First Mortgage Managed Investments Limited v Pittman [2015] NSWSC 265 | Case summary

Supreme Court of NSW|2014-12-18|Before: Garling J

Judgment

This judgment deals with the Cross-claim brought by Mr Pittman and Mr Webster against Ms Margot Locke. It is described in the pleadings as the Second Cross-claim, but it will be convenient to refer to it as the Cross-claim because it is the only remaining extant cross-claim.
The other Cross-claims, namely, the one brought against First Mortgage Managed Investments Ltd ("FMMI"), and, the other brought against a solicitor, Mr Edwards have been determined or resolved.
The immediate background to this judgment is contained in two judgments of the Court dealing with interlocutory motions brought by Ms Locke with respect to the pleadings, and the evidence relevant to the disposition of this cross‑claim. The first Motion was determined in December 2014 by an ex tempore judgment. The reasons for judgment have since been published: First Mortgage Management Investments Pty Ltd v Pittman (No.2) [2014] NSWSC 1929.
The second motion was heard in February 2015, and determined by a judgment delivered on 6 March 2015. Those reasons for judgment can be found at First Mortgage Management Investments Pty Ltd v Pittman (No 3) [2015] NSWSC 162.
I have drawn on the contents of those judgments where convenient. I will assume familiarity with those judgments.

Outline of the Proceedings

It is necessary to briefly outline the history of the proceedings including this Cross-claim
The proceedings were commenced by the plaintiff, First Mortgage Managed Investments Pty Ltd (FMMI), against Mr Pittman and Mr Webster in 2008. Ms Margot Locke was not joined as a party to the claim of FMMI.
During the preparations for the hearing, Mr Pittman and Mr Webster filed three cross-claims (although contained in the same pleading). The first was against FMMI, the second against Ms Locke, and the third against Mr Christopher Edwards, a solicitor.
The proceedings were fixed for a final hearing to commence on 4 July 2011. On that day, the Court was informed that the cross-claim against Mr Edwards had settled. Orders were made by consent disposing of it.
The hearing of FMMI's claim against Mr Pittman and Mr Webster proceeded, together with the hearing of the remaining two cross-claims. Evidence was tendered, witnesses were called, cross-examination took place. The factual accounts given in evidence, by each of the witnesses, were challenged (in whole or in part), by way of cross-examination. Evidence was in part contradictory. There were inconsistencies in the evidence which required resolution.
At the conclusion of the hearing, submissions were made by counsel for FMMI, and counsel for Mr Pittman and Mr Webster. The submissions canvassed disputed findings of fact, the credibility of Mr Pittman and Mr Webster, and other witnesses. The submissions canvassed the role taken by Ms Locke in the central loan and guarantee transactions which were canvassed. The submissions sought findings which were adverse to Ms Locke.
Although Ms Locke had been represented by lawyers earlier in the proceedings, by the time the hearing commenced, those lawyers had ceased to act for her, and Ms Locke did not appear at the hearing. She was not called as a witness by any other party, and gave no evidence in the proceedings. No submissions were made by her.
On 1 November 2012, judgment was delivered in which it was determined that that a loan agreement between FMMI and Basil James Pittman and Rex Neil Webster, which was entered into in 2006, and a variation to that loan in 2008, were unjust within the meaning of the Contracts Review Act 1980. The Court determined, on the evidence then before it, that Mr Pittman and Mr Webster should be relieved of any obligation under those agreements and any consequential security documents entered into. This relief was granted to reflect the claims made in the Cross-claim by Mr Pittman and Mr Webster against FMMI.
Because Mr Pittman and Mr Webster wholly succeeded on their claims against FMMI, and were wholly relieved of any financial liability to FMMI, the Court was asked to, and did, dismiss the Cross-claim brought by Mr Pittman and Mr Webster against Ms Margot Locke.
The reasons for judgment and orders were published: First Mortgage Managed Investments Ltd v Basil James Pittman [2012] NSWSC 1332 ("first instance judgment").
Ultimately, the judgment shows that findings on contentious matters were made, and the issues posed on the pleadings were determined. FMMI appealed against the first instance judgment and orders to the Court of Appeal.
On 7 April 2014, the Court of Appeal upheld an appeal by FMMI against the first instance judgment. The Court of Appeal agreed that although the loan transactions were unjust, the orders as to relief ought to be set aside. The Court of Appeal received evidence on this issue which was not before the Court at first instance.
The Court of Appeal allowed the appeal in part: see First Mortgage Managed Investments Pty Ltd v Pittman [2014] NSWCA 110. Although specific orders were not made at that stage it was readily apparent from the reasons of the Court of Appeal, that one of the orders to be made would involve a monetary judgment in favour of FMMI and against Mr Pittman and Mr Webster. This was entirely different from the circumstances in the first instance judgment. It required the further consideration of the dismissal of the Cross-claim against Ms Locke.
Mr Pittman and Mr Webster sought leave, out of time, to file a cross-appeal naming Ms Locke as a cross-respondent, seeking an order setting aside the order for the dismissal of the Second Cross-claim in the first instance judgment. On 19 August 2014, the Court of Appeal granted that leave. Orders were made by the Court of Appeal which were intended to ensure that the existence of that application for leave, and the Cross Appeal came to the attention of Ms Locke.
Further, on 19 August 2014, the Court of Appeal upheld the cross-appeal, set aside the first instance order dismissing the Second Cross-claim, and remitted the Second Cross-claim of Mr Pittman and Mr Webster against Ms Locke to me for hearing and determination: see First Mortgage Management Investments Pty Ltd v Pittman (No.2) [2014] NSWCA 272.
On 31 October 2014, the Court of Appeal made final orders in the substantive appeal including: "3. Judgment for [First Mortgage Managed Investments Pty Ltd] against [Mr Pittman and Mr Webster] in the sum of $1,951,266 (judgment sum), such sum to be payable within six months of these orders."
This fixed for the first time the quantum of monies owed by Mr Pittman and Mr Webster to FMMI. It also crystallized the sum of money which would be sought in the Cross-claim by Mr Pittman and Mr Webster from Ms Locke. The Court of Appeal made various consequential orders and published its reasons: see First Mortgage Managed Investments Pty Ltd v Pittman (No.3) [2014] NSWCA 361.
Pursuant to the orders of the Court of Appeal, the proceedings on the Second Cross-claim were listed before the Court on 5 December 2014. On that day, Ms Locke, who was then representing herself, provided the Court with a Notice of Motion. The hearing of that Motion was adjourned to 18 December 2014. Thereafter, the two Motions brought by Ms Locke were heard and disposed of as described in [3] and [4] above.
At the conclusion of the hearing and disposition of the first motion, directions were given for each party to the Cross-claim to file and serve written submissions as to the appropriate disposition of the Cross-claim. Submissions have been received.
On 6 March 2015, when judgment was delivered on the second motion, Mr Rosenblatt, the solicitor who appeared for Ms Locke, foreshadowed that he may, after considering the reasons for judgment wish to make some further submissions. He informed the Court that if he did not then the Court should regard his earlier written submissions as containing all that he wished to put before the Court for its consideration in determining the Cross-claim. The Court indicated that it would reserve its decision on the disposition of the Cross-claim.
No further written submissions have been made by Ms Locke. The Court has not been informed that she wishes to make any further submissions. Sufficient time, in all of the circumstances, has passed for any further submissions to be made.
It is now necessary to determine the Cross-claim brought by Mr Pittman and Mr Webster against Ms Locke.

