy was given leave to withdraw and Miss Newington was thus without representation during the rest of the proceedings.

Shortly thereafter, Miss Newington was introduced to Mr Charles Vandervord, an experienced litigation solicitor, who agreed to accept her instructions; he in turn briefed Mr B Mahoney QC and Mr Michael Cashion of counsel. Mr Mahoney advised against an appeal against the orders in the ejectment proceedings and suggested instead commencing proceedings in this Court seeking to restrain both Mercantile and Beneficial from taking steps to enforce their mortgages and, in the case of Mercantile, taking any further steps in the ejectment proceedings or to enforce the orders made in those proceedings. An application was filed on 16 December 1983; Miss Newington was the sole applicant and Mercantile and Beneficial were the respondents. I shall refer to those proceedings commenced by that application as the Federal Court injunctive proceedings. Miss Newington swore an affidavit on 16 December 1983, from which it was clear that the proceedings were founded on s 52 of the Trade Practices Act 1969 and that the misleading or deceptive conduct relied upon was the alleged making of substantially the same misrepresentations as those relied on in the applicants' Supreme Court proceedings, as to the application of money for renovations and interest and as to circumstances surrounding the location of the deed of 6 February 1983. The matter came before MacGregor J, initially on an ex parte basis, on the same day. It is not necessary to discuss the detail of what occurred before his Honour; ultimately, the proceedings were adjourned to 22 December.

Mr Mahoney QC had already informed Mr Vandervord and Miss Newington that he would not be available to appear on 22 December. Accordingly Mr Vandervord briefed Mr Preston Saywell to lead Mr Cashion and lengthy conferences took place on Wednesday, 21 December 1983 and Thursday 22 December. Mr Saywell, Mr Vandervord and Miss Newington were present throughout, or virtually so. Mr Cashion was present during part of the conferences; M Bonnet was present, probably, for a relatively brief period and did not substantially contribute to the discussion. By then affidavits had been filed and served sworn by Mr Porter and Mr Seddon in which the representations alleged by Miss Newington were put in issue and (in Mr Seddon's affidavit) the amount of the debt owed to Beneficial was stated and values were attributed to the properties. All the participants in the conferences gave evidence. The lawyers, counsel and solicitor, sought information, particularly documents, from Miss Newington; very little was provided. Miss Newington was advised that, on the material which she had been able to provide, she did not have a good chance of success in the Federal Court injunctive proceedings. The question then addressed was whether it might be possible to obtain a breathing space for Miss Newington to enable her to seek to sell the properties and discharge the applicants' secured debts. Ultimately a form of consent order was agreed upon and embodied in a document which was signed by Miss Newington and by counsel for Beneficial and Mercantile. In accordance with that document, Sheppard J on 22 December ordered that the proceedings stand over for further directions on 23 March 1984, granted liberty to any party to restore the proceedings on two days notice and noted an undertaking to the Court by Miss Newington that she would perform all the obligations on her part contained in an agreement set out in the document. That agreement provided for the withdrawal of certain caveats; an acknowledgment that Beneficial was entitled to exercise its powers of sale; an agreement to yield up possession of all the properties except 159 Queen Street not later than 6.00 pm on 22 December; an agreement to yield up possession of 159 Queen Street on 22 March 1984 or (if earlier) seven days after the making of a final order; an acknowledgment that Beneficial might pay out Mercantile and tack the amount paid on to its secured debts; an agreement that Beneficial might pay out Statewide and similarly tack the amount paid; an agreement that the applicants would consent to judgment in favour of Beneficial in the applicants' Supreme Court proceedings; an agreement to withdraw an appeal which had been instituted in the ejectment proceedings; and various ancillary undertakings. In turn, Beneficial agreed that Miss Newington might introduce prospective purchasers, that it would not exchange contracts for the sale of any of the properties without giving at least 48 hours prior notice to Mr Vandervord and that it would not advertise any sale or proposed sale of 22 Nelson Street or 159 Queen Street as a mortgagee sale. Subsequently, Mr Vandervord became the solicitor on the record in the applicants' Supreme Court proceedings and judgment was by consent entered in favour of Beneficial in accordance with the agreement: that happened finally on 6 February 1984.

Miss Newington's evidence was that she entered into that agreement only with extreme reluctance and because she had been, as she put it, bullied and intimidated into doing so by her lawyers. The alleged intimidation took a number of forms: anger displayed to her by raised voices and "shouting"; threats that if she did not agree she and M Bonnet would became bankrupt and would be likely to be sent to "debtors' prison"; comments to the effect that if she did not agree to settle there and then, Mr Vandervord was going on holiday and because she had no funds to obtain other representation she would be without legal representation and would be evicted from her home. Miss Newington also said that during a considerable part of the conferences lawyers for Beneficial and Mercantile were outside Mr Saywell's chambers, in the corridor. She said that she expressed particular reluctance to agreeing to judgment against the applicants in the applicants' Supreme Court proceedings and wished to agree only to discontinue those proceedings; her version was that Beneficial, by its lawyers, on 21 December agreed to accept discontinuance but reneged on that agreement the following day.

All three of the lawyers, Messrs Saywell, Cashion and Vandervord denied in evidence that there had been any intimidation or bullying. They agreed that Miss Newington had been advised that her chances of success were slight. They said, however, and in this they were not challenged in cross-examination, that they did nothing more than offer advice which was, undoubtedly, unpalatable to the recipient. Particularly, Messrs Saywell and Vandervord strongly denied that any of the lawyers suggested that there was a possibility of "debtors' prison": Mr Saywell gave evidence that that possibility arose in the conference as a suggestion made by Miss Newington and that he had specifically advised her that there was no such thing as debtors' prison and that her fears on that account were unfounded. Mr Cashion had no recollection of the detail of the conference, and particular had no recollection of any mention of "debtors' prison"; but his evidence was that he knew at the time that there was no such thing and certainly would have so advised had the question arisen; Mr Vandervord's evidence was to similar effect. The lawyers - particularly Mr Saywell, who had the principal conduct of the negotiations - also gave evidence that Beneficial never agreed to accept a discontinuance, rather than insist on judgment in the applicants' Supreme Court proceedings.

That brief summary hardly does justice to many pages of evidence, but it will, I think, suffice for present purposes as senior counsel for the applicants did not seek to rely on any bullying or intimidation by the applicants' own lawyers and was content to proceed on the footing that the conduct of the lawyers, and their advice, were entirely proper in the circumstances; but that the circumstances, involving as they did a lack of information and documents, were to a significant extent the fault of Beneficial. Again, that is a matter to which I shall have to return.

The Federal Court injunctive proceedings were, on 23 March 1984, stood over to 20 April. There was apparently then a further adjournment to Friday, 27 April. On that day Beaumont J made by consent the following orders:

1. Verdict for the Second Respondent.

2. Leave be granted to the Applicant to discontinue its proceedings herein against the First Respondent and note that the Applicant so discontinues those proceedings.

3. Note that there be no order as to Costs.

4. Note further that the Applicant will herself cooperate and otherwise cause the cooperation of Jacques Bonnet and Genman Pty Limited with the Second Respondent in prompt and orderly disposition of all the properties defined by the orders made herein on 22 December 1983, subject thereto.

Miss Newington had previously given Mr Vandervord her written authority to consent to those orders. On 4 May 1984 Mr Cashion delivered to Mr Vandervord a written opinion confirming the advice earlier given that Miss Newington's prospects of success in the Federal Court injunctive proceedings were slight.

Again, Miss Newington gave evidence of surrounding circumstances. She said that once again she was willing to agree only to discontinuance, not to a "verdict" against her. She said that she was at the time subject to great stress because of events surrounding her moving from Queen Street: she claimed to have been subjected to further telephone harassment from Mr Dunne. She said also that the pressure was exacerbated by certain action taken by Mr Vandervord, which I should mention briefly. When he accepted instructions, Mr Vandervord required funds; he was given some travellers cheques the value of which was about $3,500.00 and it was agreed that Miss Newington would seek to obtain further funds for him. That endeavour was unsuccessful, except that Miss Newington had a return air ticket to Paris which she handed to Mr Vandervord with a form of transfer. Meantime, in early 1984, M Bonnet flew to Paris using the ticket; when Mr Vandervord sought to obtain a refund from the airline, the amount he was able to obtain was considerably less than he had expected. Mr Vandervord issued a summons in the Court of Petty Sessions against Miss Newington, claiming fees and disbursements, and informed her that he had done so: his explanation was that he did this because he felt let down by what had been done with the air ticket the proceeds of the entirety of which he believed he had been promised. Miss Newington said that Mr Vandervord threatened to bankrupt her on the basis of the claim. The matter need not, I think, be pursued further except by saying that Mr Vandervord, after a conversation with Miss Newington, took no further action on the claim and continued to act for her, for some time, without further payment.

(j) Miss Newington's attempts to find a purchaser or pay Beneficial out; ultimate disposal of properties

As contemplated by the consent orders, Beneficial paid Mercantile $460,000 and on 13 January 1984 received transfers of Mercantile's mortgages of 22 Nelson Street and 159 Queen Street. Statewide received the proceeds of sale of 5 Waimea Avenue in February 1984; there remained a balance owing to Statewide of $8,003.39. Beneficial paid that sum and received a discharge of Statewide's remaining mortgage over 3 Waimea Avenue. In consequence, Beneficial became the first mortgagee of all the remaining properties: i.e., in addition to the 4 Rockwall Crescent properties, 22 Nelson Street, 159 Queen Street and 3 Waimea Avenue.

The properties were not sold quickly. 159 Queen Street and 3 Waimea Avenue were sold in June 1984; 22 Nelson Street was sold only in July 1985; and the units in the Rockwall Crescent properties were sold between May 1985 and June 1986.

Little more need be said about events during this period. Miss Newington was adamant in her evidence that she could have arranged to pay Beneficial out and that she was aware of people who were prepared to buy, or join in a syndicate to buy, the properties. It does appear that one syndicate, including clients of Mr Vandervord, may have been prepared to offer $1.6 million in early 1984; if that offer was made to Beneficial, however, it was rejected. There is no evidence of the making of any other definite offers. Miss Newington's explanation was that it was impossible to arrange a sale because Beneficial continually increased the amount it required in order to discharge its securities and that she could never get a proper payout figure. There is evidence that payout figures were discussed, for example between Mr Saywell on behalf of Miss Newington and Beneficial's solicitor, Mr Bruce: in those discussions there seems to have been a clear distinction drawn between the amount actually owed to Beneficial and an amount which Beneficial might be prepared to accept by sale of the properties or a refinancing. There is no evidence, however, that any of those discussions took place in the context of a clear or definite offer.

