Australian Securities Ltd v Borina Pty Ltd

Factual background

1. To enable some understanding of the claims sought to be made by the Defendant and of the submissions of the parties it is necessary to set out relevant terms of the Facility Agreement and some of the correspondence leading up to, and including, an Acknowledgement executed pursuant to clause 8 of the Facility Agreement.

The Facility Agreement

1. The Facility Agreement relevantly provides: 4.3 Continuation of loan facility beyond repayment date: (a) Unless the Borrower exercises a repayment right under clause 6 then ASL (at its option) may continue this loan agreement for an identical term as the current loan term on identical terms and conditions contained in this Agreement in existence on the repayment date apart from the interest rate. The interest rate for the continuing term will be the rate revised interest rate (sic) specified by ASL in a notice to the Borrower not less than 14 days before the repayment date. (b) The revised interest rate will apply on the repayment date in Item 7 and continue until the next repayment data unless varied by agreement. (c) This Agreement and any security will continue on the same terms until varied or determined in accordance with this Agreement. … 6.5 Extended Repayment date ASL at its option [in writing] may extend the repayment date for a further term or terms unless the borrower has not given notice in writing to ASL of their intention to repay the secured money, not less than 30 days' before the repayment date. The extended repayment date nominated by ASL in its notice will then be substituted for the repayment date in item 7. … 6.7 Overdue repayment Where the borrower repays the secured money after the repayment date identified in item 7 or such earlier date substituted by a repayment option in Item 8 being exercised or ASL exercising its rights under Clause 10, then the Borrower agrees to pay ASL in addition to all the secured money - (a) Interest calculated at the higher rate at Item 9A from the repayment date until the secured money is repaid; (b) Additional interest being (i) 6 months additional interest on the secured money calculated at the lower rate; or (ii) 3 months additional interest if the secured money is repaid less than 2 months after the repayment date; or (iii) 2 months additional Merest if the money secured is repaid less than 1 month after the repayment date; or (iv) 1 month additional interest if repaid no more than 2 weeks after the repayment date. (c) Late payment fee being: (i) 1.1% of the value of the advance; or (ii) 0.55% of the value of the advance of the money secured is repaid less than 4 days after the repayment date. (d) Early repayment administration and pay out calculation fees. (e) The legal costs and other expenses arising from the overdue repayment. (d) All other amounts due and owing under this Agreement. … 7.2 The Borrower acknowledges that the security is charged with payment of the secured money. 7.3 This Agreement is deemed to include: (a) All of the covenants conditions terms stipulations and provisos contained in the security to be observed performed and fulfilled by the Borrower and/or the security provider; and (b) All the rights powers and remedies conferred upon ASL under the security. 8. Continuing Security This Agreement is a continuing security so the obligations and promises of the Borrower and/or any security provider continue until they are released by ASL and all securities are released. The security continues despite any settlement of account, intervening payment or other thing. 8.1 Pay Out Approval The Borrower must [not less than five days before the repayment date] approve in writing the amount certified by ASL as the total money secured to be repaid to ASL. 8.2 Disputed Payout Notice The Borrower must inform ASL in writing not less than five days before repayment and/or any discharge or release of any security of any amount the Borrower or security provider does dispute in payment. The reasons for disputing payment must be specified at the time in the notice to ASL. 8.3 Substituting cash as security (a) ASL may require and hold additional funds as security for costs in anticipation of any dispute if the Borrower does not approve without reservation, protest or condition in writing the amount required by ASL to repay the secured money and to obtain the release and discharge of any security. (b) ASL is not required to release any security or discharge any mortgage held as security until the Borrower complies with this obligation in clause 8.2. (c) ASL may at its option substitute cash from the Borrower for part or all of the security. 8.4 Right to dispute after repayment The Borrower may not dispute the amount due under this Agreement or any security after repayment and release by ASL of the securities except as permitted by Clause 8.3. 8.5 Request by borrower to repay mortgage ASL is not obliged to release the security unless the borrower has first: (a) Made a request to repay the secured money pursuant to Clause 5; and (b) Paid in full the secured money; and (c) Performed all obligations under this Agreement or any security provided for securing payment of the secured money. ASL is not obliged to accept payment or release any security if it believes that the Borrower - (a) Owes further money to ASL [contingently or otherwise] which is or will be secured by this Agreement and the security; (b) Will owe further money to ASL which is or will be secured by this Agreement and the security within a reasonable time frame from the date of the Borrower's request to repay the secured money or release of the security. The Borrower's repayment obligations under this Agreement continue even if ASL releases part or all the security; … 11. Costs and expenses 11.1 Unless released by ASL in writing, the Borrower will pay ASL on demand all costs expenses and other amounts payable incurred or paid by ASL in respect of this Agreement and/or the Security. These costs include: (a) Legal costs on a full indemnity basis or on a solicitor and own client basis, whichever is the greater; (b) Costs and increased administration costs incurred by ASL resulting from or on account of any default by the Borrower and/or the Security provider or any Default Event; (c) The costs of obtaining advice or requirement reasonably required by ASL from time to time; (d) The costs of ASL preparing, completing, stamping or registering any security or counterpart or copy with such government body or registrar as ASL reasonably requires including a variation or discharge; (e) Costs resulting from the exercise or purported or attempted exercise of any of ASL's rights or powers under this Agreement, any Security, the law and/or legislation; and (f) Any stamp duty, loan duty or other duty, tax or financial impost including duties and taxes on receipts, payments, supply of services, fines or penalties arising directly or indirectly all expenses, valuation fees, duties, taxes and other monies arising under this Agreement or any security; (g) Any communication by ASL or its agents with the Borrower or their agent to release information, carry out a requirement under this Agreement, any security or perform any act requested by the Borrower; (h) Any legal proceedings requiring ASL to protect any right, power, authority, remedy or intervention in any proceeding concerning the agreement, any security or the property being the subject of any security; (i) Any default by the Borrower of their obligations contained in this agreement, security, law or legislation; (j) Any insurance indemnity; and (k) Any liability by ASL for payments or deposits by ASL with any financial institution of the secured money; (I) Any valuation, quantity survey or report required by the ASL to approve a progress payment or variation or extension of this agreement and any security. … 20. Certificate 20.1 A certificate in writing signed by an officer of or lawyer for ASL certifying the amount payable by the Borrower or stating any other act, matters or thing relating to this Agreement or the Security shall in the absence of manifest error be conclusive evidence of the matters stated therein. … 22. Collateral Agreement 22.1 The parties hereto agree - (a) This Agreement is collateral to the Security for stamp, duty purposes; (b) The money secured owing under this Agreement is secured by the Security; (c) The Security shall be read and construed and be enforceable as if the covenants, conditions and provisions of this Agreement, with necessary changes, are read into and form part of the Security; and (d) A default under any of the security shall constitute a default of this Agreement and vice versa. 22.2 To the extent that there is an inconsistency between this Agreement and the Security the provisions of this Agreement will prevail.
2. The word Security was defined in the definitions section of the Facility Agreement in a way which included the mortgage.

