Hoad v GEL Custodians Pty Limited

The Fastdoc Declarations 5On 7 September 2006 Mr Hoad and Ms Anderson applied to GEL for a 'fastdoc' loan of $316,800 so that they could purchase Lot 50, Barrington Drive Tamworth (Lot 50.) A fastdoc loan involves minimal documentation and relies heavily on the accuracy and honesty of the information provided by the putative borrower. In support of the application Mr Hoad and Ms Anderson separately completed a 'Fastdoc Declaration of Financial Position' and declared their 'gross income available to meet my/our financial commitments'. Mr Hoad declared that his gross income was $109,000 and Ms Anderson declared that her gross income was $105,000. The application was approved and on 22 September 2006 the parties entered into a loan agreement. The funds advanced were used to purchase Lot 50. 6On 21 November 2006 Mr Hoad and Ms Anderson submitted a second application for a fastdoc loan of $235,200 to finance the purchase of Lot 38, Barrington Drive, Tamworth (Lot 38) and Lot 52, Barrington Drive, Tamworth (Lot 52.) In the fastdoc declaration Mr Hoad declared that his gross income was $109,000 and Ms Anderson declared that her gross income was $105,000. The application was approved and on 12 December 2006 the parties entered into a loan agreement. The funds advanced were used to purchase Lot 38 and Lot 52. 7On 20 September 2007, the Mr Hoad and Ms Anderson submitted a third application for a fastdoc loan of $315,200. Its purpose was to finance the construction of a dwelling on Lot 38. In the fastdoc declaration Mr Hoad declared that his gross income was $145,000 and Ms Anderson declared that her gross income was $148,000. The application was approved in October 2007 but was subject to Mr Hoad and Ms Anderson providing a land tax certificate to GEL's solicitors and GEL's insurers providing lender's mortgage insurance (LMI.) In January 2008 Mr Hoad and Ms Anderson were informed that the loan agreement had come to an end because they had failed to provide GEL's solicitors with a land tax certificate. 8In May 2008 and again in September 2008 Mr Hoad and Ms Anderson re-submitted their application for the fastdoc construction loan. Ms Anderson now declared her income to be $155,000. GEL declined both further applications following the refusal of LMI by its insurer.

Gross Income Available 9I am satisfied that the evidence establishes that, as at the date of each of her fastdoc loan applications, Ms Anderson's gross income available was substantially below the amounts that she declared to GEL. Further, with respect to Mr Hoad's application in September 2007, his income at that time was also substantially below the amount declared. 10The phrase 'gross income available to meet my ... financial commitments', as it appears on each of the fastdoc declarations, should be interpreted in context and having regard to the ordinary meaning of the words used. The ordinary meaning of the words used is the gross income, that is the pre-tax income, or the assessable or taxable income, of the individual who has signed the fastdoc declaration and who is the applicant for the relevant loan. 11That in turn directs attention to: (a)The recurrent income available to the applicant to service the repayments over the life of the loan, as opposed to one-off receipts of a capital nature, such as the sale of an asset, a borrowing, an insurance payout or the refund of GST by the ATO; (b)The income available to the applicant on an annual basis, in particular in the 12 month period leading up to or including the date of the declaration or the current or immediately preceding financial year; and (c)The income available to the applicant, including any profit distributions or dividends personally received by the applicant from any company or partnership in which she or he has an ownership interest in the relevant year, as opposed to the gross revenue received by the company or partnership before accounting for the business expenses of the company or partnership. 12A reasonable lender in the position of GEL, and reasonable applicants in the position of Ms Anderson and Mr Hoad, would, in my view, have understood that the purpose of the fastdoc declarations was to ascertain the financial position of each applicant having regard to those considerations. A lender assessing a fastdoc application is unlikely to be satisfied by speculative projections about likely or possible future income, especially where a projected future income stream is dependent upon, for example, the construction of a dwelling on vacant land or the proposed sale or lease of real estate following the proposed construction of a dwelling on vacant land. A bald and optimistic figure which is dependent on supposition, speculation and hypothesis is not what is intended by the phrase 'gross income available' where it appears in the fastdoc declaration.