There were also skirmishes during the period, between Mr Vandervord on behalf of the applicants and Mr Bruce on behalf of Beneficial, concerning proposed sales of various of the properties, particularly as to compliance, or otherwise, by Beneficial with the terms of the agreement appended to the December consent orders and as to Miss Newington's level of cooperation with Beneficial in selling the properties: for instance there was at least one early occasion when 22 Nelson Street was offered for sale by Beneficial, as mortgagee in possession, reasonably clearly a breach of the agreement. There were also questions as to whether the applicants were cooperating with the sale process to the extent required by the agreement. For reasons which will appear, however, none of those matters has in my view any particular bearing on any of the issues to be decided in this case.

(k) Renewed litigation against Beneficial

A sequestration order was made against Miss Newington's estate on 1 February 1988. She has since been discharged from bankruptcy. In the meantime, however, an application was filed in this court on 27 April 1990, commencing what I shall describe as the renewed substantive proceedings. Miss Newington was named as first applicant, the "official receiver" as second applicant and Genman and M Bonnet as third and fourth applicants. The principal relief sought was damages and an order for the taking of accounts. In the light of subsequent events it is unnecessary to say more about the statement of claim which accompanied the application than that it sought to reagitate matters which had been the subject of the applicants' Supreme Court proceedings and the Federal Court injunctive proceedings. On 6 June 1990 Davies J ordered that the Official Trustee be dismissed from the application and that the statement of claim be struck out. His Honour granted leave to Genman and M Bonnet to replead. Those two applicants filed an amended, and then a further amended, statement of claim. The further amended statement of claim included claims that Beneficial had breached obligations under the agreement appended to the December 1983 consent orders and also that it had breached its duty, as mortgagee, to account to the applicants as mortgagors. In July 1991 there came before Davies J a motion to strike out that statement of claim and also a motion to join Miss Newington as an applicant, on the footing of an assignment to her, by the Official Trustee, of the various causes of action alleged against Beneficial. His Honour struck out all the substantive paragraphs of the statement of claim, except two claiming breaches of the agreement appended to the consent orders and an alleged breach of the duty to account.

Davies J made that order on the basis that the other claims made in the renewed substantive proceedings were, in substance, those made in the applicant's Supreme Court proceedings or claims which, if litigated at all, could and should have been brought in those proceedings: Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. His Honour also refused to join Miss Newington as an applicant, on the footing that the assignment required the authority of either a meeting of creditors or of the Court and no such authority had been obtained. The latter problem was overcome by an order made on 19 August 1992 by Gummow J authorising the assignment, following which Miss Newington was joined as an applicant. The applicants sought to deal with the former problem by commencing the proceedings now before me. In accordance with leave granted on 15 September 1995 the applicants filed, in the renewed substantive proceedings, an amended application and a fourth amended statement of claim. By the amended application they seek an order for restitution or, alternatively, an order for damages and an order that Beneficial account "as mortgagee and trustee". All that it is necessary to say about the fourth amended statement of claim is that in all material respects the matters pleaded in it are precisely the same as those pleaded in the present proceedings. The other matter which should be noted is that Beneficial makes cross claims in the renewed substantive proceedings against Genman and M Bonnet for unrecovered amount of the applicants' indebtedness.

Claims in the present proceedings

Before me in the present proceedings are an amended application and an amended statement of claim, each filed in accordance with leave granted on 15 September 1995 by Sheppard J. At the beginning of these reasons I described the relief sought in the amended application: in essence, in terminology used by senior counsel for the applicants, the applicants seek to get rid of the consent orders made in the applicants' Supreme Court proceedings and in the Federal Court injunctive proceedings so that they may pursue their claims against Beneficial in the renewed substantive proceedings.

The amended statement of claim is a lengthy document and it is not easy to summarise in a way which does it justice. It pleads the offers and acceptances of loans and, without any particularity, the "various security documents". It then makes an allegation about the way in which the money lent was to be made available. In brief, it is alleged that some of it was to be handed over "in specie", some retained to be advanced on certification by a quantity surveyor, for renovations, some "to be immediately deposited on an interest bearing deposit with a financial institution in the name of BFC to be drawn upon by BFC to pay itself interest when due", some "to be immediately deposited on an interest deposit with a financial institution in the name of BFC to be drawn upon by BFC to pay interest to certain collateral mortgagees when due" and the balance by "an additional advance of $17,500.00". It is then alleged that the offers incorporated a representation (becoming, or acceptance, a condition of the contracts) that the "building money" would be made available to a builder on certification by a quantity surveyor and not otherwise, that the applicants relied on that representation and that it was false. The particulars given of the alleged falsity are that "the Respondent now claims in certain faked accounts that several millions of dollars was (sic) expended by it to complete the work certified as being valued at $106,000.00. The additional money was not certified as due". It is then said that there were likewise representations that Beneficial would deposit, with financial institutions, the money retained for payment of interest to itself and to other lenders. It is alleged that those representations were promises and conditions of the contract. It is then said that, with one specified exception, money which was to be deposited in fact was not deposited or was deposited and misapplied.

It is then pleaded that from the date of the refinancing on 21 June 1982 Beneficial was a trustee and held all "the moneys" to be made available under the acceptance of the loan offers, other than the advances made in cash on settlement, on trust for the applicants.

Next there are pleaded a series of conversations in which, it is said, representations were made. I have referred to those conversations already. It is said that Beneficial represented that it was in touch with and would make payments to other mortgagees and that the accounts of BFC were in a mess so that an accounting could not be provided. It is then said that those representations were relied on and were false.

After alleging that in the latter half of 1982 the applicants asked for accounts on numerous occasions and that the requests were refused, the statement of claim turns to the events of January 1983. It alleges that Beneficial extorted the deed of 6 February 1983 from the applicants by threats, intimidation and false representations. I need not set out the particulars; it is sufficient to note that they reflect Miss Newington's account of the conversations with Messrs Porter and Seddon during January 1983.

The pleading proceeds to allege that immediately after 6 February 1983 Beneficial "seized possession" of the various houses (thus becoming a trespasser), that it continued to be a trustee as already alleged and became as well a trustee of the applicants' interest in the properties, thus having a conflict of duty and interest; it is alleged that on numerous occasions during 1983 the applicants asked for accounts which were refused and that on each occasion the applicants told Beneficial that they intended to redeem the mortgages; next it is said that on or about 12 May 1983 Beneficial "gave possession of the properties to a person named Wayne Dunn [sic] colourably as a builder to complete the building work. Dunn was not a builder" and that between that date and 22 December Dunne "with the consent and encouragement of the Respondent used his position as a builder to enrich B.F.C. and himself by plundering moneys and materials". Further requests for accounts, after 6 February 1983, are then pleaded as are statements said to have been made by the applicants that they wished to redeem. This section of the statement of claim closes with allegations that Beneficial did not keep proper accounts or did so but did not disclose them; and that certain purported accounts provided after the commencement of the renewed substantive proceedings are "fakes".

Next, it is alleged that in agreeing to the December and April consent orders Miss Newington was induced by the representations pleaded earlier in the statement of claim and also by further representations, viz that the applicants were in default under their mortgages, as to the amount of their indebtedness to Beneficial, as to the market value of certain of the properties and as to Beneficial's intention not to advertise a sale of Nelson Street as mortgagee sale and to give not less than 48 hours notice of its intention to exchange contracts for the sale of any of the properties. The first three of those representations are said to have been made by Mr Seddon in an affidavit. All of them are said to have been false and Beneficial is alleged to have been fraudulent in making them. They are said to have been made for the purpose of inducing the applicants to compromise the applicants' Supreme Court proceedings and the Federal Court injunctive proceedings; and the applicants are said to have acted, in agreeing to the consent orders, on the basis of the truth of the representations. All the various matters pleaded are then said to have reduced Miss Newington to a mental state where she was no longer in an equal bargaining position; Beneficial is said to have used that fact to its advantage and the applicants' disadvantage.

The pressure allegedly put on the applicants by their advisers, in relation to the consent orders, is then pleaded; that pressure is said to have resulted from "ignorance of the truth" and a belief that Beneficial and its officers were truthful.

There are then allegations of the discovery since the consent orders of various items of fresh evidence; there is an allegation of impecuniosity on the part of the applicants; there is then an allegation of the existence of undue influence and the exertion of that influence or coercion; there are allegations of threats and intimidations by Mr Dunne. Finally, there are allegations of breaches of the provisions of the agreement appended to the December consent order.

Of Beneficial's defence it is unnecessary to say more than that it denies all the allegations of breach of duty on its part.

Proposed further amendments

After the close of evidence, the applicants sought leave to file a further amended application and a further amended statement of claim. The further amended application would add two further orders to the relief sought: orders that the agreement of 22 December 1983 be set aside and that the deed of 6 February 1983 be set aside also.

The further amended statement of claim alleges two additional representations to have been made, to have been relied upon and to have been false:

(f) That the applicants were not entitled to request or to receive money for the purpose of renovating the property at 22 Nelson Street, Woollahra.

(g) That no money had been set aside for the purpose of meeting the cost of renovations to the property at 22 Nelson Street, Woollahra.

The particulars given of the alleged falsity are that the applicants were entitled to request or to receive money for the purpose of renovating 22 Nelson Street and that money had been set aside for that purpose.

The further amended statement of claim would add a claim that:

The relationship which existed between the Applicants and the Respondent at all times after 21 June 1982 was that the Respondent stood in a fiduciary relationship to the Applicants and owed to the Applicants fiduciary duty.

It would then add to the allegations of betrayal of confidence, exercise of undue influence and coercion a claim that Beneficial engaged in unconscionable conduct in having the applicants agree to sign the deed of 6 February 1983 and the consent orders. The particulars given are a reference to the allegations concerning the circumstances surrounding the execution of the deed and the making of the consent orders which I have already described in some detail. It should be noted that the amendments would extend to the execution of the deed of 6 February 1983 (as well as the "signing" of the two consent orders) the allegations in the statement of claim about the exercise of undue influence or coercion; and it would also specify 21 June 1982 as the date at which, and at all times after which, Beneficial had acquired and had influence over the applicants and the applicants reposed confidence in Beneficial.