Correspondence

1. On 23 October 2014 the Plaintiff forwarded a letter to Mr Samia of the Defendant which relevantly said this: Your current loan with ASL is nearing the end of its term and is due on 15 December 2014. We value the relationship that we have built with you and would like to offer you a specially negotiated interest rate to roll over your loan for a further term. Details of the offer are as follows: [There then followed a table containing such information as the amount of the loan, the base and higher interest rates, the loan term, the repayment date and particular fees payable in relation to the current loan and the terms of the new offer. Significantly the current term had a base interest rate of 8.05% and the new offer was at 7.22%. The loan offered was for two years expiring 15 December 2016. The letter then went on to say:] We want to make the process as easy as possible for you so unless you advise us by 15 November 2014, your loan will be automatically rolled over on 15 December 2014 on the New Offer Terms as detailed above. Your new payments will commence on 15 January 2015.
2. On 27 October 2014 the Defendant wrote to the Plaintiff relevantly saying: We have been with ASL since 14 November 2005 and value our long business relationship and wish to confirm we are very much interested in proceeding with the rollover of our loan for a further term. We have reviewed the New Offer Terms and would like to accept the new terms for our loan to be automatically rolled over on the 15 December 2014. … We wish to make a request that you allow us additional time to provide the requested information by the 30 January 2015 as indicated by our accountant.
3. On 28 October 2014 the Plaintiff sent an email to the Defendant saying that it was unable to offer a loan extension without the updated financials. That resulted in the Defendant forwarding them under cover of an email of 17 November 2014.
4. On 12 February 2015 the Plaintiff sent an email to the Defendant saying that the credit committee requested further information which was set out in the email. That was responded to later on the same day.
5. Subsequently on 24 March 2015 a further request for information was made by the Plaintiff of the Defendant and that commenced a series of emails backwards and forwards where the Plaintiff made various demands and the Defendant responded. This culminated in a letter from the Plaintiff to the Defendant dated 1 June 2015 where, having discussed what were described as conditions precedent to a rollover, the Plaintiff said that it was not prepared to roll over the loan, and the loan needed to be repaid with interest calculated and the higher rate from 15 December 2014 within 30 days. Throughout this period the Defendant's statement of account with the Plaintiff shows that the Plaintiff in fact reduced the monthly payment from 15 January 2015 to the interest rate set out in the initial letter of 23 October 2014 and continued to charge only that rate until June 2015.
6. The Defendant registered a dispute with the Financial Ombudsman Service in May 2015 and the dispute was not ultimately resolved. The Plaintiff thereafter commenced these proceedings.
7. In the circumstances mentioned at [5] above, correspondence then ensued with the Plaintiff drawing attention to clause 8.3 of the Facility Agreement. On 16 December 2016 the Defendant provided its list of items in dispute that were ultimately incorporated into the Acknowledgement that was executed by the Defendant on 21 December 2016. Of significance is the fact that by 13 December 2016 the Defendant had negotiated a new loan with Baccus Investments Limited for $2.7m.

