Ellis v Newton

Credit 10There was no suggestion that Mr Ellis was not a credible witness. In my view he was an honest and forthright witness who was inherently credible. 11I did not form a favourable view of the credibility of Mr or Mrs Newton, for reasons which I shall expand upon, but I should draw attention to the fact that Mr Ellis, even on his case, had no discussions with Mrs Newton about the Mortgage or the caveat before they were executed. Mr Levet submitted that even if I were to prefer Mr Ellis' evidence to that of Mr Newton, the practical effect of the absence of any evidence from Mr Ellis about what Mr Newton said to Mrs Newton was that the only path by which Mrs Newton's claim to relief under the Contracts Review Act could be rejected was by a conclusion that she ought not be believed. 12There are some undisputed matters that play an important part in my inability to accept as truthful the account given by Mr and Mrs Newton of the two critical conversations set out in [7] and [8]: (1) At the time that Mr Ellis sought the Mortgage and Consent, SMF had been in arrears with its rent for a lengthy period. (2) Mr Newton told Mr Ellis that SMF was owed money by trade debtors and that he was hopeful that the debts owed would be paid, improving SMF's ability to make rental payments. But SMF continued to be in arrears and in 2004, Mr Ellis issued three statements of claim in the Balmain Local Court against Mr Newton as guarantor on the basis of the failure of Mr Newton to meet his obligations under the guarantee. In relation to the last of these, Mr Newton accompanied Mr Ellis to the Balmain Local Court and received the statement of claim on the day it was issued. (3) Mr Ellis asked Mr Newton to sign and have his wife sign, in addition to the Mortgage, the Consent, and they did so. (4) Mr Ellis assisted Mr Newton to meet obligations to the clients of Mr Kremnizer listed in the Second Schedule of Exhibit E (who I shall collective describe as the "First Mortgagee" ) in respect of a loan from the First Mortgagee, in support of which Mr and Mrs Newton had given a mortgage over their Gladesville Property. In this connection, Mr Ellis required Mr Newton to execute the Deed of Loan. The Deed of Loan (found at pages 47-58 of Exhibit A) was not a document whose binding nature was disputed and Mr Newton did repay the money borrowed from Mr Ellis. The Deed of Loan contains the following recitals (see page 47 of Exhibit A) by which Mr Newton acknowledges that he has guaranteed the obligations of SMF and that arrears of rent are owed: "F. By unregistered mortgage and registered caveat over real property , folio identifier 2/536985, situate and known as 10a Pile Street, Gladesville, New South Wales, ("the Security") Newton and Robyn Laidlaw Newton have guaranteed and secured the performance by Newton of the Guarantee; G. On 12 July 2005, SMF owed to Ellis arrears of rent, interest and outgoings in respect of the Lease, and, in consequence, Ellis was entitled to call upon the Guarantee and/or the Security; H. To engender goodwill, on 12 July 2005 the parties entered into a deed ("the First Deed") to allow Newton extra time to pay the arrears referred to in Recital G; I. Newton did not comply with the First Deed, and, in consequence, Ellis was again entitled to call upon the Guarantee and/or the Security ;" (emphasis added) (5) In November 2005, solicitors then acting for Mr and Mrs Newton wrote to Mr Ellis' solicitors Michie, Shehadie & Co (see Exhibit G): "RICHARD & ROBYN NEWTON - CAVEAT BY DANIEL ELLIS 10A PILE STREET, GLADESVILLE We act for Mr and Mrs Newton and note that you act for Daniel Ellis who has lodged Caveat number AB542983 over our client's above property. Our clients are in the process of refinancing their existing mortgage which has to be repaid before 16 December 2005. We request that you prepare a Withdrawal of the Caveat to enable the refinance to proceed. Our clients have no objection to a new caveat being lodged following registration of the discharge and new mortgage and we are happy to keep you informed as to progress of registration of those documents . Could we please hear from you on this matter urgently as we are sure the existing first mortgagee will not allow any leeway should settlement not take place by the due date of 16 December." (emphasis added) (6) Following the letter referred to in (5) above, Mr Ellis agreed to the removal of the caveat to permit refinancing by Mr and Mrs Newton and a new caveat was lodged in accordance with the promise by the defendants' solicitors. (7) By handwritten letter dated 15 December 2005 addressed to Mr Ellis and signed by both Mr and Mrs Newton (see Exhibit H), the defendants advised of their agreement to: "1. Extend the existing unregistered Mortgage over the above Property for a further 2 years. 