As will appear, amendments raising the issue whether the respondent was guilty of unconscionable conduct inducing the applicants to consent to judgment in the applicants' Supreme Court proceedings and the "verdict" in the Federal Court injunctive proceedings are amendments of a kind which would enable the Court to deal with the real issue between the parties, and should be allowed. What should be done in relation to the precise amendments which the applicants seek leave to make is, however, to some extent a different question and I shall deal with it at the conclusion of these reasons.

Following final submissions, and following discussion as to the nature of the applicants' case as made in their written and oral submissions, Mr Milne QC for the applicants said that he was prepared to seek an amendment to delete paragraphs 12 and 16 of the amended statement of claim. Paragraph 12 asserts that at the times the representations complained of were made the respondent knew they were false and untrue or made them recklessly not caring whether they were true or false. Paragraph 16 alleges that the applicants' own legal advisers put pressure on them to agree to the consent orders. Again, I will defer to the conclusion of these reasons the question whether amendments to that effect should be permitted.

Applicants' case as finally put

At the conclusion of written submissions filed by the applicants after the close of evidence, the applicants (informally) sought leave to file the amended application and amended statement of claim which I have described. Although the amended statement of claim maintains all the allegations in its predecessor, including allegations of fraud and "pressure", and indeed adds particulars of further representations said to have been made by Beneficial, to have been false and to have been made fraudulently, the written submissions propounded a case based entirely on unconscionable conduct of the kind identified in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. The unconscionable conduct was said to have been engaged in by Beneficial in the context of a "special relationship", to be deduced "by an examination of the competing states of knowledge of the parties". It was put also on the footing that Beneficial owed fiduciary duties to the applicants: those duties, including in particular a trustee's duty to account and a duty expressed both as one to avoid conflict of interest and as an obligation to prefer the applicants' interests to Beneficial's own, were said to arise from the circumstance that Beneficial was a trustee: its position as trustee, in turn, arose from two aspects of the transactions. One was that the moneys deposited with Beneficial from the advances made on settlement of the various loans, particularly the settlement occurring in June 1982, were deposited with it for a specific purpose (payment of interest to itself or to another financier, or renovations to Nelson Street) and thus became subject to trusts of which the applicants were beneficiaries. The other was that the agreements for loan included terms requiring Beneficial, if (and only if, it was said) certain conditions were met, to advance money for renovations; these were called in submissions the "building moneys" and Beneficial was said to be a trustee of them also.

I do not think it is unfair to describe the written submissions as, in the circumstances, somewhat curious. They quote substantial extracts from decided cases, particularly Amadio and Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621; they proceed to make, in very brief terms, assertions that a "special relationship" in this case is to be deduced in the way I have mentioned; that once that is shown to exist it becomes unnecessary to show an exploitation of unequal bargaining power; that the deed of 6 February 1983, the agreement of 22 December 1983 and the document of 22 April 1984 were executed in circumstances "which leads to this Court holding that each must be set aside" and, then, the truism that a trustee must keep and render full and candid reports and accounts. It is next said, without elaboration except for citation of authority, that consent orders can be set aside on any grounds which would suffice to set aside a simple contract. The submissions proceed to an analysis of the relationship between the parties, including what are said to be express and implied terms of the relationship, at each of three times, i.e. immediately before the deed of 6 February 1983, immediately before the agreement of 22 December 1983 and immediately before the execution of the document of 27 April 1994. There then follows a comparison, extending over four pages, of the applicants' and Beneficial's states of knowledge as to certain matters at each of those times. A conclusion follows which has three limbs: one is that on 6 February 1983 there was a conflict between Beneficial's position as trustee and its own interest as mortgagee and that by acting in its own interest rather than that of the applicants it breached its trust and took advantage of its power as mortgagee and therefore "cannot retain the advantages of the Deed"; secondly it is submitted "that a case has been made for orders based on an unconscionable conduct and/or undue influence"; thirdly it is contended that the deed of 6 February 1983, the agreement of 22 December 1983 and the "Agreement" of 27 April 1983 should be set aside.

Nothing is said about fraud; nothing is said about pressure; nothing is said in justification of the precise orders sought by the amended (or proposed further amended) application; nothing is said by way of justification of the submission that 13 years after the event, when all the properties have long since been sold and the proceeds long since applied, the deed of 6 February 1983 might nevertheless be set aside. Nor is anything said about the somewhat unsurprising defences of Beneficial based on the Limitation Act (NSW) or analogous equitable principles and on delay or laches and estoppel. Nor, finally, is it anywhere made clear what the relationship is between factors claimed to vitiate the deed of 6 February 1983 and what is necessarily the principal relief sought in these proceedings, that designed to "get rid of" the judgments and orders made in the applicants' Supreme Court proceedings and the Federal Court injunctive proceedings.

In oral submissions Mr Milne QC made it clear that he put his case solely on the basis of unconscionable conduct, and fiduciary relationship as "part and parcel of the unconscionable conduct". He explicitly disclaimed any reliance on undue influence; and said that "any question of the other matters which have been raised in the statement of claim and which have caused much discussion and much heartburn in this case are now to be regarded as being non-existent". He expressly accepted that the questions of fraud and duress had "disappeared". He put the case substantially as it had been put in the written submissions, that is one based on fiduciary obligations arising out of a relationship of trustee and beneficiary and on inequality of bargaining power arising out of both inequality of information and what was said to be a relationship of dependence between Miss Newington and the officers of Beneficial. Mr Milne directed no argument, in oral submissions, to a legal basis on which, if I should find his unconscionable conduct case established, the two judgments standing in his way might be set aside; nor did he deal with the defences to the effect that the applicants' claims are barred as a matter of law or should, as a matter of discretion, be held to be barred. He invited me, in effect, to find in his clients' favour on the substance of his case based on unconscionable conduct and then to relist the matter for further argument as to what might follow from that conclusion: particularly, what orders should be made.

Whatever might be said generally of that proposed manner of proceeding, it is, I think, desirable in any event to proceed to consider the case based on unconscionable conduct. One limb of it - the trustee limb - can be considered without further detailed reference to the evidence; the other limb, based on inequality of information, will require both an analysis of the ways in which it is said that there was an inequality between the parties as to the information available to them and of some of the evidence, particularly matters going to the extent to which I should accept evidence given by Miss Newington.

The trustee limb

In substance, two general categories of trusts were said to arise. One, the "building moneys trust", though relied on in the written submissions, was not pressed by Mr Milne and may be dealt with shortly. It was said that Beneficial became trustee in relation to "approved facilities which had not been advanced" to the extent that the advances were to be made to pay for renovations. That appears to involve an assertion that Beneficial was trustee of its own conditional contractual obligation to lend money for building purposes. How that could be so was not explained, and I think could not be explained. There is nothing in any of the documentation or, in my view, in any of the evidence to suggest that in this respect the relationship between the parties was other than a contractual relationship of a by no means unusual kind: Beneficial agreed to make advances to the applicants by making direct payment to the builder upon certain matters, commonly required in facilities such as these, being certified to its satisfaction.

The other form of trust said to arise requires closer consideration. It is said that money advanced on settlement for the payment of interest, whether to Beneficial or to other lenders (in fact as has been seen, the only other lender concerned was Statewide, the amount involved being $10,000) was held by Beneficial on trust for the relevant applicant, with power to pay from it interest becoming due to Beneficial or Statewide, as the case might be. Likewise, it was said that the $40,000 deposited in accordance with the "scheme of Moss", for renovations to 22 Nelson Street, was held by Beneficial on trust for Miss Newington, but with power to apply it towards these renovations: indeed, it was said that Beneficial had a duty, as trustee, to apply it towards renovations of 22 Nelson Street if Miss Newington required it to do so.

The legal basis on which those trusts were said to arise was not, I think, articulated with great precision. It was said, in answer to questions which I asked in the course of argument, that the trust property was, in each case, the "pot of money" advanced on settlement which, it was said, Beneficial was obliged to invest with a financial institution (not itself). The argument was not put specifically on a Quistclose basis (Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567), that is as a trust for payment of specific claims, with a "secondary" trust in favour of the relevant applicant to the extent that the "primary" trust should fail or become impossible of performance; but that was, I think, the substance of what was put.

I have used the expression "Quistclose Trust"; but it is necessary to bear in mind the warning given by Gummow J in Re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 30 FCR 491 at 503:

To speak of a Quistclose trust as if it were a new legal institution rather than an example of the particular operation of principle upon the facts as found is to set the listener or reader off on a false path.

It is necessary also to bear in mind what his Honour pointed out immediately before that passage:

It also is to be borne in mind ... that dealings between two parties may give rise to equitable rights in a third party, falling short of those of a beneficiary against a trustee. ... They include equitable charges and liens and equitable personal obligations ... . In this field, the legal system in truth teems with established norms, and there is scarcely the need for another, dignified as the Quistclose trust.

It is not difficult, in my view, to discover the nature of the legal relationships to which the deposits, from which interest might be paid to Beneficial, gave rise. First, there is in my view no basis for a suggestion that the deposits were to be made with some other institution rather than Beneficial itself. The earliest approvals, those of 1980, made it clear that the amount retained was to be lodged on deposit with Beneficial. Some of the later approvals used expressions such as "to be lodged on deposit to cover interest repayments" and did not mention Beneficial specifically as the party with which the deposit was to be made, but there can I think be no serious doubt as to what was intended. Of the two approvals of April 1982, that relating to the 12 Rockwall Crescent facility provided that "$155,000 [is] to be placed on deposit at (14%) with Beneficial at settlement for interest repayment purposes" and that relating to the 10 Rockwall Crescent Facility said simply that $65,000 was "to be lodged on deposit at settlement, for interest purposes"; and I do not think there is room for a suggestion that whereas the former deposit was to be made with Beneficial the latter was to be made with some other institution. In any event, each deposit was the subject of a deed executed by the relevant applicant; I have set out the relevant provisions of the deeds and they make it clear that the deposit was to be made with Beneficial itself. In fact, of course, the deposits were made with Beneficial, they were recorded in passbooks and they gave rise to a relationship in which Beneficial was the debtor of the applicant concerned, its obligations as debtor being modified by the provisions of the deed of "charge".