Acknowledgement

1. The Acknowledgement was in these terms: ACKNOWLEDGEMENT To: Australian Securities Limited ACN 005 428 231 (ASL) From: Borina Pty Ltd ACN 104 026 397 (Borina) I, Joseph Samia in my capacity as the sole director/secretary of Borina Pty Ltd ACN 104 026 397 hereby acknowledge that: 1. ASL has agreed to discharge its mortgage over the property at 513 Princes Highway, Blakehurst NSW 2221 being the land contained in Certificates of Title Folio Identifiers 4/370571, A/384408, B/384408 and C/384408 and release its PPSR security interest over the assets of Borina (Securities) upon receipt of $2,752,712.99 (Payout Amount) prior to 12pm on 22 December 2016. 2. The table attached hereto and marked with the letter "A" constitutes a notice under clause 8.2 of the Finance Facility Agreement between ASL and Borina and dated 14 November 2005 as varied from time to time (Facility Agreement) and includes all amounts of the Payout Amount that Borina disputes and the reasons for the dispute (Details of Dispute). 3. ASL has included in the Payout Amount the sum of $71,500 (Security Amount) representing ASL's estimate of its costs of the Dispute in accordance with clause 8.3 of the Facility Agreement. 4. ASL has calculated the Security Amount on the basis that the amounts which are in dispute and the reasons for the dispute are limited to the Details of Dispute. 5. In accordance with clause 8.4 of the Facility Agreement, Borina is not entitled to dispute any amount of the Payout Amount, or raise any reason for dispute, other than as set out in the Details of Dispute. 6. ASL will rely on this acknowledgment when it discharges the Securities.
2. Attached to that acknowledgement was an annexure which set out the details of various amounts that were required to be paid together with reasons for the dispute in relation to each of them. The various items were these: (i) $184,149 by way of interest at a higher interest rate of 11.22% per annum for the period from 15 December 2014 until 22 December 2016; (ii) $41,154 by way of additional interest for late repayment at 7.22% per annum for a 3 month period; (iii) $25,080 by way of Late Discharge Fee of 1.1 % of the principal sum; (iv) $29,336.99 by way of Default Management costs; (v) $104,668.33 by way of legal fees ($15,000 of which was against anticipated fees); (vi) $71,500 by way of Security; (vii) $1,109.29 by way of search fees; (viii) $1,980 by way of Consent fee; and (ix) $209.88 as a compliance fee of 0.48% for the period from 15 November 2016 to 20 December 2016.

The first proposed cross-claim

1. Initially the proposed cross-claim claimed only damages by way of substantive relief. This changed in circumstances which I shall relate presently. The proposed cross-claim initially pleaded the written agreement of 14 November 2005 for the loan of $2,280,000 to be repaid by 15 November 2006. The loan was secured by a charge over the Defendant's business and assets as well as a mortgage over the property.
2. The cross-claim then pleaded that there were six separate occasions prior to 15 November each year when the Plaintiff agreed to roll over the loan for a further year.
3. Paragraphs 20-50 pleaded, at somewhat unnecessary length, the correspondence that passed between the parties from 23 October 2014 with the view to the loan being rolled over for a further period until the s 57 notice was served. Thereafter the settlement effected on 22 December 2016 was pleaded including the payment of the "without prejudice" amount.
4. Paragraphs 57-59 pleaded what were said to be express and implied terms of the finance facility agreement which were then breached in the manner pleaded in paragraphs 60-74. Paragraph 75C pleaded that by reason of those breaches the Defendant had suffered loss and damage.
5. The loss and damage was particularised in paragraph 63 as follows: (a) The sum of $459,187.49; (b) Legal costs of defending these proceedings; (c) Additional interest payable to Baccus for the period 22 December 2016 to 22 December 2017 on the Loan amount, due to the higher Baccus interest rate (approx. 8.75% as opposed to approx. 7.22%); (d) Additional interest payable to Baccus for the period 22 December 2016 to 22 December 2017 on the higher loan amount (Baccus loan amount of $2,700,000 as opposed to the loan amount of $2,280,000); (e) Further particulars to be provided.
6. At the hearing of the motion on 30 June 2017 particular (b) was abandoned. No further particulars of loss and damage have been provided as paragraph (e) anticipated.
7. An alternative claim was pleaded in paragraphs 76-79 as follows: [76] Further and in the alternative, having regard to the matters pleaded in paragraphs 7-15 above, if in 2014 ASL thought it was on the cards that it might not further rollover the Loan the content of the implied terms required it to advise Borina of that possibility well prior to October 2014 to enable Borina to obtain alternate (sic) finance. [77] In breach of the implied terms ASL failed to so advise Borina, depriving it of the opportunity to seek and obtain finance elsewhere prior to 15 December 2014. [78] Had Borina sought and obtained finance from another financier, it would not have suffered the loss and damage set out in paragraph 63 above. [79] By reason of the breach, Borina has suffered loss and damage. The particulars of loss and damage were the same.