2. Give you a caveatable interest in the beforementioned property and we will sign a consent form for you to register a caveat over the property." (8) In a letter of 1 June 2007 from Norman Waterhouse, solicitors then acting for Mr and Mrs Newton, to Mr Ellis' solicitors Michie, Shehadie & Co (see Exhibit D), was contained the following: "We are instructed that the Company had a lease (on a month to month basis) from your client. Mr Newton was the guarantor under the lease. His performance under that lease is secured by a mortgage granted by Mr & Mrs Newton. The Company vacated the leased premises on 24 May, 2007. We confirm that arrangements are currently been made to re-instate the premises in accordance with the lease." (emphasis added) 13In my view, the assertion that a landlord, following non-payment of rent by the tenant and the guarantor (for an extended period), would seek a mortgage and a consent to caveat without intending those documents to provide security against non-payment is fanciful. 14Mrs Newton's evidence of what Mr Newton said to her is corroborated by Mr Newton, and as Mr Levet submitted, cannot be contradicted by Mr Ellis. However, Mr Newton is clearly not an impartial and independent witness. He has a most obvious interest in assisting Mrs Newton to avoid liability on the Mortgage, particularly if the submission made by Mr Levet on her behalf, that invalidity of the Mortgage as against Mrs Newton renders the Mortgage unenforceable against Mr Newton, is accepted. In my view, the convenience of the claims by Mrs Newton as to what her husband told her and the absence of a shred of contemporaneous or even subsequent objective support for her version must be taken into account in assessing the veracity of both defendants. I gained the distinct impression that what Mr and Mrs Newton have done is build a false version of a conversation based upon their understanding that the Mortgage was to remain unregistered, and that Mr Ellis had not witnessed Mrs Newton's signature: see T99. 15There are a number of further aspects of the evidence of Mr Newton that lead me to doubt his veracity and reliability: (1) At a number of points in the cross-examination, Mr Newton gave indications that his recollection of the communications and events was poor: (i) T39.40-45 "Q. Mr Newton, can I suggest to you that what you have deposed to in your affidavit as to the conversation that you say you had with Mr Ellis towards the end of October in relation to the signing of the mortgage and the caveat is untrue? A. I don't recall exactly but I believe it's not." (ii) T43.45-49 "Q. I want to suggest to you that you knew at all times the import of signing this mortgage, that is, you knew that it was effectively granting an interest providing security in a real sense to Mr Ellis in case you didn't meet your obligations as guarantor? A. It's a long time ago." (iii) T64.40-44 "Q. So, can we come back to the issue of the lodgement of the caveat and would you agree with me that you were not surprised that Mr Ellis lodged the caveat in respect of which you had signed the consent to such lodgement at the time that it was so lodged? A. I am sorry, I don't recall. I don't recall my disposition one way or the other." (iv) T73.3-27 "STEELE Q. First of all I take it you prepared that letter yourself? A. I did. Q. And doing your best, sitting there today, what do you recall saying to your wife about this document? A. This particular one? Q. Yes? A. I don't recall, exactly. It was to do with another letter with the lease, that sort of stuff, in order to get an agreement to lift the caveat so that we could refinance. HIS HONOUR Q. What do you recall saying, if anything, to your wife? A. I don't, I don't recall. It's, it's just that Q. I know what the letter says. I want to know what you said, if you can recall? A. I don't recall the exact wording. Q. What, broadly, did you say to her? Do you recall what you said to her, is the first question you need to answer? A. No, I do not recall." (2) In dealing with questions which sought to undermine the genuineness of his version of the events, he stated that he could not recall how he felt: see T42.45-46; T48.28-31 and T75.47-50 . (3) At T44, he asserted that the reason he had not paid the money due from SMF was that he was not asked to pay it, but in fact the statements of claim in the Balmain Local Court were issued against him personally: see T44.31-46 and Exhibit C. (4) He was uncertain as to whether he or his wife had sent a copy of the Mortgage to their then solicitor prior to the letter marked Exhibit D: see T50.47-48, T51.29-45. He asserted that the solicitor had been told that it was not supposed to be binding but at T52.29 agreed that he had not done so. (5) He did not remember whether he told his wife how much in arrears SMF was: see T55.3, but he agreed he would have no reason not to tell her the correct amount. (6) He could not recall whether he had signed the Consent at the same time as he signed the Mortgage: see T57.9. (7) He gave non-responsive answers: see for example T57.13-14, T59.3-8, T64.1-3, T66.22-25, T67.11-14, T69.14-18 and T70.36-38. (8) He was very vague in his recollection of his