That being so, I do not think it possible to hold that, whatever other equitable rights or obligations may have arisen, there was a relationship of trust in relation to the money retained for payment of interest to Beneficial. There was no identifiable "pot" of money which Beneficial could be said to hold as trustee; there was simply an obligation owed by Beneficial to the applicant, not property which Beneficial (the party subject to the obligation) could hold on trust for any of the applicants.

The deposit of the $50,000, made up of the $10,000 for interest falling due to Statewide and $40,000 for renovations to Nelson Street, gives rise to slightly more complex questions though in the end I think the position is not substantially different. Condition 10 of the approval of 21 April 1982 uses familiar terminology: "to be lodged on deposit". The condition concludes, however, with a statement that "these moneys are to be held on a separate account to that holding monies for the payment of interest". Again, however, in fact two deposits were made with Beneficial and were recorded in separate passbooks. The deed executed by the applicants (contemplating the deposit of the full amount of $320,000) is somewhat different from the other deeds: though the recitals refer to deposits "with Beneficial" the deed provides that Beneficial is to be at liberty to place the deposit on call deposit with "any financial corporation". In terms of course, that provision confers on Beneficial a mere authority rather than an obligation and it was not acted upon. Its importance, however, is perhaps that it suggests a contemplation that the fund was to be kept separate by Beneficial in some way. But a moment's reflection establishes, in my view, that this cannot make any difference. There is no suggestion that coins or banknotes were deposited, or a negotiable instrument which was to be retained in specie pending its lodgement with some other financial institution. There was simply, once again, a deposit "with Beneficial": that gave rise to a debt, as with the other deposits, owed by Beneficial to Genman, but there is no intelligible sense in which it could be said to have put in the hands of Beneficial some identifiable property which might be held by it on trust for Genman.

If the circumstances were that a sum was "deposited" with Beneficial on terms requiring Beneficial to lodge it with another institution in circumstances where the intention of the parties (perhaps, the intention of the depositor) was that the resulting obligation owed by the financial institution to Beneficial was to be held by Beneficial on trust the result could well be different (and the case would be factually more akin to Quistclose): if in breach of that obligation Beneficial had failed to deposit the sum with another institution it might well in those circumstances be accountable as trustee and subject to other obligations of a trustee. But for reasons to which I shall now turn, that in my view is not this case.

I have already referred to authority which makes clear what in principle could hardly have been doubted, that not every deposit or loan whose proceeds are required or authorised to be used for a particular purpose gives rise to a trust. It is necessary to examine the transaction into which the parties entered and the intention which it evidences in order to ascertain what rights and obligations arise from it. In this case the parties entered into deeds whose terms, having regard to earlier transactions between them, were substantially familiar. The legal relationship to which those documents in terms gives rise is one in which the applicants charge and encumber the deposits in favour of Beneficial. The clear intention thus expressed is that the relationship is to be that of chargor and chargee, not that of trustee and beneficiary. It may well be as a matter of law that the documents could not give rise to a charge or other encumbrance, for reasons similar to those for which Beneficial, as the party obliged to repay the deposit, could not be said to hold the benefit of the deposit on trust: Broad v Commissioner of Stamp Duties (NSW) [1980] 2 NSWLR 40; Re Charge Card Services Limited [1989] 1 Ch 497. As those authorities indicate, however, there is no reason to doubt the efficacy of the deeds insofar as, as a matter of contract, they authorised Beneficial to pay from the deposits interest due to Beneficial or, in the case of the combined deposit of $50,000, interest due to Statewide and amounts due for renovations of Nelson Street; nor is there any reason to doubt their efficacy in denying the applicants any right to have the deposit repaid following default and authorising Beneficial, following default, to offset the deposits against money due to it.

What is important is that the terms of the transaction, both the offer letters and the deeds, clearly express the intention of the parties as to the kind of legal relationship into which they entered; and that legal relationship was not one in which property was vested in Beneficial with an intention that it be held on trust for the applicants. Nor is any basis evident for finding, or imposing, a trust on any other basis. Accordingly, in my opinion the terms on which the deposits were made do not provide, any more than do the provisions for the advance of "building moneys", a reason to hold that Beneficial owed the applicants the duties of a trustee, particularly the duty to account as a trustee or the duty to avoid conflicts of interest or to prefer the applicants' interests to those of Beneficial. It was not suggested that the fiduciary obligation to prefer the applicants' interest to those of Beneficial arose from a source other than the alleged trusts, and I can see none. Of course, that does not mean that equitable obligations were absent: plainly Beneficial owed the applicants the equitable obligations of a mortgagee exercising its powers; but that is another matter, and one which does not arise in this case.

Before leaving this aspect of the case, I should note that the statement of claim alleges a further trust: that from 6 February 1983 Beneficial became trustee of all the Applicant's [sic] right title and interest in all [the mortgaged] properties. This trust was not pressed in argument. The claim is based, clearly, on a mistaken construction of the deed of 6 February 1983; it has, in my view, no foundation in the evidence.

Inequality of bargaining power: unequal states of knowledge and belief

Senior counsel for the applicants accepted both in opening and in final submissions that the applicants would succeed on this part of the case only if the evidence of Miss Newington, at least in its main substance, were accepted. Having read and reread Miss Newington's statement (or at least those parts of it upon which the applicants now rely) and having seen her give oral evidence over a period of seven sitting days, I have no doubt that she is convinced that Beneficial, its officers and people engaged by it - particularly Mr Dunne - have been guilty of serious legal wrongs against the applicants and have caused them very substantial damage. Mr Milne submitted that as the person with the strongest reason to recall the events which occurred between 1982 and 1984, and to whom those events had been a preoccupation ever since, Miss Newington should be regarded as the most reliable historian of them; it was unlikely that others, particularly the officers of Beneficial and the lawyers who advised the applicants, on whom the events had a far less direct effect and to whom they would lack the qualities of uniqueness which they had in Miss Newington's experience, would recollect them as clearly or accurately. Counsel pointed particularly to the almost complete lack of recollection of certain of the events displayed by Mr Seddon and Mr Cashion. Senior counsel for the respondent, on the other hand, took me to a number of aspects of Miss Newington's evidence which, he said, required her evidence to be treated with reserve to the extent that, where it conflicts with the evidence other witnesses, I should prefer the other witnesses' version. Some of the matters to which counsel referred were the following:

(a) Estimated time for completion of building works

When applying for further finance in 1982 Miss Newington gave Beneficial a set of projections prepared by her accountants in February 1982. Those projections indicated that all the Rockwall Crescent renovations were expected to be complete by September 1982. Miss Newington's evidence, in cross-examination, was that "everything had been changed by April"; although she agreed that a financier was likely to require cash flow projections, she did not concede that in April she volunteered, or Beneficial requested, any updated projections.

(b) Real estate market slump

The evidence was that between 1980 and 1982 the real estate market was buoyant. Indeed, given the rates of interest which the facilities granted by Beneficial to the applicants bore and the applicants' lack of any other substantial assets or source of income, such facilities could be rationally justified only in circumstances where the state of the market gave rise to a confident expectation that at the end of the term the properties could be sold for a price sufficient to repay Beneficial or the facilities refinanced, on the security of the properties, in full. Mr Kelly, Mr Moss and Mr Porter all gave evidence that in the latter part of 1982, and into 1983 and 1984, there was a serious slump in the market. Miss Newington's evidence, on the other hand, was that, in her opinion, that was not so. The applicants called no evidence to support Miss Newington's view; on the other hand, the evidence of Messrs Kelly and Moss, particularly, was convincing and indeed, if it were not right, it is not easy to see why the sale process was not ultimately a great deal quicker, and more satisfactory in its result, than it was.

(c) Offers to purchase properties or discharge mortgages

Little need be said about this. Miss Newington's evidence was that there were several offers which she received (or solicited) during the early part of 1984 but that none came to fruition because "Beneficial kept changing their price". When pressed as to who actually made offers she was somewhat vague. Mr Vandervord gave evidence of conversations concerning a potential offer, and it appears that an offer of $1.6 million may have been made. But Mr Vandervord denied making, transmitting, or indeed being aware of "any formal binding offer".

(d) The ANZ overdraft

Miss Newington gave evidence that by December 1982 she had arranged an overdraft of $100,000 with the ANZ. She said that the ANZ had approved it; she claimed, however, that she was unable to draw upon it only for the reason that Beneficial had failed to sign a consent to ANZ's mortgages, a document which Miss Newington said the ANZ had sent to Beneficial. I have already referred to the ANZ's letter of 13 December 1982 which is inconsistent with that evidence; and Mr Porter's evidence was that while Beneficial were prepared to consent to the increased overdraft the ANZ never sent the necessary documents to Beneficial. The only contemporaneous documentary evidence, thus, is consistent with Mr Porter's version of the events and inconsistent with Miss Newington's. I think it is impossible to reach any conclusion other than that Miss Newington's account is mistaken.

(e) Handwritten "scribblings"

Miss Newington was pressed, in cross-examination, with a number of matters on which, it was put, she appeared to show a better recollection of the events of 1983 and 1984 in her statement of April 1995 than she had in earlier statements and affidavits filed in this and other proceedings, and also with her inability, in the witness box, without reference to the statement, to recall matters there recounted in any detail. The following exchange took place between Miss Newington and senior counsel for Beneficial:

When you made your statement last year you purported to be able to recall the whole conversation [the alleged conversation with Mr Dunne shortly following the commencement of work on 22 Nelson Street]? - Well I kept notes and I told you that my notes were lost because I've moved twice since I made that statement.

Well did you have those notes with you when you made your statement? - I was asked to write out my statement and I had kept all sorts of notes, all sorts of things. I might have had some and might not have had others, but I wrote out that statement to the best of my recollection at that time.

Miss Newington, did you have the assistance of any notes when you prepared the statement? - Well I might have, yes.

Did you or did you not? - I think, I think I did have some, yes.

What are the notes that you used when preparing your statement? - Well I kept notes on dates of things that had happened and those were the notes.

Now, at the time when you prepared this statement last year you had already given discovery in the action had you not? - Yes.

And you had not discovered any such notes? - But these were my own handwritten notes - they weren't to be discovered.

. . .

Now you are aware of the discovery process and that it includes discovering handwritten contemporaneous notes? - What's ...

Handwritten notes made at the relevant time? - No, these were notes that I had made. Yes, well, these were notes.

