J P Morgan Trust Australia Limited v Siahos [2008] NSWSC 207

New South Wales Supreme Court

CITATION : J P Morgan Trust Australia Limited v Siahos [2008] NSWSC 207

HEARING DATE(S) : 25, 26 and 29 February 2008

JUDGMENT DATE : 13 March 2008

JUDGMENT OF : Harrison J

DECISION : Order that the defendants give possession of the land contained in Certificate of Title folio identifier 301/11471 known as and situate at 138 Charles Street, Putney to the plaintiff

CATCHWORDS : MORTGAGE - application for possession by mortgagee - mortgagors elderly with limited English - whether capable of understanding transaction - Contracts Review Act 1980 - whether contract unjust - undue influence - unconscionable bargain - Powers of Attorney Act 2003 - security document executed by co-owner pursuant to powers of attorney granted by other co-owners - whether valid or procured by fraud - unjust enrichment - restitution - order for possession granted

LEGISLATION CITED : Contracts Review Act 1980 Powers of Attorney Act 2003

CATEGORY : Principal judgment

CASES CITED : Israel v Foreshore Properties Pty Limited (in liq) (1980) 54 ALJR 421

J P Morgan Trust Australia Limited (Plaintiff) PARTIES : Peter Siahos (First defendant) Prokopios Siahos (Second defendant) Chrisoula Siahos (Third defendant)

FILE NUMBER(S) : SC 12244 of 2006

COUNSEL : P T Newton (Plaintiff) J A Jobson (Second and third defendants)

SOLICITORS : Kemp Strang (Plaintiff) Andresakis & Associates (Second and third defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

HARRISON J

13 March 2008

012244 of 2006 J P Morgan Trust Australia Limited v Peter Siahos, Prokopios Siahos and Chrisoula Siahos

JUDGMENT 1 The defendants are the registered proprietors of 138 Charles Street, Putney ("the property"). They mortgaged the property to the plaintiff on 16 September 2005 to secure an advance to them of $704,000. The defendants defaulted under the terms of the mortgage and the plaintiff seeks an order for possession of the property. 2 The second and third defendants ("Mr and Mrs Siahos") are husband and wife. They are originally from Greece. Mr Siahos was born in 1926 and is presently 81 years of age. He swore an affidavit that was read in the proceedings but he was not cross-examined. Mrs Siahos was born in 1936 and is presently 71 years of age. She swore an affidavit that was read in the proceedings and she was cross-examined with the aid of an interpreter. The first defendant ("Peter") is their son and is 35 years of age. He did not appear and took no part in the proceedings whatsoever. 3 On 4 February 2005 Mr and Mrs Siahos transferred a one third share of the property to Peter. On 18 August 2005 they each gave him a general power of attorney. The powers of attorney were not subject to any conditions or limitations. Peter executed the mortgage given by the defendants to the plaintiff in his own right and on behalf of his parents as the grantee of their powers of attorney.

4 Mr and Mrs Siahos have filed a defence and a cross-claim against the plaintiff and Peter. The cross-claim was not served on Peter and Mr and Mrs Siahos abandoned their claim against him at the trial. The defence and the cross-claim put in issue a series of significant matters but, with the exception of the ones considered below, these were also abandoned. Mr and Mrs Siahos acknowledged before me that the plaintiff was entitled to possession of the property and to the recovery of the outstanding debt unless they were able to succeed on the limited matters that remained in dispute.

