JUDGMENT
1 HER HONOUR: By motion of 12 September 2008, the plaintiff seeks summary judgment under Rule 13.1 of the Uniform Civil Procedure Rules 2005 against the first and third defendants. By motion of 25 November 2008, the first and third defendants seek leave to file a further amended defence. The matter has not yet been programmed for hearing.
2 The proceedings were commenced by statement of claim filed in January 2008. The plaintiff seeks orders that the defendants pay it some $11 million, including interest and costs, alleging default under a facility agreement by failure to pay interest and the debt, despite demand for repayment being made. The first and third defendants filed a defence to the claim in March 2008 and an amended defence in August. The second defendant has not filed any defence.
3 The plaintiff claims that the purpose of the facility agreement was to refinance land and construct apartments at Pennant Hills. The borrower under the agreement, the registered proprietor of the land, was Lifestyle Retirement Projects No 2 Pty Ltd in its own right and as trustee of the Lifestyle Retirement Projects Unit No 2 Trust. The defendants jointly and severally guaranteed the payment of the borrower's debt.
4 By the proposed further amended defence the defendants seek to raise claims that the plaintiff and its appointed receiver breached their obligations under s 420A of the Corporations Act 2001 (Cth), in failing to exercise reasonable care in enforcement of the security and in failing to exercise the powers granted under the mortgage documentation and guarantee by way of long term lease. The defendants also raise alleged misrepresentation in breach of the Trade Practices Act 1974 (Cth) or the Australian Securities and Investment Commission Act 2001 (Cth), thereby claiming a set off of all monies payable by the defendants.
5 The debt, the mortgage and the guarantee are not in issue. Nor is it in issue that the plaintiff demanded payment of what was due and that the borrower and the defendants failed to comply with the demands. In November 2007, the plaintiff appointed a receiver, with power of sale of the property and assets of the borrower. Some of the twenty one apartments have since been sold by the receiver.
6 The plaintiff's case was that it is entitled to judgment on the amended defence and that leave to further amend the defence would not be granted, the defences sought to be raised not being arguable. The plaintiff relied on the terms of the mortgage, a fixed and floating charge and a deed of guarantee and indemnity, as providing a complete answer to the allegations made in the amended defence.
7 The plaintiff argued that as guarantors, the defendants have a current and principal obligation to pay the debt to the plaintiff; they are not entitled to an order for account. The borrower, which is not a party to the proceedings, also has no right to such an order. The debt remains outstanding and unpaid and no offer to redeem the mortgage has been made.
8 It was also argued that allegations that the borrower and the first and second defendants have suffered damage as the result of the receiver's conduct, which is sought to be raised by the further amended defence, can lead to no relief in these proceedings. While the receiver is obliged to take instructions from the plaintiff, the receiver is the borrower's agent and the borrower has agreed to indemnify the plaintiff in respect of any loss or damage caused by the receiver. In any event, the defendants have an independent obligation to the plaintiff under the guarantee.
9 As to the misrepresentation claim, it was argued to have no foundation. The defendants sought to raise promises or representations that if the plaintiff were to exercise its power of sale, it would only do so by way of long term lease, rather than by any other means. No express oral representations were relied on. There was claimed to be a representation by silence. The principles relevant to a determination of such a claim were discussed by Black CJ in Demagogue Pty Ltd v Ramensky and Another (1992) 39 FCR 31 at 32. It was argued that the evidence relied on did not support the allegations and the terms of the mortgage, the fixed and floating charge, the deed of guarantee and indemnity and various correspondence and other documents all showed that the plaintiff's rights under the security was not restricted as claimed.
10 The defendants had received independent legal advice in the transaction. There was no term of any of the documents involved in the transaction which could have given rise to any misunderstanding on the defendants' part, that the plaintiff would exercise its power of sale only on the basis of a long term lease. To the contrary, the documents clearly showed the plaintiff's unfettered right of sale in the event of default. It followed that the defence sought to be raised had no possible foundation and that the amendment sought in this respect would be refused.