Procedural developments

1. It is necessary to say something about the way the motion has developed. The matter was argued on 30 June 2017 to the point where Mr Docker of counsel for the Plaintiff had almost finished his submissions. By that time the hearing had exceeded the time estimated and the time available for the hearing.
2. One of the principal arguments put forward by Mr Docker was that the authorities demonstrated that the only cause of action available to a cross-claimant in the position of the Defendant was that an account should be taken between the parties of what, if anything, was owing to the Defendant from the amount retained on settlement. Mr Neal of counsel for the Defendant accepted that, at the least, the proposed cross-claim would need to be amended to claim an account in the alternative to the claim for damages. Further, during the course of both counsel's submissions it became clear, and it was accepted by Mr Neal, that other amendments needed to be made to the first proposed cross-claim.
3. The proceedings were thereafter adjourned part heard to 27 July 2017.
4. In response to an email that I directed my Associate send to the parties, Mr Neal provided to the solicitors for the Plaintiff and to my Associate a further proposed cross-claim in sufficient time before 27 July to enable consideration of it by those acting for the Plaintiff.

The second proposed cross-claim

1. The second proposed cross-claim now sought, in addition to interest, costs and interest on costs (all of which had been sought previously) the following relief: Damages at common law and pursuant to sections 236 and 237 of the Australian Consumer Law (ACL); alternatively, an order that an account be taken; alternatively, an order that the Cross Defendant repay to the Cross Claimant the sum of $459,187.49 or such other amount that the Court determines.
2. The second proposed cross-claim omitted a number of the unnecessary paragraphs and then reformulated to some extent the damages claim that had been pleaded in the first proposed cross-claim.
3. The significant paragraphs concerning the damages claim were paragraphs 48-52 which read as follows: [48] On 27 October 2014, ASL and Borina agreed to rollover the Finance Facility Agreement on the terms set out in the 23 October 2014 letter, namely: (1) The Loan would be repayable on 15 December 2016; (2) The base interest rate would be 7.22 %. (the 2014 - 2016 Rollover) Particulars The 2014 - 2016 Rollover was in writing, and consisted of the 23 October 2014 Letter; and Ms Kak's email dated 27 October 2014. [49] In the circumstances, ASL's: (a) assertions in 2015 that the Loan had not been rolled over to 15 December 2016, and that Borina was thereby in breach of the Finance Facility Agreement; (b) demand in its letter of 1 June 2015 that the Loan be repaid within 30 days; (c) assertion of its position in its letter of 5 August 2015; (d) issue of the Demand, including reliance on the alleged Defaults (as defined in the Demand); (e) issue of the RPA Notice; (f) commencement of these proceedings: (i) constituted a breach of clause 4.3 of the Finance Facility Agreement, having regard to the 2014 - 2016 Rollover; or alternatively (ii) constituted a breach of the 2014 - 2016 Rollover; or alternatively (iii) constituted a breach of the implied terms of the Finance Facility Agreement, or alternatively (iv) manifested unwillingness or inability to perform the 2014 - 2016 Rollover; in that ASL refused to allow Borina the benefit of the use of the Loan amount until 15 December 2016, such that ASL repudiated the 2014 - 2016 Rollover, which repudiation was also a breach of it. [50] Further: (a) prior to 15 December 2014, ASL was aware of all the matters alleged in the Demand as Defaults (which Defaults are not admitted); (b) upon discovery of the Defaults, ASL had a choice between two inconsistent rights; namely, it could give notice under clause 18 and then exercise its rights under clause 10 of the Finance Facility Agreement, or it could elect not to treat the matters alleged as Defaults; (c) ASL's conduct in failing to make any complaint about the Defaults until its letter of 1 June 2015 amounted to a binding election not to treat the matters alleged as Defaults such that ASL lost the inconsistent right to rely on the matters alleged as Defaults. [51] Further, as at 15 May 2015: (a) ASL had previously rolled over the Loan 7 times; (b) Borina had always paid interest punctually, and had continued to pay interest from 15 January 2015 at 7.22 %, as opposed to the rate of 8.05% under the 2012 -2014 Rollover; (c) The Loan was secured by the Mortgage, the Debenture charge and the Guarantee; (d) The 2014 Valuation of $4,450,000 plus GST constituted a Facility to Security Ratio (FSR) of about 46.5%, well under the FSR of 60.00 % in Item 6 of the Schedule to the Finance Facility Agreement; (e) To ASL's knowledge, the financial position of Borina was not materially different to its financial position as at 8 November 2012, which ASL had in November 2012 regarded as satisfactory to service the Loan; (f) ASL had been aware that Borina had not been carrying on the motel business at the Property, and had been aware of the lease to Blakehurst on or about 13 November 2012, and notwithstanding this knowledge, and had in fact agreed to the 2012 - 2014 Rollover; (g) ASL had been aware of the lease to QC Corporation since 17 November 2014, and did not complain about it until 1 June 2015, and indeed, confirmation of the continuation of the QC Corporation Lease was a requirement of ASL; further, in about April 2015 Borina proposed a lease of the Property to QC Corporation