National Australia Bank Ltd v Sayed

Judgment 1I gave judgment on two Notices of Motion on 29 November 2011: National Australia Bank Ltd v Sayed [2011] NSWSC 1414. Those Notices of Motion were by each of the Defendants for leave to file amended defences and cross-claims in the matter. I detailed the procedural history in that judgment. 2The Motions have come back before me today, and proposed pleadings by each of the Defendants have been put forward. The First Defendant wishes to file a revised defence and a separate cross-claim simply against the Bank, not at this time against Mr Taylor. The Second Defendant wishes to file a revised defence. 3The Plaintiff has objected to some aspects of the pleadings, although not their entirety. The Plaintiff in relation to the First Defendant's defence says that the pleading contained in paragraphs 31 to 48 should not be allowed. The important pleading in these paragraphs concerns equitable unconscionability. Paragraph 32 asserts that the First Defendant was in a position of special disadvantage vis-a-vis the Plaintiff. 4The particulars given and the paragraphs that follow that paragraph identify the disadvantage as having arisen from the circumstances of the making of the development loan and the subsequent refinancing of the home loan including the matters that were aired on the last occasion concerning suggestions or advice allegedly given by the Bank to restructure the development purchase and loan, and in relation to the First Defendant's statement of income to obtain the development loan. 5It is said in substance in those paragraphs that it was that behaviour on the Bank's part which created the position of special disadvantage for the First Defendant and at the same time, in effect, demonstrated the taking of the advantage of that position. The First Defendant justifies that pleading by reliance on what Campbell JA says in Kowalczuk v Accom Finance [2008] NSWCA 343 at [96] that pure asset lending itself may not only be unjust under the Contracts Review Act 1980, but also be unconscionable. Asset lending is asserted, perhaps not in particularly direct terms, within paragraphs 31 to 48 of the proposed defence. 6I referred to the authorities in relation to equitable unconscionability recently in Hamilton v Carter [2011] NSWSC 394 at [133]-[134] and [139]. In my opinion, what was said by Campbell JA in Kowalczuk was not intended to alter what the authorities have said throughout the 20th Century, that for equitable unconscionability to be shown the person claiming the unconscionability must show that anteriorly to the transaction they stood in a position of special disadvantage to the stronger party and it was by virtue of that unequal relationship between them and the taking advantage of it that the transaction should be set aside. 7In my opinion, the position of special disadvantage cannot be established by virtue of the transaction itself. In that way it seems to me that the pleading in paragraphs 31 to 48 does not demonstrate a defence based on equitable unconscionability. 8It was otherwise sought to justify the pleading on the basis that the First Defendant was an individual and the Plaintiff was a large corporation with greater experience in the making of loans. In the absence of anything more that cannot put the First Defendant in a position of special disadvantage. 9Mr Baddams, who appears for the First Defendant, says that the material in those paragraphs is also necessary for the further defence that is raised in paragraphs 49 to 55 of statutory unconscionability under the Australian Securities and Investments Commission Act 2001 . Indeed, paragraph 49 that introduces that defence makes express reference to paragraphs 27 to 45. 10In my opinion, the pleading needs to be amended so that paragraphs 31 to 45 appear in the defence only as an incident and a background to the claim of statutory unconscionability. In my opinion, nothing in the pleading demonstrates a defence based on equitable unconscionability. 11The Plaintiff also objects to the pleading in paragraph 9. Paragraph 9 of the Amended Statement of Claim pleads that the Defendants provided the Plaintiff before entry into the home loan with a written declaration pursuant to section 11 of the Consumer Credit Code . In paragraph 9 of the First Defendant's defence he admits to signing the Business Purposes Declaration, he refers to that document as if it is fully pleaded, and he denies that by signing it he declared that the Consumer Credit Code does not apply. 12The Business Purposes Declaration relevantly says in a box in the middle of the page: "You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes. By signing this declaration you may lose your protection under the Consumer Credit Code." 13Mr Baddams concedes that, apart from what appears in paragraph 9, the pleading by the First Defendant does not go on to assert that the Credit Code applies to the loan. I suggested to him during the course of argument that if that was the case the better course might simply be to admit paragraph 9 of the Amended Statement of Claim. Whether he does that is a matter for him, but paragraph 9 of the defence cannot remain in its present form. In the first place, it is a pleading that goes nowhere. 14Secondly, s 11(2) of the Consumer Credit Code provides that the Code is presumed conclusively not to apply where a Business Purposes Declaration is signed before entry into the loan. If there is to be any assertion that the Code does apply material facts consistent with s 11(3) must be pleaded. 15Accordingly, the defence cannot go forward with paragraph 9 in its present form. 16In relation to the cross-claim, the Plaintiff draws attention to the claim contained in paragraphs 17 to 27 asserting a sale of the development property at an under value. There is a claim for damages made and the proper value of the property asserted by the First Defendant is now pleaded in accordance with what I said ought to happen in my earlier judgment. As best I can understand the claim for the sale at under value, it is a damages claim and does not appear to be put forward as a set-off which would in any way prevent the Plaintiff, if it otherwise proves its case, from obtaining possession of the property. 17The only issue, it seems to me, in relation to the claim for a sale of under-value is whether it should be permitted to be heard at the same time as the claim for possession. It can be accepted that it will increase the hearing time by perhaps up to one day as a result. Nevertheless, and subject to what I will say later about whether further pleadings should be permitted, it seems to me that the sale of under-value ought to be permitted to be heard at the same time as the Bank's possession claim. It seems to me to be inextricably tied up with the claim, in terms of the facts of the matter. 