5 Of the total sum of $704,000 advanced by the plaintiff, $510,892.43 was paid to GE Mortgage Solutions Ltd in discharge of a prior registered mortgage held by it over the property. Mr and Mrs Siahos acknowledged that they received the benefit of the funds paid to discharge that mortgage and did not dispute that the plaintiff is entitled to recover at least that sum from them in accordance with the terms of its security. Inevitably this included the plaintiff's entitlement to an order for possession of the property, even if the amount in dispute were somehow to be reduced or limited. 6 Apart from approximately $12,000, the balance of $181,682.82 was paid to the ANZ Bank. Mr and Mrs Siahos contend that that money was paid by the plaintiff wholly for Peter's benefit. They contend further that the plaintiff was on notice of this and that, combined with the fact that the mortgage was executed on their behalf by Peter pursuant to their powers of attorney, s 12 of the Powers of Attorney Act 2003 prevented the plaintiff from recovering that money from them either by enforcing its security over the property or on restitutionary principles. They also argued that for the plaintiff to seek to recover that money from them in the circumstances was unconscionable. Background 7 Mrs Siahos said that sometime in late August or early September 2006 Peter said to her "we've got to get out of the house; it has to be sold". She said that that was the first time she became aware of any problem and that she was confused because she thought there was no mortgage over the property. Mrs Siahos had earlier agreed to guarantee a loan taken out by Peter to buy a truck. Peter had asked her to sign a document that he said could change the loan to another company to save interest. 8 Mrs Siahos said that when Peter told her that she would have to leave the house she was in shock. She started looking for any documents that would help her to understand what was going on. As a result of the search she found two letters from Interstar Wholesale Finance. One was addressed to Peter and the other one was addressed to her. She also discovered two letters from solicitors with whom she had not dealt. Peter said to her, "I have mortgaged the house and can't pay. We have no option but to sell the house". 9 Mrs Siahos said that she did not know what to do. She said further that she went along with what Peter wanted "as [she] thought he might get into trouble". Peter told her that he would try to get time to sell and she understood that he would ask the court for help. Mrs Siahos said she was frightened about losing her house and she was told by friends to see a solicitor. Mr and Mrs Siahos went to see Mr Andresakis on 19 October 2006. 10 Mr Andresakis showed Mrs Siahos a number of documents. One of them was a transfer. Mr Andresakis explained what it meant. Mrs Siahos said she had never seen this document before and had never agreed to Peter having a share of the property. The transfer had signatures purporting to be hers. Mrs Siahos said that she did not sign the document. She also said that the signature purporting to be that of Mr Siahos was not his either. 11 Mr Andresakis also showed her a mortgage over the property. He explained it to her. Mrs Siahos said that she had never seen that document before and had not given Peter approval to mortgage the house. She was also shown a power of attorney. Mrs Siahos said that the document did not appear to have her signature on it. She did not know what it meant until Mr Andresakis explained it to her. She did not approve of this document but said that if she signed it, it was because Peter told her he needed it for his own purposes. 12 Mrs Siahos was also shown a document headed Certificate of Independent Advice to Borrowers dated 29 August 2005. That document suggests that Mrs Siahos was given advice by a person she did not know. She said it was impossible that she was given the advice to which the document refers as she and Mr Siahos were in Greece at the time. She was also shown a document headed Acknowledgement of Legal Advice by Proposed Borrower. Her signature appears on it. This document was never explained to Mrs Siahos and she did not see any other documents. She said she had limited ability to read English and this document was never translated for her. 13 Finally, Mrs Siahos said that she never authorised any person to mortgage her home and she did not know how it was done. She said that she had never received any monies from the plaintiff. 14 Mr Siahos said that he never authorised Peter to transfer any part of the property into Peter's name. He also said that he never authorised Peter to mortgage or otherwise encumber the property. He denied that he had entered into any mortgage with the plaintiff. He did recall Peter sending documents to him that he was told were to do with a loan for a truck. Mr Siahos said he speaks and reads very little English and never received legal advice concerning a loan from the plaintiff. He denied that he had ever sold Peter an interest in the property. Cross Claim

15 Although Mr and Mrs Siahos did not ultimately persist with all of the matters raised in their cross claim, it is important to record what it originally contained. Mr and Mrs Siahos claimed that the powers of attorney given by them to Peter were procured by Peter's fraud. Alternatively they pleaded that the powers of attorney did not authorise Peter to execute any document that conferred any benefit on him. In the circumstances they alleged that Peter fraudulently executed the mortgage given to the plaintiff on their behalf. 16 Mr and Mrs Siahos then alleged that the plaintiff wilfully and recklessly abstained from making enquiries in respect of the fraudulent execution of the mortgage by Peter for the following reasons:

