Broadway Credit Union v Bellamy & Anor [2000] NSWSC 778 | Case summary

the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 6 In a recent decision Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb. 7 In General Steel Barwick CJ, who heard the application alone stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 8 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 9 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 10 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 11 Mrs Bellamy who is the second defendant is the wife of the first defendant. She deposed that she married the first defendant on 5 January 1971. Prior to October or November 1990 her role was that of a wife and homemaker. From the date of her married up until about October 1998 her husband took sole responsibility for household finances. The second defendant did not pay any bills. Those bills were forwarded to her husband's office at O'Connor Bellamy, solicitors. 12 Between 1971 and 1990 the second defendant signed all documents which her husband asked her to without seeking any explanation. That included her personal income tax returns. Over the years the second defendant says that there were many documents which the first defendant asked her to sign. If she asked her husband what that document was she would have been satisfied with a fairly simple explanation from him as to its nature. 13 In paragraph 14 of her affidavit she says that she recognises her signature and that of her husband's on the mortgage dated 8 October 1991. It was witnessed by Neil O'Connor who was Mr Bellamy's partner. The second defendant says that she has no recollection of signing that document. When she signed the mortgage document she says that she believed that she and her husband were borrowing about $300,000 (the initial advance) and that they were going to repay the Credit Union by making repayments of principal and interest. As previously stated she has no recollection of Neil O'Connor explaining the mortgage to her nor does she have any recollection of anyone else explaining the mortgage. She has seen a memorandum Y852921 and she has no recollection of seeing this document before nor does she have any recollection of anyone explaining it to her. 14 The second defendant is now aware that further loans have been made to them during 1992. After the initial advance of $350,000, the plaintiff loaned to the defendants the sums of $40,000 on 5 March 1992 (the second advance), $20,000 on 19 August 1992 (the third advance) and $104,000 on 31 December 1992 (the fourth advance). The second defendant deposes that she has no knowledge of these loans, her husband had not informed her of those loans. Nor did the Credit Union inform her that her husband had applied for and obtained further advances. She says that from October 1991 to the end of 1998 she has no recollection of her husband telling her that he was increasing the amount of her loan under the mortgage. If he had told her that she says that she would have been very upset at that news. 15 On 17 June 1994 the plaintiff sent an instructing letter to O'Connor Bellamy solicitors to act on their behalf and secure Broadway Credit Union Limited's interest over the property at 11 Epping Road, Double Bay. Mr Bellamy who is a solicitor, acted both for himself and for the Credit Union. 16 On 20 June 1994 Mr Bellamy wrote to the plaintiff and forwarded an application form for $340,000 and stated that if the matter proceeded, it was to be in his name only. On 24 June 1994, the plaintiff wrote to Mr Bellamy and the security for the loan was stipulated to be 11 Epping Road, Double Bay. The assistant manager gave evidence that the plaintiff already had security being the property at Paddington because the plaintiff could rely on the "all moneys" clause contained in the memorandum. 17 It is not disputed that on 20 June 1994 the first defendant forwarded a loan application form to the plaintiff seeking a loan in the sum of $340,000 (the final advance) to purchase a property at 11 Epping Road, Double Bay and the existence of this loan was made without the second defendant's knowledge. The loan was approved on 21 June 1994 and the loan moneys were paid into the personal account of Graham Valentine Bellamy. 18 In relation to the loan property which refers to the purchase of the first defendant's parents' property, the second defendant says that her husband has never said anything to her about purchasing his parents' property. She says that in relation to the June 1994 loan the subject of these proceedings, that her husband did not ever mention that he was borrowing $340,000 from the Credit Union. Ms Potrykus, the assistant general manager was cross examined. She gave evidence that the second defendant was never told of this advance. 19 The plaintiff submitted that it is entitled to summary judgment against the second defendant because the initial advance, being the home loan is not disputed and the second defendant has had the benefit of these moneys. Therefore, according to the plaintiff, the clauses in the mortgage, such as 1(a) the "all moneys" clause, 8 and 38(k) and (l) are applicable and the second defendant has no arguable defence. The plaintiff does not dispute that the second defendant may have an arguable defence in relation to the final advance under the Contracts Review Act and in relation to unconscionability. 