Relevant Pleadings on the Cross-claim

The Cross-claim pleaded a number of different causes of action. In submissions, counsel for Mr Pittman and Mr Webster made it plain that in light of the state of the pleadings, and the findings of fact which had been made in the first instance judgment, he wished to proceed only on one of those causes of action, namely that cause of action with respect to breach of contract.
Accordingly, it is only necessary to examine, consider and determine that cause of action.
In paragraph 55 of the Cross-claim, Mr Pittman and Mr Webster alleged that in about 2006, Ms Locke entered into an agreement with them, which they referred to as the 2006 Agreement, pursuant to which: Ms Locke would arrange for funds to be lent by FMMI for the purposes of her property development; Ms Locke would have the sole responsibility for repaying the principal and interest on that loan; Ms Locke would provide property of which she was the registered proprietor as the primary security for the loan; Mr Pittman and Mr Webster would sign such documents as Ms Locke required in order to give effect to the loan; and neither Mr Pittman nor Mr Webster would be obliged to repay any of the principal or the interest.
In the Defence to the Cross-claim, Ms Locke responded to this allegation by admitting that the 2006 Agreement was entered into, and that the terms were as alleged, with the exception that she did not admit that she would provide property as the principal security for the loan.
In paragraph 56, the Cross-claim further alleged that, in breach of the 2006 Agreement, Ms Locke failed to make all of the required repayments of principal and interest on the loan. In her defence, Ms Locke admitted that this was so, although she pleaded that she had made some payments.
In paragraph 57 of the Cross-claim, Mr Pittman and Mr Webster pleaded that by reason of the breach of contract by Ms Locke, they had suffered loss and damage constituted by, at least, the amount of any liability which they were found to owe to FMMI. Ms Locke's defence did not specifically traverse this allegation. However, since the Cross-claim is a pleading of the suffering of damage, the allegation is taken to be traversed: see r14.26(3) of the Uniform Civil Procedure Rules 2005 ("UCPR").
However, in light of the findings of the Court of Appeal, the fact that Mr Pittman and Mr Webster have suffered damage from the failure of Ms Locke to make repayments of the principal and interest of the FMMI loans is beyond rational argument. The absence of a specific admission of this pleading does not tell against the relevant findings.
On the basis of the pleadings, and the admissions made in them, and in light of the fact that Mr Pittman and Mr Webster are obliged to repay $1,951,266.00 to FMMI, then the Court would be entitled to enter judgment on the Cross-claim for that sum in favour of Mr Pittman and Mr Webster.