16.1 The mortgage was for the sole benefit of Peter.

16.2 The powers of attorney did not authorise Peter to execute any document that would confer any benefit on him.

16.3 The signatures of Mr and Mrs Siahos as they appear on the powers of attorney are not the same as those that appear on the document headed Acknowledgement of Legal Advice by Proposed Borrower that formed part of the mortgage transaction with the plaintiff.

16.4 Neither the plaintiff nor any of its employees or agents made any attempt to communicate with Mr and Mrs Siahos in respect of the mortgage.

16.5 Mr and Mrs Siahos were pensioners and the parents of Peter.

17 Mr and Mrs Siahos alleged further that they were induced to execute the powers of attorney whilst acting under the Peter's influence and that the plaintiff wilfully and recklessly abstained from making enquiries in respect of that undue influence. They pleaded that in all of the circumstances the plaintiff's mortgage was "defeasible for fraud pursuant to section 42 of the Real Property Act 1900". They also alleged that the circumstances relating to the mortgage at the time it was made were unjust within the meaning of the Contracts Review Act 1980 and that the mortgage was therefore liable to be set aside.

18 Finally, Mr and Mrs Siahos alleged that they were at a special disadvantage with respect to the plaintiff. Accordingly, at the time of their purported execution of the mortgage and at all other relevant times, the plaintiff took unconscientious advantage of them. 19 The plaintiff denied these allegations and asserted its right to rely upon its registered mortgage over the property. Alternatively, the plaintiff contended that the defendants were liable to repay all monies advanced to them on restitutionary principles. Consideration 20 Mr and Mrs Siahos did not persist with the contention that they had not signed documents upon which the plaintiff relied that bore signatures purporting to be theirs. Instead they relied first upon the assertion that their signatures were procured by Peter's fraud and that the plaintiff should in the circumstances have known, or become aware, of that fact. Secondly, Mr and Mrs Siahos said that the plaintiff could not rely on any documents executed by Peter as their attorney to recover monies advanced by the plaintiff for Peter's benefit from them. Thirdly Mr and Mrs Siahos asserted that, either alone or in combination, these matters made it unconscionable for the plaintiff to rely upon its strict legal entitlement to possession of the property to secure repayment of any monies paid to or for Peter's sole benefit or for the plaintiff to seek to recover any such monies from them personally if the mortgage were found to be ineffective for this purpose. 21 The circumstances that attended the creation of the earlier mortgage over the property, that was discharged using funds provided by the plaintiff, were explored only briefly in evidence. However, no evidence established, and no submission was made to suggest, that the plaintiff was or should have been aware of any irregularity or impropriety that may have attended the creation of that liability or the transfer of a one third interest in the property to Peter. Mr and Mrs Siahos were therefore unable, and did not seek, to deny that the discharge of that liability by funds provided by the plaintiff was a benefit for which they remained liable to account to the plaintiff. 22 There is no evidence that the plaintiff was, or should have been, aware of any fraud or other irregular or suspicious conduct on the part of Peter. The loan documentation was in all respects valid on its face. There is no evidence to suggest that the plaintiff was, or should have been, aware that Peter was orchestrating a refinancing transaction using funds provided by the plaintiff taking security over the property that Mr and Mrs Siahos did not consent to or understand. The transaction was explained to Mr and Mrs Siahos by a chartered accountant, Ms Johnstone, upon whose certificate of explanation the plaintiff was entitled to rely. Whatever concern one might have about the efficacy of an explanation given over the telephone, probably to Mrs Siahos only, while she was in Greece and with a limited command of English, there is no suggestion that the plaintiff's concern about that should have been excited. Nor was there any reason for the plaintiff to suspect that the acknowledgment given by Mr and Mrs Siahos of legal advice given to them by Dimitrios Dialektos was anything other than what it purported to be. 23 Mr and Mrs Siahos submitted that because Nicholas Karefylakis made a written request to the plaintiff by letter dated 23 August 2005 to waive the plaintiff's usual requirement that the legal and financial aspects of the transaction be independently explained to them, the plaintiff was, or should have been, thereby put on notice that Peter was defrauding his parents or that the transaction was in some other way improper. The plaintiff denied Peter's request the following day in a letter in these terms: "We confirm that we did seek further advice from our client regarding the waiver of the Special condition that Prokopios Siahos and Chrisoula Siahos obtain independent Legal and Financial advice as to the implications of entering into this transaction and advise that the Lender has NOT agreed to waive it.