conversations about expectations as to fees: see T58.44-59.2, and even on what Mr Ellis said to him before the alleged promise that it would not be binding: see T59.47-T60.12, and what he said a few days later to Mr Ellis: T60.20, although at T60.30 he denied that he had told Mr Ellis that his wife had agreed to give a mortgage. (9) He signed the Consent expecting it to be lodged: T63.49 and became aware that it had been lodged six months later: T64.2-3. (10) He said at T63.47-49 that he knew that the caveat would be lodged; at T64.44 he said he did not recall his "disposition one way or the other"; at T67.38 he says Mr Ellis had advised him that "he was not going to lodge any of these documents". (11) The letter, Exhibit G, says nothing to support Mr Newton's claim that the Consent or the Mortgage were not supposed to have any effect and see T68.28-38. Mr Newton asserts that "it probably was said to [his solicitor]" but does not say that he said it to his solicitor: T68.40-69.2. (12) He asserted a number of times that he had signed documents under pressure, both the Mortgage (and the Consent) and the Deed of Loan to which I have referred. In the case of the latter document, the suggestion of pressure at T69.29 was entirely misleading in that that was an agreement by Mr Ellis to lend money to Mr Newton to solve a problem Mr Newton had with the First Mortgagee (in respect of which Mr Newton was in default: T69 and T75). The pressure was not applied by Mr Ellis, and in fact Mr Ellis was assisting Mr Newton (and Mrs Newton who had signed the mortgage to the First Mortgagee). Similarly, any pressure to sign the Mortgage and Consent arose out of the fact that SMF had not paid rent, Mr Newton had guaranteed the payment and Mr Ellis had indicated that he could not permit the situation to continue without security being provided. 16There are a number of aspects of the evidence of Mrs Newton that lead me to doubt her veracity: (1) Mrs Newton denied having executed other mortgages in respect of loans for which she was not the borrower: T80.18, but then said she could not recall if any of the loans related to Mr Newton's business activities: T80.23, T81.15-22 and T82.20-23. Her husband's recollection was that some of the other loans did relate to his business: T61.32-36 and T63.23-34. (2) She was vague about any matters of detail: see (1) and see T84.25-30, T89.25-41, T90.1-4, T90.39-41, T98.39, T105.40-42 and T109.8. (3) Mrs Newton said initially that she could not remember if she read the Mortgage: T88.6-7, but then she positively asserted that she had not read it and then explained that she had not read it because she was assured (by her husband) that it was worthless: T88.12-22. (4) She asserted that she signed the Consent at a different time from the Mortgage and that there was no discussion of the caveat: T89.10-20. This is inconsistent with the evidence of Mr Newton, and the fact that the Mortgage and the Consent were returned to Mr Ellis at the same time. (5) She said that when she signed the Consent she was not sure that she did know it related to the Mortgage: T90.25. (6) Mrs Newton said that the Mortgage and caveat "were providing [Mr Ellis] with a lot of security": T91.14, yet she says that she was told something different: T91.24-25. At T90.39-T92.14 there were the following questions and answers: "Q. It's your husband's evidence that he showed you that document at the same time as showing you the mortgage document; is that your recollection? A. No, I don't recall. Q. Your understanding though when you signed that document was that it was entitling Mr Ellis to place a burden on the title of the Gladesville property? A. Well, everything appeared to be just for safekeeping from my recollection. Q. What do you mean by that? A. For security for Mr Ellis. Q. That's quite right, isn't it, that the point of the mortgage that you executed and consented to register a caveat that you signed was to provide security to Mr Ellis? A. But it was not registered for some time after it was signed, after it was instigated. So it was to be just for safekeeping so to speak, it wasn't to be registered. Q. How did you understand that on that basis there was any security being given to Mr Ellis? A. Can you repeat that? Q. If your understanding was that these were to be put in a top drawer, then how did you think that these documents were providing any security to Mr Ellis? A. They were providing him with a lot of security. Q. It's the case, isn't it, that you understood that when you signed the mortgage, just as you understood in relation to all the other mortgages that you executed, that you were providing security in relation to the obligations of your husband as guarantor under the lease agreement? A. It appears that way. Q. That's the case, isn't it? That was your understanding when you signed the mortgage document? A. It appears that way but that wasn't what I was told and that's not what I thought at the time. HIS HONOUR Q. Now Mr Steele is saying if you say