Findings of Fact Relevant to the Cross-claim

Although the first instance judgment will need to be read as a whole, it is convenient to highlight some of the findings which were made.
At [83], I found that Mr Pittman and Mr Webster had no financial interest in the property developments of Ms Locke which were being funded (directly, or indirectly) by the FMMI loan. I said: "… , I am satisfied that the fact was that, at no time, did either of Mr Pittman or Mr Webster have any financial interest in the property development projects. They were not joint venturers with Ms Locke. They were not given any financial reward from the projects. They had no role to play in the projects (except when Mr Webster did a limited amount of unpaid labouring work on a subdivision in the Blue Mountains area, unpaid and for a short period). They had never been to the Razorback area, and knew nothing at all about the nature and size of the projects, their financial viability, the financial risks involved, the extent of borrowings for the project and the anticipated returns. They knew nothing of Ms Locke's own financial position, nor her capacity to service the loans."
The first instance judgment addresses the state of mind of Mr Pittman and Mr Webster. At [156] to [158], I said: "156 The defendants, Mr Pittman and Mr Webster, gave evidence about what they knew and understood and the state of their minds generally in December 2006, at the time when the various mortgages and other related documents were signed. 157 The context in which to understand their evidence, and make findings that are relevant, is that of their general learning and education, or lack of it, their lack of commercial understanding and limited capacity to read, let alone understand, documents. Reference has been made to these personal features earlier in this judgment. 158 Additionally, the clear context was, regardless of what the documents themselves said, that the loan was being sought by Ms Locke for the purposes of her property development activities, in particular the subdivision taking place at Razorback, and it was Ms Locke, or one of her companies, which was to receive the entirety of the proceeds of the loan, in excess of the component for refinancing the existing borrowings. Mr Webster and Mr Pittman were not to, and did not, receive any sum of money at all from First Mortgage."
The 2006 Agreement was considered, and the subject of these findings. At [165] to [169]; "165 Both Mr Pittman and Mr Webster gave evidence, which I accept, that their understanding was that Ms Locke was responsible for repaying the money, that they were not the borrowers, that Ms Locke's property was secured to support the loan and that, at best, they were providing a security which was not the first security to be called upon by the bank, and further the security was being provided in circumstances where it was most unlikely to be called upon. 166 … . 167 It is clear that neither of them understood that they were the borrowers. They each had an understanding that their property was being used as security, in effect of last resort, but their understanding was a long way from that which an average person would understand about all of the ramifications and conditions of this particular loan transaction and the mortgages which were to secure the loan. They did not have the benefit of appropriate advice to assist in their understanding. 168 Mr Pittman thought that, with respect to the First Mortgage loan, Ms Locke would be arranging for the payout of it and that, in a worst case circumstance, if Ms Locke did not abide by her commitment to pay out the loan, he understood that First Mortgage could take his land. But the context for this understanding was, based upon such reassurance and blandishments which Ms Locke had given them, that he believed that there was no realistic prospect of the security being called upon, and that Ms Locke would be responsible for and was capable of, attending to all of the obligations to First Mortgage. Mr Pittman had no concept, or belief, that there was any real risk that his property may be taken by First Mortgage. 169 Mr Webster specifically rejected the proposition that his understanding in December 2006 was that First Mortgage could sell his land without first resorting to Ms Locke's land. Mr Webster understood that the land was being mortgaged to First Mortgage, but not that Ms Locke had no legal obligations with respect to the loan and mortgage. On the contrary, he understood that Ms Locke was legally obliged to repay the funds in full. He did not comprehend that he was a borrower."

Discernment

These findings, on their own, would be sufficient to lead to a conclusion that the contractual cause of action in the Cross-claim has been successfully proved. However, when taken together with the admissions made in the pleadings, I am abundantly satisfied that the Cross-claimants have proved the existence of the agreement pleaded, the breach of that agreement and that they have suffered loss.

Orders

The Court orders: 1. Judgment for the Cross-claimants, Mr Pittman and Mr Webster, against the Cross-defendant, Ms Locke, in the sum of $1,951,266. 2. Judgment to take effect from 31 October 2014. 3. Order the cross defendant, Ms Locke, to pay the costs of the Cross-claimants, Mr Pittman and Mr Webster of the Second Cross-claim.

Amendments 20 July 2015 - Incorrect information on coversheet. 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: 20 July 2015

First Mortgage Managed Investments Limited v Pittman

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Judgment (8 paragraphs)

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