for a period of 10 years, which lease required QC Corporation to undertake refurbishment works worth about $800,000, and ASL rejected that proposal; (h) ASL was aware of the age and condition of the Blakehurst Motor Inn by reason of the 2010 Valuation, the 2012 Valuation, and the 2014 Valuation, and had agreed to the 2012 - 2014 Rollover; (i) By email dated 4 December 2014, Ms Kak provided to Ms Ferdinands information concerning a payment plan for council rates, Ms Ferdinands raised no objection to such proposal; (j) As to land tax: (i) Borina was assessed by the Office of State Revenue (OSR) for such land tax only on about 1 July 2013 as a result of which such land tax was not due and payable until about that date or shortly thereafter; (ii) by no later than 27 November 2013, ASL was aware that Borina had not paid land tax for the years 2010 - 2013 as assessed by the OSR in July 2013 on or before 12 August 2013; (iii) on about 29 November 2013, ASL imposed certain conditions on Borina in respect of the land tax then payable by Borina, with which conditions Borina complied; (iv) about this time, Borina entered into an agreement with OSR regarding payment of land tax; (v) On 9 December 2013, OSR issued a Notice to ASL noting the agreement, and requesting that ASL place the matter 'on hold'; (vi) By email dated 9 December 2013 from Rebecca Cauchi to Ms Kak, ASL advised that the matter was 'on hold'; (vii) ASL did not issue any notice of default or otherwise assert that Borina was in default as a result of the matter above until about 1 June 2015. (k) Borina had provided ASL with all the information requested in the 23 October 2014 Letter, except confirmation that payments to OSR had been made; about which failure ASL made no complaint; (l) Borina had further provided ASL with all the additional information requested by Mr Twahn; save the request in his email dated 15 May 2015. [52] In the circumstances, ASL's: (a) assertions in 2015 that the Loan had not been rolled over to 15 December 2016, and that Borina was thereby in breach of the Finance Facility Agreement; (b) demands in 2015 for further information and requirements; (c) demand, in its email of 15 May 2015, that Borina supply ASL unredacted copies of QC Corporation's bank statements; (d) demands in its email of 22 May 2015; (e) demand in its letter of 1 June 2015 that the Loan be repaid within 30 days; (f) assertion of its position in its letter of 5 August 2015; (g) issue of the Demand, including reliance on the alleged Defaults (as defined in the Demand); (h) issue of the RPA Notice; (i) commencement of these proceedings; constituted further breaches of the implied terms of the Finance Facility Agreement.
4. Paragraph 53 then asserted that by reason of the breaches in paragraphs 49 and 52 above Borina had suffered loss and damage. The particulars were now confined to paragraphs (a), (c) and (e) (set out in [23] above). I note again that no further particulars of loss and damage were provided as particular (c) anticipated.
5. The cross-claim then added two new paragraphs in reliance on s 21 of the Australian Consumer Law (being Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (the ACL) as follows: [54] Further, and in the alternative, ASL knew at the time it made its demands set out in paragraph 52 above that: (a) its demands were unreasonable; and/or (b) the Loan was adequately secured; and/or (c) there was no real prospect that the Loan would not be repaid; and/or (d) there was no real prospect that ASL would not be able to recover the Loan such that in acting in the way set out in paragraph 52 above, ASL, in trade or commerce, engaged in conduct in connection with the supply of services to Borina (namely, a contract for the lending of money) that was, in all the circumstances, unconscionable, contrary to section 21 of the ACL. [55] Further, ASL's purpose in acting in the way set out in paragraph 52 above was to unfairly force Borina to repay the Loan, and to recovery (sic) penalty interest, which was extraneous to its legitimate interest in ensuring that the Loan was adequately secured, such that in acting in the way set out in paragraph 52 above, ASL, in trade or commerce, engaged in conduct in connection with the supply of services to Borina (namely, a contract for the lending of money) that was, in all the circumstances, unconscionable, contrary to section 21 of the ACL.
6. The loss and damage was said to be the same as in relation to the breach of contract claim.
7. There was then in paragraphs 57 to 60 a pleading which mirrored paragraphs 48 to 56 but seemed, in a way that was not easy to understand, to be based in the alternative on an agreement that the Defendant would provide certain material to the Plaintiff, and it again claimed both a breach of contract and breaches of s 21 of the ACL on the same basis.
8. The loss of opportunity claim set out at [25] above was abandoned and instead a claim for money had and received was pleaded in this way: [61] Borina repeats the matters in paragraphs 48 - 60 above. [62] If the Loan was rolled over to 15 December 2016, and ASL was not entitled to the sum of $459,187.49 pursuant to Finance Facility Agreement, then Borina as mortgagor made an overpayment to ASL as mortgagee, and Borina seeks an order that an account be taken. [63] In the alternative, Borina paid the sum of $2,752,712.99 (including $459,187.49) to ASL to redeem the mortgage, under compulsion of a refusal to discharge the mortgage unless Borina paid it the full amount of $2,752,712.99 (including $459,187.49), and Borina is entitled to be repaid the sum of $459,187.49 as monies had and received.