11 It was conceded, however, that the claims raised in the further amended defence that the plaintiff had breached its duties as mortgagee to prevent the unnecessary accruing of interest, did raise a triable issue. It was argued, nevertheless, that the proper course in the face of that concession was to give the plaintiff summary judgment in relation to the principal (a sum of some $8 million) and only to allow the amendment of the defence in relation to the interest part of the plaintiff's claim.
12 The defendants' case was that judgment should not be given and that leave to further amend the defence should be granted. The case was not appropriate for summary judgment, given the issues of fact raised by the proposed amendment. The defence sought to be raised was not beyond argument, as the plaintiff submitted (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91).
13 Three serious questions were said to be raised by the further amended defence. Firstly, whether the plaintiff or its agent, Mr Mizzi, engaged in misleading or deceptive conduct by silence, sufficient to void the guarantee. Secondly, whether the plaintiff, by its agent, Mr Mizzi, is estopped from resiling from the defendants' assumed state of affairs. Thirdly, whether the plaintiff breached its duties as mortgagee. It was conceded that the third question went to quantum, not liability. The plaintiff's concession as to the third issue meant, however, that the matter would have to go to hearing. In the circumstances, the defendants ought not to be estopped from litigating the entirety of their defence.
14 The order for summary judgment required the amended defence to be struck out under Rule 14.28 of the Uniform Civil Procedure Rules. Such an order would only be made if the pleading was 'so bad that no legitimate amendment could cure the defect' (see Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 at 942).
15 The defendants' case was supported by various affidavits. That evidence seeks to establish that moneys had been loaned by the plaintiff to the borrower for the purpose of the construction of a retirement village development, with sale of apartment accommodation to retirees on long term lease, in accordance with the terms of a trust deed. The land was restricted to such a use. This allowed the unit holders to retain strata ownership of the apartments. The loan was pursued for the purpose of such a development, as evidenced by application documents, including those initially made to St George Bank, where Mr Mizzi was then employed, as well as the borrower's Investment Memorandum and Trust Deed.
16 When Mr Mizzi became an employee of the plaintiff, the borrower and the defendants were invited to make an application for finance. That application was made to and assessed by the plaintiff on the basis that the apartments were to be sold on long term lease. It was the defendants' case that they had not understood that the loan was only approved by the plaintiff on the basis of the strata sale of the apartments. That had never been communicated to the defendants by Mr Mizzi or in the loan documentation.
17 The defendants had always assumed that the approval had been given on the basis requested in the borrower's application. Approval on the basis of strata sale would not have been in accordance with the legislative scheme applying to the development, or with the terms of the applicable trust deed. If it had been understood that approval was provided on such a basis, it would have meant that the facility agreement would have had to have been put to the unit holders for approval, before the facility was accepted. On the basis of a strata sale, the defendants would not have given the guarantee.
18 The defendants also claimed that the strata basis on which the plaintiff acted to sell the apartments resulted in a lower return than what would have been achieved by way of sale by long term lease. They seek to rely on expert evidence to advance this claim.
19 It was argued that the proposed defences raised issues of fact which clearly required the Court's determination. The evidence of Mr Mizzi would be relevant to the resolution of the question of whether there had been any representations made as to the basis on which the loan had been advanced and whether there was any basis for the beliefs to which the defendants deposed. There was clearly a triable issue as to the misrepresentation case which the defendants wished to advance. They ought not to be deprived of the ordinary opportunity to establish that case.
20 For the plaintiff, it was argued that the defendants' submission, in reality, acknowledged that there were no provisions of the relevant documents on which the alleged misrepresentation rested. The documents all established the plaintiff's entitlement to repayment of the principal; the claimed defences had no foundation and so the leave sought would be refused and judgment on the principal would be given in favour of the plaintiff.