Why did you not discover them? - I didn't think that they had to be discovered. I mean, these were my personal notes.

When you saw that Beneficial was discovering handwritten notes, did it not occur to you that you should also be discovering your handwritten notes? - No, they did not discover all the notes. These were my personal notes. These are things that if I sat down now and said look, I'm thirsty and I write it down, is that to be discovered?

. . .

These are the things that you had been keeping since 1983 or thereabouts? - No, these are things that I had kept adding onto since 1983.

But you had started keeping these notes in 1983? - Yes, yes.

You relied on them in making a statement? - Well, I relied on them to bring my memory of dates and things back, yes.

But they have somehow disappeared in the last 15 months or so? - Well, I moved twice and unfortunately a lot of my personal things were lost.

. . .

I am just trying to work out why it is that the documents you have discovered have survived but the documents that you did not discover have disappeared, why is that? - Because they were just handwritten scribblings and things and when I moved they got lost, that's all there is. I mean there was - I sat and wrote things over a 12 year period and moving I lost them.

But why is it that these documents were lost whilst your other documents were not lost? - I can't answer that, I don't know.

These handwritten scribblings, as you have just called them, how much detail did they contain? - How do you mean how much detail?

Well, did you record the words of conversations in these handwritten scribblings? - Sometimes, yes.

Similar to what is set out in your statement? - Similar, yes.

When we have in your statement what purports to be a quotation, something in quotation marks, is that something you have taken from one of these handwritten scribblings? - It could be, yes.

. . .

Well, they are documents which you have prepared progressively over a period of 12 or 15 years? Everything - every time I remembered things I wrote them down, so there were piles of papers, so I wouldn't forget, that's what I'm referring to. Loose pieces of paper that I would write on or scribble on.

Did you do this progressively between 1983 and 1995? How do you mean, progressively? I just did it when I thought of something.

Yes, well throughout that whole period, were you making entries on these scribbled notes at regular intervals? - No, I can't answer that. I don't recall at what intervals that I remembered something. All that I know is that every time I thought of something I would write it down or if someone gave me some information I would write it down. I mean that is the way that I am.

When you say someone gave you some information, who are you talking about giving you information? - Just anybody, the butcher, the baker, anybody, I would write it down. I just write down everything.

There is, perhaps, nothing particularly remarkable about the suggestion that Miss Newington kept notes about the events. Nor is it particularly surprising that, in a series of moves during some very difficult years, some papers might have been lost. What is surprising, however, is the proposition that these notes, which were in existence and used at the time of the preparation and signing of Miss Newington's statement, had not been discovered, were not then discovered and were subsequently lost.

(f) Accumulating differing accounts

There were several examples of this, each of which relates to a matter which in itself is largely inconsequential. One relates to the way in which Miss Newington was asked to the first meeting in January 1983. In her statement of 13 April 1995, Miss Newington said that Mr Porter asked her to come; in two previous affidavits she had attributed the invitation to Mr Seddon. When this was put to her, her final answer was:

Mr Seddon set up an appointment, yes, and so did Mr Porter.

Thereafter Miss Newington maintained the stance that both had invited her to the meeting.

Secondly, there was the issue of what was to be done with the deed which the applicants were asked to sign. It will be recalled that her evidence, in the 1995 statement, was that Mr Porter assured her it would be kept in a drawer. In previous affidavits she claimed that Mr Porter had said that the deed would be kept in a file. When pressed with the difference, she asserted, and maintained, that both versions were right: what Mr Porter had in fact said was that the deed would be kept in a file in a drawer.

Thirdly, it will be recalled that Miss Newington gave evidence that she was assaulted and that she was later informed by Mr Dunne "that the beating was warning ... to keep away from the building site". In an earlier affidavit she said that she was assaulted "by two men who informed me that the beating was a warning for me to keep away from the building site". Again, when the two versions were put to her, she claimed that both were right.

It is, of course, entirely immaterial whether Mr Porter or Mr Seddon, or both, invited Miss Newington to the January meeting or whether Mr Porter said that the deed will be kept in a drawer or in a file or in a file in a drawer (though it must be said that the last version does not seem intrinsically very likely). Nor, so far as any issue in this case is concerned, is it of great significance whether Mr Dunne or the two assailants, or both, told Miss Newington that the assault was intended as a warning. What all three examples illustrate, however, is a refusal to accept that anything Miss Newington has ever said is mistaken, even in the most inconsequential detail, and a willingness to embrace, as the definitive account, a version (however improbable) which incorporates each aspect of every previous version.

There are other matters in Miss Newington's evidence which have caused me some concern. One is her account, both in her statement and in cross-examination, of her conferences with her lawyers before the agreement of December 1983 was signed. Plainly in the light of the evidence given by the three lawyers, which was not seriously challenged, Miss Newington's evidence of what happened cannot be accepted as correct. For example, her account of anger, shouting and intimidation is plainly exaggerated. So is her suggestion that lawyers for Beneficial were almost a constant presence in the vicinity of her own counsel's chambers. Those matters might, to some extent, be explicable as the result of a perception different from those of the lawyers, resulting from the situation of extreme difficulty and stress in which Miss Newington was placed. However, there was also the matter of "debtor's prison". Miss Newington maintained that she was threatened not merely with possible bankruptcy, but with the possibility of "debtor's prison". All the lawyers were clear that no such threat was made and (particularly in the case of Mr Saywell) that the question of prison was raised by Miss Newington and that he was at pains to dispel the notion. I have no doubt that Miss Newington's evidence about this is wrong.

Then there is Miss Newington's meeting, early in July 1983, with Mr Ian Williams at which, she claimed, Mr Seddon was present. Some of the remarks attributed to Mr Williams are indeed remarkable. Some caution is required, because Mr Williams did not give evidence, and no explanation for this was offered except a general explanation that senior officers of Beneficial would not have useful evidence to give as they did not have the direct conduct of Beneficial's dealings with the applicants. Mr Seddon, while he could not recall being present at a meeting of the kind described by Miss Newington, accepted that he probably introduced Miss Newington to Mr Williams. Mr Seddon's evidence contradicted Miss Newington's to the extent that he denied that the remarks attributed by Miss Newington to Mr Williams were made in his presence; particularly he denied that the remarks concerning the gun which Mr Dunne was said to carry were made in his presence (or, indeed, that it had ever been suggested to him that Mr Dunne carried a gun). I have already set out the relevant portion of a memorandum which Mr Seddon wrote for Mr Williams a little over two months after the meeting described by Miss Newington. Certainly the memorandum indicates that Miss Newington was already making complaints about Mr Dunne, though in a somewhat more restrained way, similar to those which she made in her evidence. The immediate point, however, is that I cannot believe that if Mr Seddon had heard Mr Williams make, in July, the remarks attributed to him by Miss Newington he would have written to Mr Williams in the terms of his memorandum of 14 September. It is an inevitable conclusion, I think, that Miss Newington's evidence is wrong: either Mr Seddon was not at the July meeting or (as seems to me far more probable) what was said at the meeting differed significantly from Miss Newington's account.

Thirdly, there are in Miss Newington's evidence a number of examples of what, in my view, may reasonably be described as wishful thinking. Her evidence about the ANZ overdraft is one instance of that; another is her evidence about the fruits of her endeavours to sell or arrange to pay Beneficial out. A third, rather specific, instance is some evidence she gave in cross-examination about the written opinion delivered by Mr Cashion, dated 4 May 1984. The opinion is in evidence; it confirms what, its author says, was advice previously given as to the applicants' prospects of success in the applicants' Supreme Court proceedings and the Federal Court injunctive proceedings. The following exchange took place:

The first thing I wanted to ask you about that opinion is that although it is dated 4 May 1984, is it correct to say that that was an opinion sought by your solicitors on your behalf to confirm advice given in conference by Mr Cashion prior to the resolution of the Federal Court proceedings in April? - No, this is May 1984.

Answer my question, please? - My answer is no.

Alright, well, perhaps that is because you did not listen to my question. I drew your attention to the fact that the opinion is dated May so that was after the Federal Court proceedings had been finalised? - Yes.

But the opinion was one sought by your solicitors to confirm advice even prior to the settlement of the Federal Court proceedings, advice given in confidence [sic; sc conference] given prior to the settlement of the Federal Court proceedings? - No, I can't say that.

Can you say that that is not true or do you not know one way or the other? - I don't think that I know but I do not think it is true because this is dated over a month later.

You see, if Mr Cashion was expressing his views as at 4 May, he would be saying, well of course you cannot proceed because you have submitted to a verdict; you understand that do you not? - Sorry?

Do you understand that if Mr Cashion was examining the position as at 4 May he would have had to say, well you cannot go anywhere with this action because you have got a verdict against you? - I'm sorry, I don't understand. This opinion was sought in May 1984.

Well, do you have a recollection of that or is it something you are making up because you find it convenient to do so? - No, I'm not making it up.

Well do you have a recollection that it was sought in May? - Well it's stated May.

Yes I know it is dated May, I drew your attention to that with my first question. Do you have a recollection that it was sought in May? - Yes, it was sought in May.

Do you have a recollection to that effect? - Yes, yes.