The Taxation Records 13During each of the financial years ending 30 June 2005 through to 30 June 2008, Ms Anderson's taxable income was less than $15,000 per annum. Almost the entirety of her income was from the 'Parenting Payment Single' Centrelink benefit. In her personal income taxation returns lodged with the ATO, Ms Anderson declared that she received assessable income of $12,712 in the year ended 30 June 2006; $1,605 in the year ended 30 June 2007; $6,633 in the year ended 30 June 2008; and $23,567 in the year ending 30 June 2009. 14At no time during the years ending 30 June 2006 to 30 June 2009 did Ms Anderson receive any income from the two companies of which she was a director. The companies are NSW Country Living Pty Ltd (ACN 107194954), which was deregistered in 2011, and Clever Living Concepts Pty Ltd (ACN 114241351), which was deregistered in 2007. The company tax returns for NSW Country Living Pty Ltd for the years ending 30 June 2006, 30 June 2007, 30 June 2008 and 30 June 2009 signed by Ms Anderson and lodged with the ATO on 20 June 2010 all showed zero taxable income and substantial carried forward losses (totalling $179,812 in 2009.) The company tax return for Clever Living Concepts Pty Ltd for the year ending 30 June 2006 showed a total income of $3,773 and expenses of $21,874, producing a loss of $18,101. The company tax returns for the years ending 30 June 2007, 30 June 2008 and 30 June 2009 signed by Ms Anderson and lodged with the ATO on 28 March 2012 all showed zero taxable income and carried forward losses. 15Mr Hoad's individual tax return for the year ending 30 June 2006, lodged with the ATO on 11 July 2007, showed a taxable income of $75,598.00. For the year ending 30 June 2007, a financial report for Mr Hoad (ABN 82 493 901 128) prepared by Malvern Matthews Smith and executed by Mr Hoad on 24 April 2009 showed a total profit before income tax of $81,161.57 for his business. However, Mr Hoad filed an individual tax return for the year ending 30 June 2007 reporting a taxable income of $49,717. He asserts that any difference is due to the negligence of his former accountant. It is unclear whether Mr Hoad filed individual tax returns for the years ending 30 June 2008 and 30 June 2009. 16On 18 December 2007, Mr Hoad and Ms Anderson lodged a partnership tax return for the year ending 30 June 2006 for their partnership - N J Anderson & S M Hoad t/as NASH UHD Properties (ABN 92 038 571 379.) It showed no business profit and a loss of $325. On 28 February 2008, a partnership tax return for the year ending 30 June 2007 was lodged with the ATO showing a loss of $23,558 divided equally between the two partners.

Centrelink and Social Security Appeals Tribunal Records 17Ms Anderson's tax returns for the 2005, 2006 and 2007 income tax years, and the payment summaries provided by Centrelink, indicate that her entire taxable income was derived from government pensions and benefits, primarily the Parenting Payment Single benefit. 18Between 2006 and 2008 Ms Anderson made various statements to Centrelink about her income. These included: (a)On 18 October 2007, Ms Anderson wrote to Centrelink updating her estimated income for Family Assistance Office calculation purposes. Ms Anderson estimated that her taxable income for 2007/2008 was $12,000. (b)In profit and loss statements lodged with Centrelink on 28 November 2007, the NASH UHD Properties partnership was reported as incurring a net loss of $46,197.08 for the period 1 July 2006 to 30 June 2007 and a net loss of $1,594.52 in the period from 1 July 2007 to 15 November 2007. (c)On 10 January 2008, in a Centrelink form signed by Ms Anderson, she declared that the gross income from a business known as a 'Regional Ancillary Services', of which she was the sole trader, in the period 16 August 2007 to 10 January 2008 was $4,662, and that, after expenses her net income was a loss of $1,553. (d)On 8 December 2008, in another Centrelink form signed by Ms Anderson, she declared that her estimated taxable income for 1 July 2007 to 30 June 2008 was a loss of $10,000; and from government pensions or benefits, $7,812; producing a total estimated taxable income of negative $2,188. 19At no time during the period 1 July 2005 to 5 February 2008 did Ms Anderson notify Centrelink that she was receiving annual income from any source in an amount greater than $4,500. 20On 11 January 2008, Centrelink cancelled Ms Anderson's Parenting Payment Single benefit because her income was over the relevant threshold. Ms Anderson then successfully challenged this decision in the Social Security Appeals Tribunal, and in February 2011 Centrelink's decision was set aside. Ms Anderson's written submissions to the Tribunal included the following statements: (a)She informed Centrelink that on 8 August 2007 an entity called 'Great Mates' had gone into liquidation, and she had not been paid for the work she had done and possibly would not be paid for that work; (b)She said that, prior to 16 August 2007, her Regional Ancillary Services business had not received any income, but had expended moneys that could not be recovered; (c)She said that, as of 10 January 2008, 'my income was in the minus due to extraordinary travel necessity, and so there was no income to declare'.