20 In the defence and cross claim, the plaintiff seeks inter alia: "(a) a declaration that: (i) the additional covenant appearing on page 2 of the printed form of the mortgage; and (ii) clause 1(1) and (2) of the memorandum are unjust within the meaning of s 9 of the Contracts Review Act, 1980; (b) an order pursuant to s 7(1) of the Contracts Review Act , 1980 declaring the mortgage void in part; (c) an order pursuant to s 7(1) of the Contracts Review Act , 1980 that the plaintiff execute an instrument varying the provisions of the mortgage by deleting therefrom the provisions referred to in sub-paragraph (a) above; (d) a declaration that the mortgage does not secure the further advances; (e) a declaration that the second defendant is not liable to the plaintiff for the further advances; (f) a declaration that on the proper construction of the mortgage the moneys secured thereby do not include moneys lent by the plaintiff to either of the first and second defendants alone; …." 21 Although it is trite law, I remind myself that the Contracts Review Act 1980 is a remedial piece of legislation which should be interpreted liberally, free from the fetters imposed by analogous legal and equitable doctrines. (see West v AGC (Advances) Ltd (1986) 5 NSWLR 610) and approved by Meagher JA in Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 and Garcia v National Australia Bank Limited (1998) CLR 395; (1998) 72 ALJR 1243. 22 Section 9(1) of the Contracts Review Act says that in determining whether a contract is unjust in the circumstances when the contract is made, the court is to take into account consequences and results from whether or not and when independent legal or other expert advice was obtained by the party seeking relief under the Act, the extent to which the provisions of the contract and their legal and practical effect were explained, and whether any undue influence, unfair pressure or unfair tactics were exerted or used against the party by another person appearing or purporting to act for another party to the contract. The court may decide at a trial to set aside the mortgage in whole or in part. 23 In addition to relief under the Contracts Review Act, the second defendant also argues that she is entitled to relief under the principles decided by the High Court in Garcia and Commercial Bank of Australia v Amadio (1983) 151 CLR 447. In Garcia the High Court reinstated the principle in Yerkey v Jones (1939) 63 CLR 649. Yerkey as explained by the High Court in Garcia, established that it will be unconscionable for a bank to enforce a mortgage against a surety if: "(a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary, in the sense that the surety obtained no gain from the contract, the performance of which was guaranteed; (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her." 24 The second defendant raises the lack of obtaining legal advice in relation to the initial loan and the provisions of the mortgage . She never saw the memorandum and says she did not consent to the second to fifth advances. She says that she did not understand the transactions. It is clear that she did not know of the existence of the last and substantial advance of $340,000. These are deficiencies which fall within the Contracts Review Act and the doctrine of unconscionability. They are arguable defences which if successful may result in the mortgage being set aside. She may only be held liable to repay the initial advance. These payments are up to date. 25 Additionally the second defendant raises a number of grounds of defence based on the construction of the mortgage. Firstly, there is no reference to the amount of the mortgage nor of the obligation of the mortgagees to repay the principal sum and make interest payments in the mortgage document itself. These paragraphs have been crossed out. Nor is there any reference made to the amount of the mortgage on the mortgage document itself. After the section referring to the obligations for repayment has been deleted, a paragraph has been inserted which refers to it "being in consideration of the aforesaid". There is no aforesaid. That paragraph's purpose was for the mortgagor and the mortgagee to enter into a covenant to observe the provisions in a memorandum of mortgage. The second defendant argues that as there is no consideration flowing to the second defendant the memorandum should be held to be unenforceable. Secondly, the gateway to make the "all moneys" clause in para 1(a) applicable to the second defendant rests in clause 51(a). Clause 51(a) recognises that the definition does not apply in every case. The context in which the parties enter the transaction is relevant. In the circumstances of this case the plaintiff submitted that it was not intended to make an advance to only one of the mortgagors. The third construction point that the second defendant wishes to raise is that clause 1(a) applies unless there is a contrary agreement. In relation to the final advance there was an agreement between the plaintiff and first defendant that the security for that advance was to be a property at Double Bay not the Paddington property. 