Written by Justine Taylor, Senior Associate
RHG Mortgage Corporation v Ianni [2014] NSWSC 849
His Honour, Davies J of the Supreme Court set aside a Loan Agreement and ordered that the Bank, RAMS, discharge the mortgage over the home of the elderly Defendants, on the basis of an Unjust Contract and Unconscionable Conduct.
UWE acted for the Defendants Mr. & Mrs Ianni, who were successful in defeating the bank.
History of Proceedings
The case has had a long history before the Court, in proceedings which were commenced by the Bank against the elderly couple back in 2008. Sadly, Mrs Ianni passed away since the commencement of the proceedings.
The matter was first heard before His Honour Grove AJ who upheld the loan agreement. However the Court of Appeal, before Bathurst CJ, Basten JA and Tobias AJA (dissenting), set aside the Judgment of Grove AJ and remitted the matter for retrial. The Court of Appeal held that His Honour’s finding as to the Mortgage Broker, Mr Famularo, being a reliable witness, was “glaringly improbable” and that the Court at first instance had overlooked incontrovertible facts.
The Facts
Mr. and Mrs Ianni, emigrated from Italy in 1954. Mrs. Ianni had left school at the age of 8, worked for a year in a convent and married Mr. Ianni in 1960. She could not read or write, although she could print her name and understand a few words in English. Mr. Ianni worked as a painter and docker until retiring and also had poor reading and writing skills in English.
Mr. & Mrs Ianni gave a personal guarantee in 2000, over a loan from St George Bank to their son and daughter in law, who operated a business in Darling Harbor. Mr. Ianni told the court that he had given guarantee limited to $100,000.
In 2005, the children refinanced in order to buy a property in Dural. On 14 September 2005, a Loan Application was submitted to RAMS in a 20 page fax by then Mortgage Broker, Mr. Famularo as Principal of Australian Mortgage & Business Finance Solutions. The loan was for a term of 30 years, (by which time Mr. Ianni would have been 100 years of age). The purpose of the loan was stated in the application to be:
- the purchase of a property for $500,000,
- the refinancing of loans for $490,000 and
- costs for the financing of $10,000,
so that the total loan facility sought was $1,000,000.
The application contained a number of false statements:
- Firstly it annexed a contract of sale (referred to in the proceedings as the ‘Sham Contract’) so that it appeared Mr. and Mrs Ianni Snr were the purchasers of the Dural Property for $500,000, when in fact their children were purchasing the Dural Property for $2.2 million.
- Secondly, the Loan Application attached a “Snapshot” of a St George Loan Statement that suggested Mr & Mrs Ianni Snr had received a loan from St George in their own names rather than as guarantors.
- Thirdly, the application stated that Mr. Ianni and Mrs Ianni were self-employed, earning an income of $85,000- $90,000, with assets exceeding 2.5 million which included a share in the restaurant business.
- The application was also submitted with false identification and passport numbers.
In fact, Mr. & Mrs Ianni were pensioners with no capacity to service any such loan, and Mrs Ianni did not hold an Australian passport.
The Judgment
His Honour noted that the Mortgage Broker, Mr. Famularo, had a copy of the real contract for the purchase of the Dural Property, because he had submitted a separate financing application with NAB on behalf of the children.
The Court found:
- The Bank had notice as to the age of the Applicants and the fact that this was a 30 year loan.
- Despite the Bank’s internal file notes, (indicating concern that Mr. & Mrs Ianni were not listed as self-employed “directors” and requesting that the statement of assets and liabilities be amended), the Bank proceeded on the loan. The Bank never requested clarification as to the Applicants’ employment, and the Bank called no witness to give explanation.
- The Bank also proceeded on the loan on the basis that 100 identification points were held on file, yet the points held on file for Mrs Ianni added up to 60;
- The Bank proceeded on the loan despite the apparent deficiency between the amount required in the stated loan purpose as against the amount to be loaned.
- RAMS knew from the ‘Sham Contract’ that the property being purchased was said not to be part of the security for the loan being sought. That was unusual because it strongly suggested that the property was not being purchased as an investment property. The tax benefits that would have flowed from using that property as security for a loan made that clear, yet the Bank’s internal notes, in contrast, suggested that the property was being purchased as an investment. Again no witness from the Bank was called by way of explanation.
- An inference was drawn by His Honour that in fact the Bank had notice, based on a water rates statement, that Mr. Ianni was a pensioner.
- It was apparent that the Bank overrode its own guidelines.
His Honour found the Mortgage Broker, Mr. Famularo, “to be a most unsatisfactory witness” and found it difficult to accept much of the evidence he gave.” His Honour determined that some evidence from Mr. Famularo was “quite frankly unbelievable.”
In this most recent paradigm of David vs Goliath, the Court found that the contracts were unjust and had the bank done things that might, in the circumstances have been expected of a bank, they would have ascertained the improvident nature of the contract
The court also found that the Defendants were under special disability by reason of their age, language, education and economic background.
The Bank has filed a Notice of Appeal, to be determined next year. And so the proceedings continue to yet another round.