Fourthly, and finally, Miss Newington vigorously maintained, throughout her cross-examination, evidence in which she attributed to Beneficial, its officers and Mr Dunne, words and conduct which, if in fact they were spoken and engaged in, would have been both extraordinary and reprehensible. Particularly, she maintained allegations of misapplication of money and "plundering" of property. A number of things may be said about that evidence. The first and obvious point is that Miss Newington accused Beneficial and its officers of doing and saying things that could not reasonably be thought to be in its, or their, interests (the principal interest of Beneficial being, it may reasonably be supposed, to obtain as soon as possible as large as possible a reduction of a very substantial overdue debt: certainly not to take action calculated unnecessarily to inflate the amount which had to be recovered). Secondly, the documentary evidence, gives an entirely different impression. There are the two letters from Gage to Beneficial, relating to the Rockwall Street renovations, following the engagement of Mr Dunne. Gage had, of course, been involved with the project throughout the previous regime. The letters do not even hint that anything might be amiss: particularly, the letter of 5 July 1983 lists a series of claims of Mr Dunne for services and materials which, according to Gage, were reasonable and in order. Gage was involved, once again, throughout the Nelson Street renovations and plainly was on site on numerous occasions. It is certainly true that Gage's letters show mounting concern about cost overruns; but all are explained by reference to work actually done on the project. In addition, evidence was given by Mr Richard James McCarthy, a chartered accountant employed by South Australian Asset Management Corporation. Using extant records of Beneficial, he had prepared what may be described as reconstructions of the applicants' loan accounts and passbook accounts. The result was tendered in the form of a considerable volume of computer printouts. The substantial accuracy of what he had done was not questioned. It may be said generally of the material prepared by Mr McCarthy that, in common with other documentary evidence, the impression it gives is one of a conventional and properly conducted series of accounts. Particularly, vouchers exists for most transactions other than "system generated" transactions such as interest and financial institutions duty. One of the volumes tendered is described as "Nelson Street building costs reconciliation table": it includes a voucher for every amount debited to one of the applicants' loan accounts (in fact that for 12 Rockwall Crescent) relating to the Nelson Street renovations. No doubt the material does not conclusively exclude misapplication or impropriety; in my view, however, Mr Morris QC, for Beneficial, was right in submitting that it is at least prima facie evidence of properly conducted accounts. Finally, Miss Newington complained of particular "misappropriations", one being a "party" the other being the provision of a "car" for Mr Dunne. It is clear from the evidence that the "party" was a function held by Beneficial for the purpose of promoting the sale of the properties. It may or may not have been a good idea, but there is no evidence that it amounted to misappropriation. The documentary evidence makes it clear that the "car" was a relatively cheap utility truck acquired for the purpose of the renovations on terms which do not suggest anything improper about the transaction.

All these matters lead inevitably, in my view, to the conclusion that Miss Newington's evidence must be treated with considerable reserve, particularly where her account differs from that of other witnesses on matters of significance to the outcome of the case.

(i) The meetings of January 1983

There are a number of particular matters. Miss Newington says that Mr Porter told her, more than once, that he would keep the deed "in a drawer". Mr Porter denied that evidence. Apart from reservations about Miss Newington's evidence generally, I think probabilities favour Mr Porter's denial; at least, in my view, the probabilities are distinctly against Mr Porter having made the statement in the unqualified way in which Miss Newington describes it. Certainly the evidence shows that following the execution of the deed Beneficial by no means assumed full control, as mortgagee in possession, of the Rockwall Crescent project. I have no doubt that Mr Porter did at least make it clear that there was no immediate intention of selling any of the mortgaged properties and that Miss Newington would retain substantial influence over their renovation; and that indeed, is what happened.

Nevertheless, the deed was ultimately acted upon, fully, after Hexton was dismissed. But even before that, there were significant changes: particularly, regular statements were no longer sent to the applicants; and Mr Seddon took control of monitoring and approving payment, by Beneficial, of claims. In any case, Beneficial was faced with projects which had been substantially delayed, for which it was already apparent (and shortly afterwards confirmed) that additional "building money" would be needed, a deteriorating market and borrowers whose financial position was obviously parlous. In those circumstances, it would be extraordinary if the deed were not intended to have substantial effect; and the alleged combination of statements by Mr Porter that the execution of the deed would, in effect, change nothing and his evident anxiety to have it executed is very odd indeed. Certainly Mr Porter gave some reassurance that nothing excessively dramatic would follow the execution of the deed; I accept his denial, however, that he said that it would be kept in a drawer or, for that matter, in a file.

I accept Mr Porter's denial, and Mr Seddon's, that either of them said that Beneficial would or could take steps which would put the applicants into default. They were already in default, having failed to pay interest to the other financiers. Mr Seddon's letter of instructions to Beneficial's solicitors confirms that this was the basis on which Beneficial was proceeding. Evidence given by two accountants on behalf of the applicants that, if one were to combine together money set aside in the various passbook accounts, there would have been enough to pay interest to both Beneficial and Mercantile may be disregarded; it was given in ignorance of the position of Statewide and proceeds on the erroneous assumption that Beneficial had an obligation, out of money deposited for other purposes, to pay interest to Mercantile. It is not easy to see any good reason why either Mr Porter or Mr Seddon would have made the threats attributed to them; and, given Mr Seddon's relatively junior position and the fact that the meeting was his introduction to the transactions, it is difficult indeed to believe that he took the prominent and aggressive part attributed to him.

A related matter is the series of remarks attributed particularly to Mr Porter about the question of paying or "releasing" money to the other financiers. Miss Newington, as I have mentioned, gave evidence of a number of statements on other occasions, by the officers of Beneficial, that they were in touch with Mercantile (and Statewide) and would if necessary pay money due to them. It seems highly improbable that such statements were made. Beneficial probably was not obliged, though certainly it was authorised, to pay the deposit of $10,000 to Statewide on account of its interest; certainly it had no such obligation, in my view, after default, e.g. default in paying interest due to Mercantile. But in any event there was no "money" to release to Mercantile, no obligation to make payments to Mercantile and no apparent reason why officers of Beneficial might have thought it in the interests of Beneficial (or their own interests, for that matter) to make statements or promises of the kinds attributed to them. In those circumstances, there is nothing implausible about the denials that such statements or promises were made and I accept those denials.

(ii) Requests for accounts or a complete accounting

I have referred to the evidence. Miss Newington claims to have asked for "accounts" on numerous occasions throughout the relevant period. Mr Moss in evidence did not deal with the matter. Mr Porter denied that she asked for accounts often but agreed that she did so more than once; his evidence was that she was not specific as to what she meant by "accounts". Mr Seddon's memorandum of 14 September 1983 refers to a request for "a full accounting of all moneys expended on her account including who has been paid and why labourers & painters are paid "cash" and why police were paid". Mr Porter accepted that Miss Newington did not see the passbooks but he added "I can only say that they were welcome to be inspected and to be checked". It is evident that the question of accounts came up in the course of the proceedings and negotiations leading to the agreement of 22 December 1983, at least in relation to the veracity of the debt owed by the applicants to Beneficial as deposed to by Mr Seddon. The unchallenged evidence of Mr Bruce, the then solicitor for Beneficial, was that he offered free access to Mr Vandervord and Miss Newington's accountants to the information on which Mr Seddon's figure was based; that offer was not taken up.

Once again, I find the suggestion that there was a series of somewhat non-specific requests for accounts, each of which was either denied or fobbed off, very implausible. It would not be surprising if Miss Newington had asked for particular information for particular purposes: for example she might have needed to know, for the purpose of completing income tax returns, how much interest had been credited to the deposit accounts (she did in fact give evidence that some of her requests for accounts were made in the context of an investigation by the Taxation Department). Particularly given the delays in construction, she might have wanted to know what was left in the deposit accounts for the payment of interest. In other words, I would not have found it at all surprising had Miss Newington given evidence that from time to time she required particular information as to the state of her accounts with Beneficial, for particular purposes, and it would then have been surprising if requests of that nature had been denied. Indeed, if the information was required for particular purposes and was denied, one would have expected vigorous follow-up, perhaps by Miss Newington herself, perhaps by her accountants, perhaps by the solicitors who were acting for her during the various periods: and certainly, ultimately, in writing. But there is no evidence that anything of that sort happened. Miss Newington's evidence is only that she asked, orally and in a general sense, for "accounts" and was not given them; and there is no evidence of the sort of action which one might have expected if "accounts" were genuinely and seriously required and were either denied or at least not provided. For those reasons, the account given by Mr Porter seems to me much the more likely and I accept it.

(iii) Release of money of Nelson Street renovations

It will be recalled that Miss Newington's evidence was that she made several requests for "release" of the money set aside for renovating Nelson Street, commencing in about July 1982. Mr Porter's evidence, however, was that no such request was made until about December that year. Certainly the "scheme" propounded in the memorandum of Mr Moss was predicated upon reasonably prompt renovation of 22 Nelson Street so that it might be let and provide a source of income to service debt. It was suggested on behalf of Beneficial that Beneficial could not, in any event, be expected to release money until expense had actually been incurred; but I accept the applicants' retort that one would not commit to expenditure without first obtaining some assurance that, when it was incurred, the money would be available to meet it. Again, however, the terms of the requests and responses, suggested by Miss Newington's evidence, seem somewhat implausible. If there were a real proposal to proceed with 22 Nelson Street, one might have expected initial discussion not so much about "release" of funds but about whether the renovations should proceed, and how much it was likely to cost; one would have expected something similar to what had happened in relation to the Rockwall Crescent properties and what was later to happen when 22 Nelson Street was in fact renovated: that is, in broad terms, an estimate of what was to be involved in renovation and of its cost, and verification by a quantity surveyor, no doubt Gage. There is no evidence that anything of this sort happened or was contemplated or discussed.

In that context, discussion of whether Miss Newington had in the circumstances a right to have the Nelson Street money "released" has also, in my view, an air of unreality about it. Looked at from the point of view of Beneficial, the documentation spoke in terms of authority not of obligation; and it could hardly be suggested that the obligation could arise in the absence of some assurance that the funds available were sufficient for the purpose. In other words, I cannot think that Beneficial was obliged, simply and without more, to release so much of the $40,000 as the applicants might choose to expend on renovating Nelson Street.

I say that with some hesitation, because the issue was not explored in those terms either in cross-examination of the various witnesses or in argument. There was also the following evidence given by Mr Moss in cross-examination:

Well, will you accept from me that not one cent was drawn out of that account for Nelson Street? - Well, I don't know that.

Well, I am asking you to accept it? - Okay.

Now, if you accept that, can you offer any explanation as to why Beneficial would have refused to release that money if, in fact, it was there? - Unless the work wasn't done. The money was there to be released for the work to be done. I assume if the work was done it would have been released.

Nevertheless, for the reasons that I have given, I do not think that, at any time during 1982, Beneficial was obliged to make the $40,000 available for renovations to Nelson Street. Miss Newington did not proceed on the basis that there was an obligation; her evidence was that she made requests and the requests were refused.

In the circumstances, I am not sure that it greatly matters whether, as Miss Newington said, she began making requests in about July or, as Mr Porter says, she first made a request in December. Once again, if it matters, what I regard as the great improbability of Miss Newington's account of some of her relevant conversations with Mr Porter leads me to prefer Mr Porter's version. Miss Newington gave the following evidence:

I wonder if you could have a look at your statement, paragraph 3.27 on page 11? - Yes.

According to that you say to Mr Porter "I can't go on without money to pay for Nelson Street"? - Yes.