Submissions

1. The Defendant relied on the correspondence summarised above and submitted that the Plaintiff, in asserting that the loan had not been rolled over to 15 December 2016 and by requiring repayment, had breached clause 4.3 of the Facility Agreement. In the alternative, the Defendant submitted that the Plaintiff, in exercising its powers under clauses 4.3 and 6.5 as well as implied terms that it would act in good faith and would act fairly and reasonably, ought to have rolled the loan over to 2016. The Defendant submitted in the alternative that the Plaintiff had repudiated the agreement.
2. The Plaintiff submitted that the authorities showed that all the Defendant was entitled to was to an account taken between mortgagee and mortgagor in relation to the amounts set out in the Acknowledgement totalling $459,187.49. The Plaintiff submitted that the authorities showed that claims for damages by a mortgagor against a mortgagee were not available.
3. The Plaintiff submitted that there was no promise made by the mortgagee upon which the Defendant could sue alleging a breach of contract. That was because the only promise, essentially, was that the Defendant mortgagor would pay to the Plaintiff mortgagee the amounts due under the mortgage when they fell due for repayment.
4. Initially, the Plaintiff opposed the filing of the cross-claim in its entirety because all that was sought was a claim for damages which the Plaintiff submitted was not available. Since the second proposed cross-claim the Plaintiff accepts that the Defendant is able to seek an account and may be able to make a claim for money had and received to the extent that the money paid under protest represented in whole or in part an overpayment. The Plaintiff submitted, however, that a damages claim at all, even if made in the alternative, should not be permitted to go forward because in law such a claim was not available.
5. In the first proposed cross-claim the Defendant had not asserted that the contract had been repudiated by the Plaintiff by asserting that no rollover of the loan had occurred. A claim asserting repudiation was pleaded in the second proposed cross-claim. The Plaintiff submitted that such a claim should not be permitted because there was no assertion nor evidence that the repudiation was accepted with the result that no damages would flow from a finding that the Plaintiff had repudiated the contract.
6. In relation to the claims now sought to be made relying on the ACL, the Plaintiff accepted that the claim of unconscionability was an arguable claim but asserted that no loss flowed from any such breach because it was not the Plaintiff's conduct as pleaded that caused the Defendant to pay the disputed amount; rather, it was the operation of clauses 8.1 to 8.4 of the credit contract and the law that dealt with redemption of mortgages. In any event, there was no loss because the payment was made without prejudice to the right of the Defendant to recover the payment if it was entitled to do so. The Plaintiff also argued that allegations based on s 21 of the ACL go beyond what was included in the Acknowledgement executed at the time of the discharge.
7. The Plaintiff submitted that the claim for the higher payments to Baccus is an interest claim on a loss meaning that it must flow from a loss. That claim is also within the account that will be taken and payable if the Plaintiff is successful in its claim for money had and received.
8. In relation to the claim in reliance on the ACL the Defendant pointed to the range of relief and orders that could be made pursuant to s 243 of the ACL and submitted that it would be open to the Court to set aside cl 8.4 in the agreement and the Acknowledgment that was signed that purports to confine the Defendant to the matters contained in the Acknowledgment.