Mr Potter 21In support of its cross-claim GEL engaged a chartered accountant, Mr Potter, to provide an expert opinion on the gross income available to Mr Hoad and Ms Anderson when they submitted their fastdoc loan applications in September 2006, November 2006, October 2007, May 2008 and September 2008. 22In a carefully reasoned report, Mr Potter concluded that: (a)The gross income of Mr Hoad and Ms Anderson at the time of the September 2006, November 2006 and September 2007 loan applications was approximately half of the income that was declared to GEL. Ms Anderson had almost no gross income, while Mr Hoad's gross income was closer to the income declared. The level of business expenses appeared to be in excess of $50,000 in the years ended 30 June 2006 and 30 June 2007; (b)The gross income of Mr Hoad and Ms Anderson at the time of the May 2008 and September 2008 loan applications was approximately two thirds of the income declared to GEL. The level of business expenses appeared to be in excess of $50,000 in the year ended 30 June 2008; (c)The Business Activity Statement records of Mr Hoad and Ms Anderson, as well as their associated entities, were late and not up to date at the time of the loan applications in October 2006, November 2006, September 2007, May 2008 and September 2008. 23Mr Potter determined, and I accept, that the gross income (before business expenses) and the net income (after business expenses) of Ms Anderson and Mr Hoad in each relevant year was as follows: Date of fast-doc declaration Income declared to GEL Gross income determined by Mr Potter Total expenses identified by Mr Potter (for Ms Anderson and Mr Hoad) Net income determined by Mr Potter (for Ms Anderson and Mr Hoad) ($) ($) ($) ($) 7 September 2006 Ms Anderson: 105,000 Ms Anderson: 1,538 (56,521) 49,067 Mr Hoad: 109,000 Mr Hoad: 104,049 Total: 214,000 Total: 105,588 21 November 2006 Ms Anderson: 105,000 Ms Anderson: 1,854 (54,399) 51,820 Mr Hoad: 109,000 Mr Hoad: 104,365 Total: 214,000 Total: 106,219 20 September 2007 Ms Anderson: 148,000 Ms Anderson: 6,969 (51,618) 83,247 Mr Hoad: 145,000 Mr Hoad: 127,896 Total: 293,000 Total: 134,865 19 May 2008 Ms Anderson: 155,000 Ms Anderson: 48,416 (47,035) 126,624 Mr Hoad: 145,000 Mr Hoad: 125,243 Total: 300,000 Total: 173,659 12 September 2008 Ms Anderson: 155,000 Ms Anderson: 64,013 (12,523) 147,062 Mr Hoad: 145,000 Mr Hoad: 95,572 Total: 300,000 Total: 159,585

24Mr Potter further noted in his report that Mr Hoad and Ms Anderson had confused the concepts of income and capital when completing the various fastdoc declarations. For example, Ms Anderson included the value of assets, funds by way of borrowing, and Centrelink payments, in her assertion as to the level of her gross income available. Mr Potter stated that such non-income items should not have formed part of the income declarations made by Mr Hoad and Ms Anderson. 25In his oral evidence, Mr Potter was asked to comment on a spreadsheet served by Ms Anderson on the eve of the hearing. The spreadsheet listed the alleged 'income' items that made up Mr Hoad's and Ms Anderson's gross available income between 31 July 2005 and 30 June 2009. Mr Potter made the following observations: A. One point I want to make is that the spreadsheet confuses income with what I would call capital items, whether it is the sale of an asset, which is not income as such, or borrowing money from the bank, I don't believe that is income, or recovery of an insurance claim for damage to a vehicle, I don't believe that's income as such. 26Mr Potter is a highly experienced accountant. He was an impartial and impressive witness. He supported his criticisms of Ms Anderson's spreadsheet by reference to many individual items on which she relied that are clearly not income, or not in the nature of recurrent earnings. I see no reason to depart from his findings as to the gross income available to the plaintiffs when they applied for finance from GEL.