otherwise, as you do, what was the security that you thought Mr Ellis was getting? A. It was security against rent that was owing it would appear. Q. If you say, "I didn't think it was going to have any effect", what sort of security was it? Worthless? A. Well, yes, I guess so. Q. You say that, do you? A. Yes. Q. You thought it was worthless? A. No, I'm not sure what I thought at the time. STEELE Q. Again what I want to suggest to you is what you thought at the time that you executed the mortgage was that you were giving a mortgage to provide security to Mr Ellis and that security was in respect of your husband's obligations as guarantor under the lease agreement? A. I didn't receive any independent advice. Q. That's not my question? A. I know. Q. What I'm suggesting to you is that you understood when you executed that mortgage document in October 2004 that you were putting your interest in the Gladesville property on the line as security for your husband's obligations as guarantor under the lease agreement? A. I must have, I suppose. Q. And that indeed is consistent with all the other mortgages that you have executed, that is, that you have understood that in executing a mortgage you've put your interest in the Gladesville property on the line to secure some obligation to a third party? A. It appears that way." (7) She asserted that she refused to sign the Mortgage at first because she did not understand it (see T86.50-87.9) but at T92.18 she says she does not recall reading it. (8) She gave non-responsive answers, for example at T91.45-49, T92.33-34 and T106.45-47. (9) She said at T93.4 that she didn't know that her husband had told her that he had guaranteed SMF's obligations under the Lease, but she had said in her affidavit that he had told her that: see paragraph 14.1 of Mrs Newton's affidavit at page 61 of Exhibit A. (10) Her assertion that she signed a blank piece of paper (see T96.14-97.45), which Mr Newton filled in, is implausible and not supported by Mr Newton. The letter was handwritten so there was no need for her to sign it in blank from Mr Newton's point of view. I think Mrs Newton felt constrained to say that she had not seen the contents of the letter because its contents are quite inconsistent with her (and her husband's) version of events. Further, she agreed that when she saw the letter in the file three years ago it accords with what she had thought was going to occur: see T98.41-99.4. (11) Mrs Newton did not tell her solicitor, Mr McKnight, that the Mortgage had no legal effect: T99.40. (12) She did not mention in her affidavit that she has worked as an administrator of Student Services at Macquarie University. She attempted to downplay that role: see T101-103 and her role as an administrator for SMF from June 2006: see T103-105 and Exhibits K and L. (13) She offered no credible explanation for the contents of correspondence from her solicitor to Mr Ellis' solicitor (see T106), which is inconsistent with the case she now seeks to propound. 17I unhesitatingly accept Mr Ellis' evidence when it is in conflict with Mr Newton. I find that Mr Ellis did not say that the Mortgage and caveat would not be binding and that he would do nothing with the Mortgage and Consent. 18I am not persuaded that Mr Newton said to Mrs Newton what Mrs Newton claims he said to her. 19It was conceded that Mr Newton's case on the Contracts Review Act was limited to a case based on his version of the conversation. It follows that he is not entitled to relief under this Act. There was argument about whether s 6(2) of the Contracts Review Act excluded Mr Newton's claim for relief since he was a director and shareholder of SMF and a guarantor in respect of that business. Mr Steele accepted that Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 and Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 are authorities against that proposition, but submitted that Multi-Span Constructions No 1 Pty Ltd v 14 Portland Street Pty Ltd [2001] NSWSC 696 leaves open the possibility that if a course of conduct is established this would enliven the exclusion. In view of the conclusion I have reached, that in any event Mr Newton is not entitled to relief under the Contracts Review Act, I do not need to decide this question. 20Mr Levet, in argument, indicated the relevant subsections of s 9(2) of the Contracts Review Act which he claimed assist Mrs Newton, which I shall paraphrase as: (1) material inequalities in bargaining power (s 9(2)(a)); (2) whether the provisions of the Mortgage and Consent were the subject of negotiation (s 9(2)(b)); (3) whether it was reasonably practicable for Mrs Newton to negotiate for alteration or reject provisions of the Mortgage and Consent (s 9(2)(c)); (4) whether independent legal advice was obtained by Mrs Newton (s 9(2)(h)); (5) whether the legal and practical effect of the Mortgage and Consent were explained and whether or not Mrs Newton understood their provisions and effect (s 9(2)(i)); (6) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against Mrs Newton by Mr Ellis and/or Mr Newton (s 9(2)(j)); and (7) the purpose and effect of the Mortgage and Consent (s 9(2)(l)). 