Consideration

1. The only basis upon which Borina could be denied the right to plead a cause of action would be if the cause of action would be futile in that it would be doomed to fail. The question of whether the proposed pleadings are futile is to be dealt with by applying the same principles as are applied to an application for summary judgment or summary dismissal: Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWSC 1073 at [11]. The principles are those set out in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at [129] and more recently in Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [57], subsequently affirmed in Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28 at 24.
2. In my opinion, the cases show that the only right the mortgagor has after redemption of the mortgage, whether by foreclosure or sale or simply by granting a discharge where a dispute remains, is that accounts should be taken between the mortgagor and the mortgagee. In those circumstances an action may lie for money had and received: Projects Research Pty Ltd v Permanent Trustee of Australia Ltd (1990) 5 BPR 97,341 at 45; Westpoint Finance Pty Ltd v Chocolate Factory Apartments Ltd [2002] NSWCA 287; (2002) 12 BPR 22,969 at [32]-[33], [54] and [58]; Thambiappah v Commonwealth Bank of Australia [2010] NSWSC 520 at [54]; Riva NSW Pty Ltd CAN 113 881 815 v Key Nominees Pty Ltd [2014] NSWSC 301 at [18]-[22].
3. Consistent with those principles and particularly with what Hodgson J (as his Honour then was) said in Projects Research at p. 5, the arrangement entered into under the Facility Agreement required the identification of disputed matters in an Acknowledgment before the mortgagee would discharge the mortgage. The purpose of that was to ensure that sufficient funds were retained to enable the mortgagee to meet any claim for an account that might be made arising out of the disputed matters.
4. In my opinion, no claim for breach of contract is available at law for the asserted failure to rollover the Facility or by reason of the fact that the Plaintiff charged the Defendant interest as if it was in default under the Facility Agreement. The remedy for the Defendant is by the taking of accounts. In any event, any loss will likely be confined to any amount that is found to be owing to the Defendant after the taking of accounts, with the possible exception of the claim for added interest payable to Baccus. That will be discussed later in the judgment.
5. Nor are the problems for the Defendant in that regard overcome by asserting, as it now does, that the Plaintiff repudiated the Facility Agreement in not rolling over the loan. The Defendant does not plead that it accepted the repudiation, nor is there any evidence to show that the Defendant in fact accepted the repudiation. In those circumstances, a claim based upon repudiation should not be allowed to go forward.
6. The Plaintiff appears to accept that the Defendant has the right under s 21 of the ACL to claim that the Plaintiff acted unconscionably in relation to the discharge of the mortgage. Common law and equitable doctrines confining a mortgagee's rights cannot override rights given under statutes. The Plaintiff submits, however, that no loss is shown even if such unconscionability were established. That is because one of the rights acquired by the Defendant at the time of discharge was the right to have refunded to it any amount overpaid by reason of entry into the Acknowledgment.
7. I do not accept, on an application to file a pleading containing an assertion of unconscionability contrary to s 21, that because the Defendant did not identify the issue of unconscionability when executing the Acknowledgment, it cannot be permitted to raise the issue now. A party seeking to make a claim based on a statutory right which is designed to protect a contracting party and, in the appropriate circumstances, provide relief for that party from the particular contract or transaction, cannot be required to execute the impugned document under some sort of protest or, here, by including that complaint in the Acknowledgement. Nor can the fact that the Defendant acquired the right at discharge to have refunded to it any amount overpaid by reason of entry into the Acknowledgment somehow circumscribe its right to make a claim in reliance on s 21 asserting unconscionability. Further, as the Defendant points out, the remedies provided for breach of s 21 are wider than compensation orders (see s 243 of the ACL).
8. Nor am I in a position on an application such as the present to determine whether any loss that is found to flow to the Defendant, or which for present purposes can be assumed to flow to it, came from the entry into the Acknowledgment (as the Defendant asserts) or arose from the requirements of cl 8 of the Facility Agreement that gave rise to the Acknowledgment (as the Plaintiff asserts). The Plaintiff submitted that that is simply a matter of construction of the agreement but for present purposes that submission might be thought to take an unduly narrow view of the provisions of the ACL. I do not consider it is appropriate that I resolve that on the present application. The argument put forward by the Defendant does not seem to me to be regarded as hopeless or doomed to fail. If clause 8 were set aside, the loss might be held to flow from the requirement to sign the Acknowledgement.
9. If all that the Defendant receives on establishing any unconscionability is compensation, there is a reasonable argument that such compensation would not exceed any amount which is required to be repaid to the Defendant on a taking of accounts except, possibly, the extra interest payable to Baccus.
10. One of the particulars of loss identified by the Defendant is for costs incurred in having to borrow a higher principal sum from Baccus because the Defendant was obliged to repay the amount of $459,187.49 instead of the lower figure that it asserted was due. That additional interest payable to the Defendant was not specified in the Acknowledgment signed on behalf of the Defendant before the discharge of the mortgage. Clause 8.2 arguably suggests that it ought to have been specified. The costs were known because by that time the Defendant had entered into the loan agreement with Baccus.
11. Clause 5 of the Acknowledgment, to which the Defendant agreed, said that the Defendant was not entitled to dispute any amount of the Payment Amount or raise any reason for dispute other than was set out in the Details of the dispute. In those circumstances, the Plaintiff has a right to assert that it did not retain sufficient funds by way of security to meet the cost of resolving all disputed matters between the parties. Had the Plaintiff known that this dispute may arise in the course of taking accounts, it would have been entitled to retain further funds: Project Research at p. 5; Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [61]-[63]; Australia and New Zealand Banking Group Ltd v Mishra [2012] NSWSC 1333; (2012) 16 BPR 31,665 at [32]-[40].
12. If, therefore, the Defendant wishes to pursue that head of damage in the taking of accounts or in a claim for money had and received, additional security needs to be provided. I do not, for the reasons already given, consider that the Defendant must provide security for the litigation of the unconscionability claim. Rights given by s 21 of the ACL must be regarded as superimposed on common law and equitable principles concerning redemption of mortgages.
13. Evidence has been provided of the extra security which the Plaintiff calculates it would need if all of the claims made by the Defendant, including its contract claims and claims based on s 21 of the ACL, were now to be litigated. The extra amount of security is a little short of $100,000.
14. The Defendant resists providing any further security on the basis that the Plaintiff has sufficient already, that the case it makes is a strong one, and that the Plaintiff's order for security assumes the validity of the Acknowledgment when one of the claims made is that it be set aside because of unconscionability.
15. In my opinion, a dispute concerning the further interest paid to Baccus is within a small compass because I am not permitting the contract claim to go forward. What is significant is that the Plaintiff in the affidavit of its solicitor, Mr Kaunitz sworn 3 August 2017, said that it calculated its contingent security costs retained on the basis of defences disclosed in the defence to the statement of claim as well as the areas of dispute identified in the Acknowledgment. The defences, as Mr Kaunitz acknowledges, included, in the event the Plaintiff established a breach of the Facility Agreement, reliance by the Defendant on waiver, estoppel, election and relief against forfeiture. It is clear that the defences of waiver, estoppel and election arise from the same factual sub-stratum as the contractual claim, namely, that by its actions the Plaintiff represented that it would rollover the loan at the end of 2014.
16. Further, when I have held that the Defendant cannot be obliged to provide additional security for the statutory claim, in all of those circumstances, I consider that only a small allowance should be made by way of extra security in the sum of $10,000. If the Defendant is not prepared to provide that extra security it should not be permitted to pursue its claim for the extra Baccus interest. In those circumstances, the proceedings would be confined to the taking of an account, the claim for money had and received and the claims under s 21 of the ACL.