The Evidence of Ms Anderson and Mr Hoad 27In her oral evidence Ms Anderson said that when she submitted the various fastdoc loan applications her sources of income were from: (a)NSW Country Living Pty Ltd; (b)Clever Living Concepts Pty Ltd; (c)NJ Anderson and SM Hoad Partnership; (d)Income received personally from government benefits or as a self-employed sole trader using the ABN 89 147 798 16; and (e)Professional foster care and other services provided pursuant to contracts with non-government service providers. These included businesses known as Life Without Barriers, Lifestyle Solutions, Great Mates, North West Community Care and Tamworth Professional Marketing. Ms Anderson asserted that income derived by her from these businesses was (or included) non-assessable income. 28However, the true picture was somewhat different and Ms Anderson made a number of concessions as to her true financial position. As to NSW Country Living Pty Ltd and Clever Living Concepts Pty Ltd, Ms Anderson admitted that in the financial years ending 30 June 2006 and 30 June 2007, both companies had carried forward tax losses, and that at no time did she receive any dividends, director's fees or income distribution from either company. 29As to the NJ Anderson & SM Hoad partnership, Ms Anderson conceded that at no time in 2006 or 2007 did the partnership distribute any dividend or produce any profit. Ms Anderson also admitted that at no time in 2006, 2007 and 2008 did she earn income as a sole trader. Further, Ms Anderson admitted that in the period September 2006 to January 2008, she received no income from the businesses known as Life Without Barriers, Lifestyle Solutions or Great Mates, and that she did not personally foster a child until early February 2008. Significantly, Ms Anderson also conceded that at the time of signing the first fast-doc declaration on 4 September 2006, she was aware that her taxable income for the 2006 income year was approximately $12,000. 30In his oral evidence Mr Hoad stated that as at September 2006, November 2006 and September 2007, his sole source of income was from his engineering business, TamTec Engineering, which he conducted as a sole trader. Regarding his income in 2006, Mr Hoad conceded that it was 'probably right' that his taxable income for the year ended 30 June 2006 was approximately $76,000. He also accepted that the NJ Anderson & SM Hoad partnership returned a net loss of $325 in the year ended 30 June 2006. Regarding his income in 2007, Mr Hoad admitted that from September 2006 to September 2007 he had not received income anywhere near the amount of $145,000, which he declared on his 10 September 2007 fastdoc declaration.