The Special Condition still applies and must be satisfied prior to settlement." 24 Although it seems likely that this conduct was in fact indicative of fraud or other improper conduct by Peter, I consider that it is something falling well short of a fact or circumstance that should have enlivened the plaintiff's suspicion. Even if it did or should have, the appropriate explanations were subsequently documented and Mr and Mrs Siahos have not persisted either with an attack upon those explanations or upon the plaintiff's entitlement otherwise to rely upon them.

25 Section 12 (1) of the Powers of Attorney Act 2003 is in the following terms: "(1) A prescribed power of attorney does not authorise an attorney to execute an assurance or other document, or to do any other act, as a result of which a benefit would be conferred on the attorney unless the instrument creating the power expressly authorises the conferral of the benefit." 26 Mr and Mrs Siahos argued that this provision operated to invalidate the plaintiff's claim against them for the recovery of monies advanced by the plaintiff "as a result of which a benefit [was] conferred on [Peter]". There was no argument that the powers of attorney did not expressly authorise the conferral of such a benefit. There was also no argument that the plaintiff was on notice in advance of the settlement of the loan transaction that Peter would be executing the documentation on behalf of his parents pursuant to powers of attorney. Nicholas Karefylakis had expressly advised as much in his letter of 23 August 2005. Moreover, Mr and Mrs Siahos did not argue that the execution of documents by Peter as their attorney was rendered invalid by s 12 to the extent that it simultaneously conferred a benefit on Peter and them. For example, the monies advanced by the plaintiff to discharge the prior mortgage fell into this category but was not the subject of challenge, assuming that it could have been. 27 A document described as a Loan Disbursement Schedule directed payment of $181,682.82 to "ANZ Bank". Mr and Mrs Siahos have contended that that was a payment made solely to Peter or for his benefit or in the discharge of a liability for which only he was at risk. The plaintiff did not deny this in the proceedings before me. Assuming for the sake of argument that the money all went to Peter, Mr and Mrs Siahos submitted that s 12 operated to prevent the plaintiff from recovering any of it from them. 28 The payment was a payment made at the direction of Nicholas Karefylakis, the solicitor for the borrowers, including Mr and Mrs Siahos, given in a letter to Galilee Solicitors dated 14 September 2005, some two days before settlement. Mr Karefylakis had earlier advised Galilee Solicitors that "[t]he extra funds to be provided by the refinance of the property are to enable the completion of the purchase by Mr Siahos of the property at 6/300 Como Parade West, Parkdale VIC". Even if hindsight casts that information into a curious light now, it did not do so in the context of an otherwise apparently unexceptionable transaction at the time. It was also consistent with a "Loan purpose checklist" dated 20 June 2005 signed by Mr and Mrs Siahos and Peter and presumably provided to the plaintiff or its agent, that sought $302,000 "[t]o provide funds for future investment use". 29 I am not satisfied that these circumstances or any of them establish that the funds directed to be drawn in favour of "ANZ Bank" were in fact funds advanced solely for Peter's benefit. The plaintiff did not make such a concession. However, in the events that occurred, it is unnecessary to decide the point. This is because the following contentions of the plaintiff are in my view sufficient to dispose of Mr and Mrs Siahos' arguments completely.