26 In relation to the "all moneys" clause which is challenged in the proceedings before me, some unflattering remarks have been made by McLelland CJ in Eq in State Bank of New South Wales v Muir and Anor (1997) NSW ConvR 55-823 where he says "…The prospect that one of two joint borrowers under the home mortgage, become potentially liable, or cause the home to become security, for unrelated individual debts of the other joint borrower is likely to be quite remote from the reasonable contemplation of the ordinary housing loan borrower, and the inclusion in a housing loan mortgage of an "all moneys" clause having this effect could hardly be said to be reasonably necessary to protect the legitimate interests of the lender in respect of that transaction. The imposition, under the umbrella of a housing loan mortgage, of potential liability on one of two joint mortgagors for debts of the other arising from other transactions, may properly be characterised as a potential trap for all but the unusually commercially sophisticated or well advised borrower. Where, as in the present case, the execution of such a mortgage by a borrower lacking unusual commercial sophistication, and without independent advice, is procured by an agent of the bank who does not take reasonable or adequate steps to ensure that the borrower is fully conscious of the nature and extent of the risk, the mortgage is likely to be held to be "unjust" within the meaning of s 7 of the Contracts Review Act 1980. At any rate, that is the conclusion which I reach in the circumstances of the present case." 27 This passage further enhances the second defendant's claim for relief under the Contracts Review Act. In any event these construction arguments cannot be said to be hopeless. 28 In these circumstances it is my view that the second defendant has an arguable defence which may entitle her to have the memorandum of the mortgage set aside. She may be held to be responsible for only the initial advance for which repayments are up to date. The payments are up to date even if the second to fourth advances are taken into account. Accordingly I decline to enter summary judgment. 29 Section 66F states: (1) "Co-ownership" means ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common; and "co-owner" has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common." 30 Section 66G states: "66G Statutory trusts for sale or partition of property held in co-ownership

(b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs." 31 The plaintiff submitted that as it has possession of first defendant's interest in the property, it should be entitled to appoint a trustee pursuant to s 66G. According to the plaintiff although the word "may" gives a discretion as to whether to make such an order, the discretion will be used in rare circumstances. The parties referred me to ANZ and Anor v Scott and Anor (1993) NSWConvR 55-675, Hayward & Ors v Skinner & Ors (1981) 1 NSWLR 590, Westpac v Samson and Anor (1995) NSW ConvR 55-733 and Sistrom v Urh (1990) 40 FCR 550. 32 In Scott Bryson J established that the word "encumbrancer" means mortgagee. Rolfe J in Samson and Hodgson J (as he then was) in National Bank v Hedley & Anor (1984) NSW ConvR 55-211) agree with this interpretation. Bryson J in Scott did not grant relief under s 66G because the bank was an encumbrancer of the whole of the land and as mortgagee of the whole, it did not fall within the meaning of "co-owner". Likewise in the case before me the plaintiff credit union is the mortgagee of the whole of the land. However, the plaintiff says that an order for possession in relation to one of the mortgagors means that the plaintiff is now a co-owner. It is my view that the plaintiff's interest in the land is still one of an encumbrancer of the entire fee simple. 33 As previously stated, the first defendant has been declared bankrupt and an official trustee in bankruptcy has been appointed. In Sistrom the Full Court of the Federal Court held that where a bankrupt and another are registered as joint tenants of Torrens land, s 58 of the Act works to effect severance of the joint tenancy in equity, and to impose an obligation on the registered proprietor to hold the land on trust for the trustee in bankruptcy and herself as tenants in common in equal shares. Thus the second defendant holds the property on trust for the trustee in bankruptcy and herself and tenants in common in equal shares. 34 Further the plaintiff wishes to have trustees appointed so that the property can be sold. If this occurs, the second defendant would lose her home and would be denied the remedies she has sought under the Contracts Review Act. If successful with her claim, once the property has been sold she would be confined to a monetary sum as a remedy. In my view it is not appropriate to make an order pursuant to s 66G because firstly the plaintiff is not a co-owner and does not fall within the true meaning of the definition of inclusion in s 66F, secondly, each case depends on its circumstances and I would not exercise my discretion in favour of the plaintiff as this would deprive the second defendant of the remedies she has sought and thirdly, there is no utility in making such an order as the second defendant holds the land on trust for the trustee in bankruptcy and herself as tenants in common in equal shares. There is no utility in involving another trustee. Accordingly, the notice of motion should be dismissed with costs. 35 The orders that I make are:

Broadway Credit Union v Bellamy & Anor

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