Alleged Income Items 31With regard to the 'income' declared by Ms Anderson in her September 2006 and November 2006 fastdoc declarations a number of items were not income at least within the meaning of 'gross income available' in those documents. I make the following observations: (a)The sale of Ms Anderson's investment property at 1 Joe Coates' Place Manilla for $25,500 in April 2006 was the sale of an asset, and is not income; (b)The Centrelink pension received by Ms Anderson in 2005-2006 totalling $12,712 does not count as gross available income. GEL's policy documentation and Centrelink's published guide to payments in 2007 state that means-tested Centrelink benefits ought not to be treated as income for loan assessment purposes; (c)The sale of a NSW Country Living Pty Ltd investment property at 15 Garden Street, Kootingal for $302,000 in November 2005 was the sale of an asset, and is not income. Further, the sale price was $290,000 not $302,000. In any event, of the proceeds, $243,703 went to Westpac to repay a mortgage over the property, and the rest was subject to a dispute and a claim for legal fees. Only a small proportion of the proceeds were ultimately received by NSW Country Living Pty Ltd. That receipt did not occur until 2009; (d)Although Ms Anderson relied on Great Mates cash payments of $8,320 and $6,290 in April and May 2006, Mr Potter was not able to locate any evidence of the receipt of these amounts by Ms Anderson. I am therefore not satisfied that they were made, let alone that they constitute gross available income; (e)Ms Anderson relied on projected rental income for lease of dwelling to be constructed on Lot 50 but there was no reasonable expectation that any such rental income would be received within 12 months of her loan applications. 32With regard to the 'income' declared by Ms Anderson in her September 2007 fastdoc declaration, I make the following further observations: (a)There were no profits derived from the NJ Anderson and SM Hoad Partnership. Ms Anderson admitted that as at 1 September 2007 the partnership was not producing any income. The tax records of the partnership showed a loss; (b)There is no basis for including 'income' of up to $39,000 from Regional Ancillary Services due pursuant to a contract with Life Without Barriers. Ms Anderson's taxable income was less than $15,000 during each of the financial years ending 30 June 2005 to 30 June 2008; (c)Business Activity Refunds of GST totalling $42,484 do not count. The refund of GST previously paid by a taxpayer does not constitute income; (d)Centrelink Pension payments received by Ms Anderson in 2006-2007 totalling $13,330 do not count. GEL's policy documentation and Centrelink's published guide to payments in 2007 state that means-tested Centrelink benefits ought not to be treated as income for loan assessment purposes; (e)The payment of insurance claim of $20,888.18 by NRMA Insurance does not count. The receipt of compensation under an insurance policy is not income; (f)There was no income received from Great Mates. Ms Anderson conceded that she did not receive any income from this entity in the relevant period; (g)The projected rental income of between $21,800 and $39,000 for the lease of a dwelling to be constructed on Lot 38 does not count. There was no reasonable expectation that rental income would be received within 12 months of the loan applications; and (h)The balance of funds received from the settlement of the Kootingal property transaction is not income as it related to the sale of an asset. 33In relation to the income declared by Mr Hoad in his September 2007 fastdoc declaration, I make the following observations: (a)The income of $115,789 said to be derived from a business known as 'Unimin' can not be relied upon. This figure failed to take into account any business expenses incurred in producing revenue from Unimin. The net income after accounting for business expenses would be much less; (b)The sale of a Land Cruiser four-wheel-drive for $40,000 is not income as it relates to the sale of an asset; (c)The projected rental income of between $21,800 and $39,000 for the lease of dwelling to be constructed on Lot 38 is too remote. There was no reasonable expectation that rental income would be received within 12 months of the loan application. 34For all of those reasons, I am satisfied that the plaintiffs understated their gross income available in the fastdoc declarations. Their actions amounted to misleading or deceptive conduct in the light of all the relevant circumstances: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at [14]. It was likely to lead, and did lead GEL into error: Miller & Associates v BMW at [15]. Liability does not of course require any intention to mislead or deceive: Yorke v Lucas (1985) 156 CLR 661 at 666 (Mason A-CJ, Wilson, Deane and Dawson JJ); Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 605. 35The evidence shows that when Ms Anderson submitted her fastdoc declarations, her gross income available was substantially below the amounts declared to GEL and she had no reasonable basis for making those declarations. As at the date of his loan application in September 2007, Mr Hoad's income was substantially below the amount declared in his fastdoc declaration and he had no reasonable basis for making that declaration. By inflating their 'gross income available' in their loan applications, Mr Hoad and Ms Anderson induced GEL to enter into a creditor-debtor relationship, when it would not otherwise have done so. I am satisfied that but for Mr Hoad and Ms Anderson's misrepresentations, GEL would not have approved any of their loan applications.