30 The plaintiff submitted that it was entitled to rely upon its registered mortgage securing the joint and several liabilities of the mortgagors. There was no dispute that Peter Siahos was liable to the plaintiff in accordance with the terms of the Loan Contract. Clause 2.2 of the Memorandum, which it was agreed contained the terms of the mortgage, was as follows: "2.2 Pay Secured Money

The Mortgage is security for payment to you of the Secured Money and for the performance of all my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage." 31 Clause 12.3 of the Loan Terms and Conditions provided as follows: " 12.3 Joint and Several Liability

If the Loan is being made to more than one person, then each person will be liable individually, and every 2 or more persons are liable jointly, for all amounts due under the Loan. All of your obligations attach to your successors and permitted assigns." 32 There was also no dispute that the "Secured Money" was the money advanced pursuant to the terms and conditions of the loan agreement. It goes without saying that this includes the money drawn in favour of "ANZ Bank" and that it was an amount "due under the Loan". There is no material before me upon the basis of which I could conclude that there was in these circumstances any limitation upon the extent to which the plaintiff could enforce its real security to recover any monies advanced pursuant to the loan agreement, even if it could otherwise be established that the monies were advanced in some way to or for the benefit of only one or some of the mortgagors.

33 Next, the plaintiff argued that the advance of the monies to the "ANZ Bank" had unjustly enriched Mr and Mrs Siahos. Mr and Mrs Siahos argued only against this proposition upon the basis that those monies had been paid to the benefit of Peter alone and had not enriched them unjustly or otherwise. Money paid at the request, and for the benefit, of another party may be recovered from that party: see Israel v Foreshore Properties Pty Limited (in liq) (1980) 54 ALJR 421 at 423-424. There is no evidence to suggest the plaintiff knew or should have been aware of the fact that money paid to Peter or for his benefit, if that is what occurred, was not paid at the request of all of the borrowers, thereby rendering each of them liable to the plaintiff to make restitution for the whole of the monies advanced. The plaintiff's reliance on the loan application documents was reasonable at the time. They appeared to speak with one voice and did not suggest that Peter may have been practising a deception upon his parents. 34 Having regard to all of these matters I am also not satisfied that Mr and Mrs Siahos' submission, that the plaintiff acted unconscionably, has been made out. Mr and Mrs Siahos contended that the powers of attorney were granted to Peter as the result of his fraud. Accepting that proposition without more, there is no material to support a submission that the plaintiff either knew or should have known or suspected it. Furthermore, acceptance of a loan offer from Peter on their behalf pursuant to his powers of attorney does not of itself amount to unconscionable conduct. This is so even having regard to the fact that Peter attempted to have the plaintiff waive its condition that Mr and Mrs Siahos be provided with legal and financial advice about the wisdom of the transaction, or that the plaintiff knew, or should have known, that Mr and Mrs Siahos were elderly and/or that English was not their first language. Nor is a knowledge that part of the funds being advanced by the plaintiff were destined for an account in the name of only one of them a matter that should have put the plaintiff on some relevant notice. All of these matters arguably point in Peter's direction today. They did not do so from the point of view of the plaintiff at the time the transaction occurred. It is unnecessary for present purposes, and on one view not even possible, to form a concluded view about Peter's actual role in the transaction or upon the extent to which he was, or was not, acting with the full knowledge and consent of his parents. Whatever may be said about that matter, however, Mr and Mrs Siahos have not satisfied me that the plaintiff acted unconscionably in the circumstances. Mr and Mrs Siahos have not shown that the plaintiff should be burdened with whatever may be shown to be the consequences of Peter's conduct. Conclusion 35 The plaintiff is entitled to an order for possession of the property. Having regard to the fact that the statement of claim filed 15 May 2006 upon which the plaintiff relies seeks no other relief, I make the following order: 1. Order that the defendants give possession of the land contained in Certificate of Title folio identifier 301/11471 known as and situate at 138 Charles Street, Putney to the plaintiff.

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