Costs

1. The Defendant's original application to file a cross-claim was misconceived. As I have held, it had no right to make a claim for breach of contract. During the course of the first day's hearing the Defendant accepted that at least it needed in the alternative to seek an account. Ultimately the Plaintiff did not oppose the cross-claim going forward to the extent that it sought an account and the claim for money had and received.
2. Further, the Plaintiff abandoned its loss of opportunity claim and subsequently sought to make a claim under s 21 of the ACL which I have held it cannot be prevented from doing. The Plaintiff resisted the claims under s 21 on the basis that no loss was shown, but was unsuccessful in doing so.
3. My assessment of the time spent is that the majority of the time arguing the notice of motion was concerned with the Defendant's desire to sue for breach of contract. It did that in circumstances where it had not made any such claim in the Acknowledgment that it signed. I have held that no such cause of action is available for the reasons put forward by the Plaintiff.
4. In all the circumstances, I consider that the Defendant should pay 50% of the Plaintiff's costs of the motion.

Conclusion

1. I make the following orders: 1. Leave to the Defendant to file a cross-claim seeking an account, a claim for money had and received, and seeking relief for breaches of s 21 of the Australian Consumer Law. 2. On payment to the Plaintiff of the sum of $10,000, which is to be added to the Security Amount sum of $71,500 referred to in paragraph 3 of the Acknowledgement executed by the Defendant on 21 December 2016, leave to the Defendant to claim as a head of damage the matter specified in particular (b) to paragraph 53 of the second proposed cross-claim. 3. The Defendant is to pay 50% of the Plaintiff's costs of the Notice of Motion filed 25 May 2017.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 August 2017