21It was conceded that 20 could only be available to Mrs Newton if I accepted her version of the conversation, which I do not. 22There is no doubt that independent legal advice was not obtained by Mrs Newton in relation to the Mortgage and Consent. 23In dealing with Mrs Newton's case on the basis that her husband asked her to sign the documents and she did so without independent legal advice, the following aspects are relevant: (1) The Mortgage is extremely short (see pages 71-73 of Exhibit A) and it is quite simple in its terms. (2) Mrs Newton knew what the effect of a mortgage was. She had executed other mortgages over the Gladesville Property and over another property. (3) I am not persuaded that the other loans in respect of which she was willing to provide a mortgage over the Gladesville Property were not at least in part for purposes connected with Mr Newton's business activities. (4) To the extent that Mrs Newton's case is based on the assertion that she did not read the documents that she signed, she did not establish that she did not read them and I do not accept that she did not read them. (5) Mrs Newton knew what the effect of a caveat and of signing the Consent was. (6) Mrs Newton says she thought that because her signature was not witnessed this meant that the document was not binding. I very much doubt that she had such a belief, but it was not a reasonable belief even if she did. (7) Mrs Newton knew that SMF was behind in its rental payments (see T86.13-17 and T87.50) and she knew by May 2007 that Mr Newton is the guarantor of SMF's obligations under the Lease: see T99.30-32. (8) Mrs Newton is an educated woman of independent means. (9) Mrs Newton was not a debtor to Mr Ellis and was under no pressure from Mr Ellis to execute a mortgage unless the pressure is viewed as being that if she did not provide the Mortgage, Mr Ellis could evict SMF and/or proceed against her husband for the unpaid rent. Mrs Newton consciously chose to support her husband, but no unfair pressure was applied by Mr Ellis in insisting that Mr and Mrs Newton provide the Mortgage and Consent to avoid Mr Ellis suing Mr Newton and/or evicting SMF from his premises. If anything, Mr Ellis seems to have been remarkably patient with SMF and Mr Newton. (10) Mrs Newton was, I infer from Mr Newton's evidence and the absence of compelling evidence from Mrs Newton, content to support her husband in his business activities and the provision of the Mortgage and Consent is consistent with that. 24I do not think that any inequalities in bargaining power have been established. No unfair tactics on the part of Mr Ellis or Mr Newton have been established either. 25In my view, in light of all the circumstances and having regard to the matters to which I have referred, the taking of the Mortgage and the Consent was not unjust and relief should not be granted to Mrs Newton under the Contracts Review Act . That view is reinforced by observing what Mrs Newton did after the Mortgage and Consent were executed and which I have recounted earlier - ie the defendants sought Mr Ellis' agreement to lifting of the caveat by expressly acknowledging the existence of the Mortgage and consenting to the lodgement of caveat for a second time.

The Declaration 26Mr Levet submitted that the declaration sought by Mr Ellis ought not be granted because Mr Ellis could not obtain possession of the Gladesville Property on the basis of an unregistered mortgage. Mr Steele accepts that Mr Ellis cannot obtain possession of the Gladesville Property. It is accepted by the parties that the First Mortgagee has commenced proceedings against Mr and Mrs Newton for possession and sale of the Gladesville Property. I do not accept that a declaration would be of no utility or efficacy. I think it will assist the plaintiff to maintain the caveat and also obtain funds from the First Mortgagee out of any surplus obtained on sale (see Meagher, Heydon & Leeming, Meagher Gummow & Lehane's Equity Doctrines and Remedies 4th ed (2002) LexisNexis Butterworths at [19-055]-[19-070]). 27Although strictly not necessary to do so, I think it is clear from the very detailed and helpful decision of Campbell J (as his Honour then was) in King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 64 NSWLR 441 that even if Mrs Newton were entitled to relief under the Contracts Review Act, Mr Ellis would be entitled to apply for an order for judicial sale of the Gladesville Property to obtain satisfaction of the judgment debt out of Mr Newton's share of the net proceeds of sale.

Conclusion 28It follows that there should be judgment for Mr Ellis against Mr Newton in the amount of $189,224.37 (with an adjustment from 7 February 2011 to date) and a declaration in the terms sought in paragraph 1 of the summons (set out in [3] above).

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: 16 March 2011