And he says "look, it is like an ice cream, if you want a bigger one you have to go and get a bigger overdraft"? - Yes.

I regret to say that to me that just does not make any sense. You say you need the money for Nelson Street? - Yes, that's to finish the $40,000 worth of renovations on Nelson Street.

Money which you understood was set aside for that purpose that Beneficial was holding for you? - Yes, and which they then said that they would not give.

You do not have that there. What you have is Mr Porter saying go out and get a bigger overdraft? - Yes, because of Nelson Street.

But did you not say to Mr Porter, look, I do not have to go and get an overdraft because you are holding money for me? - He had said and Moss had said that they would not - that Moss had told me Arthur didn't want me to have the money till Rockwall Crescent was finished. Arthur said he did not want to release the money till Rockwall Crescent was finished, so I just said I can't go on without money to pay for Nelson Street.

And his reaction is: go out and get a bigger overdraft? - Yes, that was his reaction. He was very cavalier about it.

How did you respond to this cavalier attitude on the part of Mr Porter? - How did I respond?

Well Miss Newington, he was holding money which you believe you had a right to use for Nelson Street? - Yes.

And he as you say was very cavalier about it and says: "Oh life is like an ice cream, go out and get a higher overdraft"? - Yes.

You know, do not use the money that you are entitled to use. Go and borrow some more somewhere else? - Yes.

Double up your interest? - Yes.

Keep paying us interest and pay interest to a bank as well? - Yes.

In a very cavalier fashion? - Yes.

How did you react to that? - He was the boss. He held the money.

You trusted him? - Of course I trusted him.

You trusted this man who cavalierly says: go out and borrow money from your bank; we are not going to let you have the money you are entitled to? - No he did not say we are not going to let you have the money that you are entitled to.

That was the effect of it was it not? - No. He wanted me to wait and I was not keen on waiting. That was not ...

That was not what? - He did not say I am not giving you the money that you are entitled to. He held the money. There was nothing that I could do except just go with what he said and wait for the money.

Mr Porter denied that exchange. I agree with Beneficial's counsel that much of what is attributed to Mr Porter simply does not make sense. It is hard to imagine why a responsible officer of a lender to a borrower already in considerable difficulty, in a market already becoming less buoyant, whose stated preference (as attributed to him by Miss Newington) was for the completion of Rockwall Crescent before commencing Nelson Street, would suggest that the borrower might nevertheless incur further substantial interest-bearing liabilities in order to complete Nelson Street while the Rockwall Crescent project was still incomplete.

Before turning to the submissions as to the unconscionable conduct claim, there is one other evidentiary matter to which I should refer. M Bonnet gave evidence. He played very little active part in the transactions with which this case is concerned; it appeared that his command of English was not particularly good; and he gave evidence that he was, and had been, ill and that his memory was very bad. He was able to recall very little of the relevant events even of those (particularly, the conference with the lawyers in December 1982) in which, to some extent at least, he had been involved. Counsel for Beneficial submitted that it was strange indeed that, given the relationship between M Bonnet and Miss Newington, he was unable in any significant respect to corroborate any of Miss Newington's evidence about the remarkable and distressing events which she described. It is indeed odd, and leaves Miss Newington without a source of corroboration which one might have expected to be available. But I do not think it appropriate to draw any other inference from the nature of M Bonnet's evidence: I thought it was reasonably evident from his brief cross-examination that unfortunately his memory was, indeed, very bad.

Submissions as to comparative states of knowledge and belief

The written submissions on behalf of the applicants, as to the position immediately before 6 February 1983, omitting references to the evidence, were as follows:

(i) On the applicants side, the comparison shows in January 1983:

(a) A parlous financial position.

(b) A reliance upon the officers of the Respondent.

(c) Knowledge of default in the payment of interest to other mortgages.

(d) A belief that the "building money" was not exhausted.

(e) A belief that there was money available to pay interest to both BFC and the other mortgagees.

(f) A belief that money was available to pay for renovations on Nelson Street.

(g) A lack of information and advice about how the moneys had been expended.

(h) A subservience to officers of BFC.

(i) A belief that all interest money for BFC was "built into" the loans.

(j) A belief that there was money available for the renovations of 22 Nelson Street and that it should be released.

(ii) On the other side, BFC knew:

(a) Her parlous financial state.

(b) She had not paid her interest to Statewide or Mercantile.

(c) That the money in the passbooks was exhausted.

(d) That the "building money" was nearing its end.

(e) That she had never been given "accounts" in the real sense of the word.

(f) That it had been and was holding money on trust.

(g) That it owned her fiduciary obligations.

(h) That it was a powerful financial institution.

(i) That it had suggested the "voluntary surrender".

(j) That she had never seen the passbook and was unaware of their existence.

(k) That she relied upon its officers with whom she had a relationship of confidence.

(l) That there was unreleased money for 22 Nelson Street and that they would not release it.

(m) That the Scheme of Moss in his memo of 21 June 1983 was impossible if the Nelson Street building money was not released.

The submissions as to the comparative states of knowledge and belief immediately before 22 December 1983 and 27 April 1984 were as follows:

(i) On the applicants' side:

(a) They believed the Deed was "in the drawer".

(b) They believed, at least until May, that they were still in charge.

(c) They believed that the money for 22 Nelson Street should be "released".

(d) They believed that they were entitled "to accounts".

(e) They had never been supplied with any document relating to the Trust Funds.

(f) They had only been supplied with "Statements" about the building money.

(g) Their lawyers were in the same state of ignorance as the Applicants themselves.

(h) Neither the applicants or their lawyers were aware of the existence or contents of the passbooks.

(i) They had no idea how the trust funds had ben administered.

(j) The applicants had no knowledge of what had been spent on the properties since February 1983.

(k) The applicants wished to redeem.

(l) They were on the verge of being forced from possession by Mercantile.

(m) They were n danger of becoming unrepresented.

(ii) On the Respondents' side:

(a) Knew of the Passbooks and how the Trust Funds had been dealt with.

(b) Knew that there had been transfers of moneys between accounts.

(c) Knew Nelson Street moneys had been used for extraneous reasons.

(d) Knew they had withheld Nelson Street moneys.

(e) Knew that they had made it impossible to conform with the Scheme of Moss in his memo of 21 June 1983 (failure to release Nelson Street renovation money).

(f) Knew that applicants had asked for and had been denied "accounts".

(g) Knew she wanted to redeem.

(h) Knew her lawyers were no better informed than the Applicants.

Although the position at the time the deed was executed probably does not matter unless the applicants make good their claim to have the earlier judgments set aside by some means, I shall look first at the comparison immediately before 6 February 1983. Of the matters listed on the applicants' side: (a) does not represent a difference in the parties' states of knowledge; the evidence referred to in relation to (b) is mainly a series of statements by Miss Newington to the effect that she trusted officers of Beneficial, particularly Mr Porter, and believed Mr Porter when, at the January meeting, he told her she was in default although she knew "in her heart" that she was not. In fact, of course, she was in default; and she knew that the applicants had failed to pay interest due to the other mortgagees and that therefore they were in default. I cannot see that that or any other evidence establishes reliance on officers of Beneficial in any relevant sense. Similar comment may be made in relation to (h), for which similar material in the evidence is relied on. (c) is not a point of difference in the parties' states of belief, nor is (d), except to the extent that the amount of "building money" left may have been less than Miss Newington thought. As to (e), there was money on deposit from which Beneficial was authorised to pay interest due to itself and some from which Beneficial was authorised to pay interest due to Statewide. There was never money set aside for payment of interest to Mercantile; there is no evidence that officers of Beneficial suggested that money was in fact set aside for that purpose and I have found, contrary to the evidence of Miss Newington, that they did not say that Beneficial would pay moneys due to Mercantile. As to (f) and (j), $40,000 had been deposited in a passbook account; I have already made findings in relation to that; certainly as at 6 February 1983, when the applicants were in default, Beneficial was entitled to apply the sum set aside in payment of moneys due to it and had no obligation, if one existed previously, to make it available to fund renovations of Nelson Street.

What is said in paragraph (g) is at least an exaggeration: Miss Newington had the information in the statements; that information included amounts paid to the builder and interest paid to Beneficial. The matter referred to in (i) was the subject of extensive cross- examination, during which it became clear that the amounts set aside for interest in 1980 and 1981 had not been sufficient to pay the full amount of the interest. Nevertheless, Miss Newington insisted that interest had been fully "built in" to the 1982 refinancing. It may well be that both parties had an expectation that, had everything gone according to plan and on schedule, the amount set aside for interest would have been sufficient. In circumstances, however, where default had occurred before the money set aside had been exhausted I cannot see what significance the belief had for any issue in this case.

As for what BFC is said to have known, (a) and (b) are true but do not represent a difference between the parties. (c), in fact, is not true and the transcript references given do not support it. The money was running out, but it was not exhausted. (d) is true, but hardly represents a relevant difference: Miss Newington's own evidence is that at the January meeting she was told that more "building money" was likely to be required and she had the means of knowing how much had already been expended. I have dealt at some length with the proposition in (e) which, in the light of my findings, is reduced to insignificance. I have held that that what is asserted in (f) and (g) is not correct. (h), at least in some sense, is no doubt true but hardly represents a difference in belief and, by itself, leads nowhere in relation to the character of Beneficial's conduct. With all respect, (i) borders on the absurd: of course Beneficial knew that, of course Miss Newington knew it also and it is hardly evidence of unconscionable conduct that a lender whose secured borrower is in default suggests a "voluntary surrender" as its preferred means of dealing with the situation. As I have held, (j) is true, at least literally: Miss Newington did know, however, that money had been deposited: I have already dealt sufficiently with this, as I have, I think, with (k), (l) and (m).

The applicable legal principle is clear enough. It is stated in the well known passage in the judgment of Mason J in Amadio at 461:

"... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink.