Hypothetical Evidence 36GEL called Mr Philpott, the Chief Appraiser of GEL in Australia and New Zealand, to give evidence that if GEL had known that Mr Hoad and Ms Anderson had misrepresented their gross income available in their loan applications, GEL would have refused to make the loans. I have misgivings about evidence of this nature, especially where a judge is capable of drawing inferences from the proved facts, which would enable him to determine the relevant question. All too often such evidence is a tangential excursion into the unreliable world of supposition and speculation. However, although I do not like it, I accept that hypothetical evidence of this nature is frequently admitted to prove reliance and inducement in cases involving alleged misleading conduct: Allstate Life Insurance Co v Australia & New Zealand Banking Group (No 32) (1996) 136 ALR 627; Seltsam Pty Ltd v Mcneill [2006] NSWCA 158; Almario v Varipatis [2012] NSWSC 1557. It should be noted however that in some cases, depending on the particular facts, such evidence may nonetheless be 'so hypothetical, self-serving and speculative as to deserve little (if any) weight': Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 582 (per Samuels JA); Hoyts Pty Ltd v Burns (2003) 77 ALJR 1934 at 1943 (per Kirby J.) I do not think that this is one of those cases. 37Mr Philpott's evidence was reasoned and rational. I considered it to be a reliable guide in assisting me to determine the questions of reliance and causation arising from the misleading or deceptive conduct of Mr Hoad and Ms Anderson. The evidence of Mr Philpott fortifies me in concluding that if the plaintiffs had accurately stated their true financial position when they applied for finance, GEL would have refused to enter into any of the loan agreements and this litigation would have never arisen. I would, however, have reached the same conclusion without Mr Philpott's evidence. 38I am therefore satisfied that Ms Anderson engaged in misleading or deceptive conduct by overstating her gross income available in her September 2006, November 2006 and September 2007 loan declarations; that Mr Hoad engaged in misleading or deceptive conduct by overstating his gross income available in his September 2007 loan declaration; and that their conduct caused loss to GEL. 39GEL did not plead that Mr Hoad had a direct liability for misleading or deceptive conduct in the 2006 applications. He was however knowingly involved in Ms Anderson's misleading or deceptive conduct in those applications. He admitted that he knew that when Ms Anderson signed her fastdoc declarations in September 2006 and November 2006 she had not received anywhere near the amount of income that she had declared. Accordingly, Mr Hoad is equally liable for Ms Anderson's misleading or deceptive conduct in September 2006 and November 2006: Yorke v Lucas (1985) 158 CLR 661 at 668-670; Adler v ASIC [2003] NSWCA 131 at [330]-[332]. 40I should not omit to say that there was, in my view, nothing unconscionable (in the legal sense) about the form of the fastdoc declarations or GEL's conduct in relation to them. Whatever ambiguity there may have been in the language of the document was inconsequential. What is more important is that I am quite satisfied that Mr Hoad and Ms Anderson knew that the information that they provided to GEL was inaccurate and misleading having regard to what they knew. They did not, in my view, submit their loan applications in a state of confusion, honestly believing that the information that they provided was a true and fair statement of their position. Mr Hoad and Ms Anderson deceived GEL on a matter on which they knew that GEL was relying on their probity.

Loss suffered by GEL 41In the circumstances, the loss and damage suffered by GEL as a consequence of the plaintiffs' misleading or deceptive conduct includes, at a minimum, any liability consequent upon the plaintiffs' claims set out in the Fourth Amended Statement of Claim. In other words, the loss that GEL has suffered, is constituted by its liability and costs of and incidental to these proceedings. It includes the sum of $4,372, which represents various legal costs incurred prior to the hearing, including advice from counsel, FOI fees and mediator's fees. This sum is not recoverable pursuant to a costs order, and thus is recoverable as damages.

Orders 42I therefore make the following orders: (a)I dismiss the plaintiffs' Fourth Amended Statement of Claim filed on 22 July 2013. (b)I give judgment for the defendant on the plaintiffs' claim. (c)I give judgment for the defendant on the First Cross-Claim filed on 23 August 2011. (d)I order the plaintiffs to pay the defendant damages in the sum of $4,372. (e)I order the plaintiffs pay the defendant's costs of the proceedings. 43The defendant foreshadowed an application for a special costs order. Although I have neither seen the evidence nor heard the submissions, I do n `1ot encourage any such application. I would be reluctant to impose any further financial burden on the plaintiffs in circumstances where their claim has been a wholesale failure. Unless the circumstances are exceptional, the interests of justice favour finality rather than the additional expense and court time involved in the prolongation of the proceedings by the zealous pursuit of additional costs against self-represented litigants. I repeat what I said in Charltons CJC Pty Ltd v Fitzgerald (No 4) [2014] NSWSC 523 at [1] and [4] - [5]. 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: 08 May 2014