The applicants were, of course, in a very serious situation in January and February 1983; they had been in default to both Statewide and Mercantile for some months and each of those mortgagees had resorted to threats of vigorous action against them. Their building work was delayed; there were difficulties with the builders and it was becoming apparent that the estimated building cost would be exceeded. They had no source of income from which they could make good the deficiencies in interest payments; they had not succeeded in borrowing further money elsewhere (and, indeed, it seems obvious enough that further borrowing could, in the end, only have exacerbated the situation). Because of their default in paying moneys due to the other financiers, they faced the prospect that, the failure being a default under their arrangements with Beneficial as well, Beneficial would refuse to advance further money and would enforce its own securities. But to say all that is simply to describe the plight of a mortgagor who is in default, cannot remedy the default or service the debt and faces enforcement of the mortgage. I do not think that that, by itself, is a position of special disadvantage for the purposes of the Amadio principle. The effect of the factual findings I have made, as to the requests for "accounts" and the extent of the information which the applicants already had, in relation to the conversations about payment of money owing to the other financiers, particularly Mercantile, in relation to the question of the release of moneys for the Nelson Street renovations and in relation to what was said at the January meetings have the result, in my view, that there is nothing in the evidence which should lead me to conclude that the applicants were, in early February 1983, in a position of "special disadvantage" or that, in suggesting or requesting the execution of the deed, Beneficial acted in an unconscientious way. Particularly, it should be noted that Miss Newington had, and took, the opportunity of obtaining separate legal advice before the applicants signed the deed; as I have said, the terms of the deed are quite straightforward and I cannot think that she could have been left in any doubt as to either Beneficial's rights following default or the effect of the deed.

More significantly for present purposes, if one turns to the circumstances immediately before 22 December 1983 and 27 April 1984 the same conclusion, in my view, clearly follows. As to the matters listed on the applicants' side: (a) was no longer true; (b) was no longer true; (c) if ever true, had ceased to have practical relevance as 22 Nelson Street had been renovated at Beneficial's expense at a cost substantially greater than $40,000; I think I have dealt sufficiently with (d), (e) and (f). (g) is true, except that the lawyers' state of ignorance was deeper: they were not given the documents which the applicants had. They were aware, however, of what the applicants claimed, and two further comments may be made: one (which applies also to (i) and (j)) is that an offer, made on 22 December 1983, to "open the books" and make Beneficial's officers available, was not taken up, then or later; the other is that, if the applicants' lawyers had had before them all the material which I now have before me, they would hardly have come to a different conclusion, for the only material to the contrary is Miss Newington's own evidence and that, in substance they had.

It is unnecessary to add to what I have already said about (h) and the passbooks; (k) on the evidence is clearly true, and indeed that was the purpose of the three months' "breathing space" which the agreement of 22 December 1983 gave the applicants; by 27 April 1984 it was apparent that the wish was one which could not be realised. (l) is true, but leads nowhere in relation to characterising Beneficial's conduct. Miss Newington suggested that (m) was true, but in fact on Mr Vandervord's evidence (which I accept) that danger in fact did not exist.

It is unnecessary to say much about the matters listed "on the Respondents' side". There is no evidence that Nelson Street, or other, moneys had been used for "extraneous" purposes in the sense of purposes unrelated to the finance provided by Beneficial to the applicants. Additionally, it will be recalled that Beneficial had under its security documents a broad power to apply the deposits, in discharging the applicants' indebtedness to it, following default.

The other matters require no further comment, except to point out that the "scheme of Moss" was in fact formulated in June 1982 and could hardly have had relevance, in relation to the parties' comparative beliefs and states of knowledge, in December 1983, let alone in April 1984.

Little further need be said, I think, to demonstrate that the applicants' case based on unconscionable conduct is not made out in relation to the events of December 1983 and April 1984. The applicants had advice and assistance from experienced counsel and solicitors. They were seriously in default. As the event showed, they had in December no serious prospect of retrieving the situation even with the breathing space that they obtained; they certainly had no such prospect in April 1984. In those circumstances, and given the factual findings I have made, in my view it cannot be said that in obtaining (if that is the right word for it) the agreement of 22 December 1983, the judgment of February 1984 or the consent orders of April 1984 Beneficial did anything that can properly be characterised as unconscionable.

I do not think any further citation of authority is necessary to support that conclusion beyond pointing out that, as the three leading High Court authorities (Amadio, Louth and Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362) strikingly illustrate, the sort of special disadvantage which typically leads to relief on the ground of unconscionable conduct is a disadvantage of a very serious, obvious and disabling kind; the transactions in which the relief is usually granted are transactions which could by no stretch of the imagination be described as provident, which arise out of no relevant antecedent dealing or obligation between the parties and are entered into by the party seeking the relief without appropriate independent advice.

That is not, of course, to say that each one of those elements will always be present where a transaction is set aside on the ground of unconscionable conduct; this case, however, is quite unlike the typical case where relief is given. The applicants' position of difficulty (or parlous position, as it was described) arose because they had entered into what, in retrospect, were a series of financing transactions too heavily reliant on cost and time projections which were not realised and on an overly optimistic view of future market conditions. The basis failed; the applicants fell into default and into what may, looked at with hindsight, be seen as a hopeless financial position. In those circumstances Beneficial was entitled to enforce its securities; the deed of 6 February 1983 was, I am sure, seen as a method of proceeding which might produce consequences more favourable to each party than enforcement. In the circumstances, the transaction represented by the deed - particularly the way in which it was administered - could hardly be described as a harsh or unconscionable transaction. And, given the findings of fact that I have made, there was nothing unfair about what happened as the situation of the applicants became progressively more obviously hopeless, in December 1983 and April 1984.

For those reasons the applicants' claim based on unconscionable conduct, the only claim which they now press, must in my opinion fail.

Other claims

Although the other bases on which the applicants had put their claims "disappeared" after the close of evidence, I think it is desirable, given the nature of the claims and the evidence, to say something about them. The evidence of the three lawyers was not seriously challenged and I accept it; it follows that a claim of "coercion" or "intimidation", based on anything said or done by the lawyers during the events of 21 and 22 December 1983 or later, must in any event fail. If (as I think is not entirely clear) the amended statement of claim was intended to rely on s 52 of the Trade Practices Act, a claim so based must fail, if only for the reason that it is clearly statute-barred under subs 82(2) and para 87(1CA)(b). If a cause of action arose based on s 52, clearly it did so no later than 27 April 1984.

As for the claims based upon fraud, it is unnecessary to say a great deal given that, ultimately, the claims were not pressed. Although the case was not opened by senior counsel for the applicants specifically as a case of fraud, the claims based on fraud remained part of the statement of claim and continued - indeed were added to - in the amended statement of claim which the applicants sought leave to file; and the claims were not formally dropped until the close of the trial. In those circumstances, I think it is appropriate that I say that my findings of fact lead to the conclusion that the case of fraud based on the representations alleged in paragraphs 4F, 4G, 4H, 4J, 4L and 4T of the amended statement of claim (including the additional representations sought to be pleaded in the proposed further amended statement of claim) was not made out. I have found that the applicants have not established that the representations as pleaded were made; I have preferred the evidence of officers of Beneficial in which the representations were denied. The statement of claim relied upon two other sets of representations. The first set were contained in an affidavit made by Mr Seddon in an affidavit sworn on 21 December 1983: they related to the amount of the applicants' debt to Beneficial and the value of the properties. Mr Seddon undoubtedly made the representations, but there is simply no evidence now relied on that they were false or that Mr Seddon knew them to be false or was reckless as to their truth. As to the amount of the debt, Mr McCarthy's evidence supports the figure given by Mr Seddon: indeed, on Mr McCarthy's evidence, the figure given by Mr Seddon was somewhat less than the true figure. Mr Seddon was not challenged on this matter in cross-examination and, when senior counsel for Beneficial raised the matter immediately after the cross-examination, senior counsel for the applicants explicitly withdrew the allegation of fraud on the part of Mr Seddon.

The second set of representations is based on the terms of the agreement of 22 December 1983 and is pleaded as representations that Beneficial had the intention of doing what it was obliged to do, and not doing what it was obliged not to do, under the agreement: in relation, for example, to advertising sales as mortgagee sales and to giving notice to the applicants of Beneficial's intention to enter into contracts for sale. Certainly, as I have mentioned, there were, after the event, arguments as to whether the agreement had in all respects been complied with, on both sides; clearly there was at least one sale advertised, for a brief period, as a mortgagee sale. There is simply no evidence, however, that, treated as representations of intention, the agreements by Beneficial amounted to representations which were false.

Other matters

The conclusions which I have reached make it unnecessary and, I think, in some respects at least undesirable for me to deal in detail or conclusively with other matters on which I heard argument. Particularly, as I have mentioned, Beneficial contended that all the claims made by the applicants should be treated as barred, or should fail, applying the Limitation Act by analogy, by reason of estoppel or by reason of laches or delay. No answer was made to those submissions. It is unnecessary in the circumstances to say more about them than that they obviously have considerable force. Nor is it necessary for me to consider the question, not entirely straightforward, whether generally or in particular circumstances consent orders may be set aside on any ground on which a simple contract may be set aside; I think it is both unnecessary and inappropriate for me to express any view about that.

Conclusion

The result is that these proceedings must be dismissed. Clearly Beneficial is entitled to its costs. There remain, however, the informal applications further to amend the application and the statement of claim. My tentative view is that, given the conclusions I have reached, the right course is to grant leave to amend the application, and further to amend the statement of claim, as sought in the applicants' written submissions, and to dismiss the amended application. I am not inclined to grant the leave, which at the close of argument senior counsel for the applicants said he was prepared to seek, to amend the statement of claim additionally by omitting the claims based on fraud and coercion. Additionally, senior counsel for Beneficial indicated that his client sought, in relation to certain issues, indemnity costs. Senior counsel for the applicants did not, in his submissions, argue the question of costs. If Beneficial wishes to press for indemnity costs in relation to any issue, I think it is appropriate to give counsel for the applicants the opportunity to make submissions. Finally, there is the question of what now should be done with the renewed substantive proceedings.

In those circumstances, the order that I make is that the respondent, within two weeks from the delivery of this judgment, is to file and serve short minutes of the orders which it contends should be made consistently with these reasons for judgment. The matter may then be set down, by arrangement with my associate, for any argument as to the orders (including as to costs) and for the making of final orders; at the same time I shall also hear argument as to the disposal of the renewed substantive proceedings.

I certify that this and the preceding 106 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated: 30 January 1997

Heard: 22-26, 29-31 July 1996, 1-2, 5-9, 19 and 21 August 1996

Place: Sydney

Decision: 30 January 1997

Appearances: Mr D B Milne QC and Mr J Waters of counsel instructed by Stojanovic & David appeared for the applicant.

Mr A J H Morris QC and Mr M G Skinner of counsel instructed by R B Monteith & Co appeared for the respondent.