18In relation to the Second Defendant's defence, the Plaintiff takes particular objection to what is contained in paragraph 5 in relation to the signing by the Second Defendant of the Business Purposes Declaration. She pleads that the mortgage is regulated by the Consumer Credit Legislation. As best as can be discerned, and particularly from particular (iv) under paragraph 5, that is because it is asserted that the Bank knew, or ought to have known, that she would not have known that the loans made were for business purposes, and that is particularly the case because the Plaintiff designated the loans as "home loans". 19It seems to me that that does not provide a basis for asserting that the mortgage is outside the Credit Code. In the same way as I have discussed in relation to the First Defendant, section 11(2) conclusively presumes that the Code does not apply where such a Declaration is signed before entry into the loan. The only basis for asserting that it does, in those circumstances, is reliance on matters that are contained in section 11(3). The Second Defendant does not do this. Her claim, about the knowledge of the Plaintiff concerning the Second Defendant's knowledge, in substance forms part of her Contracts Review Act defence to the Bank's claim. She may be entitled to relief under the Contracts Review Act , which may have the effect that the Credit Code will apply because of matters she establishes to obtain that relief. She does not have a separate right to assert under the Code that it applies where she has admitted that she signed a Business Purposes Declaration. So, paragraph 5 may not go forward in any defence of the Second Defendant. 20The Plaintiff also objects to the particulars in paragraph 15 in relation to relief sought as a result of the Second Defendant's claim of sale of under-value. The particulars seek relief in this way, to: "The extent of the liability for the Second Defendant be limited to the second loan, [i.e. the refinance of the home loan], less any set-off against the Plaintiff's claim and adjustment of interest resulting from set-off." 21On the face of it, that appears to be double-dipping. The Second Defendant wants to say that she is not liable at all for the development loan and she then wants to set-off the sale at an under-value of the development property against any liability she has under the home loan. Mr Luong, appearing for the Second Defendant, explains the matter, however, in this way; he says the Bank wishes to rely on its cross-collateralisation of the home loan and the development loan. If that is so, he says that the sale at an under-value of the development property means that more is owing under that loan than otherwise would have been the case. By the cross-collateralisation the Bank is able to be added to the home loan. He wishes to offset any relief on this cause of action against what is added to the home loan from the development loan as a result of the cross-collateralisation. 22If that is the extent of the relief that he claims from this cause of action, that appears to me to be legitimate. Certainly, if the matter involves the double-dipping, that I referred to earlier, it would not be allowed. 23In my earlier judgment, as I have said, I detailed the procedural history of the matter with the attempts that have been made by the Defendants to get their pleadings into order. I said at [73]: Given the lengthy history of the proceedings and opportunities afforded to the Defendants to file proper pleadings, I consider that if any proposed pleadings are not in proper form for filing leave should then be refused and the Plaintiff should be permitted to move for default judgment. 24I can accept that the legal advisers for the Defendants have not been consistently retained by the Defendants throughout the history of these proceedings. That is unfortunate, and may well have brought about part of the consequence that pleadings have had to be attempted on a number of occasions. 25These proceedings commenced on 28 May 2010, and it is more than unfortunate that almost two years later arguments about pleadings are still being had. Nevertheless, and despite what I said in my judgment on the last occasion, I think that it would be unduly harsh at this stage to shut the Defendants out, when they identify some clearly arguable defences to the claim that is made against them. In particular, the Second Defendant has an arguable defence based on the Contracts Review Act, and the First Defendant has an arguable statutory unconscionability defence. 26I propose, therefore, to permit the Defendants to file further pleadings with the amendments that I have indicated must be made to the documents considered in Court today. But for the way the First Defendant deals with paragraphs 31 to 48, those amendments should not involve any lengthy redrafting of the pleadings that have been presented today. 27The Defendants are to provide pleadings amended in accordance with this judgment to the Plaintiff and to my associate by 4.00pm 7 February 2012. The Plaintiff is to inform the Defendants by 10 February 2012 if the further proposed pleadings are agreed. If there is consent to the pleadings being filed they are to be filed by 13 The Defendants are to provide pleadings amended in accordance with this judgment to the Plaintiff and to my associate by 4.00pm 7 February 2012. February 2012. If there is no consent the matter will be dealt with at the next Directions Hearing. 28The Notices of Motion filed by the Defendants sought leave to file further pleadings. That was necessitated by the unsatisfactory pleadings that had earlier been filed and struck out by consent. The ordinary rule is, where a party amends, that the party amending should pay the costs thrown away by reason of the amendment. In my opinion, the First and Second Defendants should pay the costs thrown away by reason of the amendments that are proposed now to be made, and that those costs should include the costs of the hearing of the Notice of Motion on 9 September 2011 and today. 29I make the following orders: (1) The Defendants are to provide pleadings amended in accordance with this judgment to the Plaintiff and to my Associate by 4.00pm 7 February 2012. (2) The Plaintiff is to inform the Defendants by 10 February 2012 if the further proposed pleadings are agreed. (3) If there is consent to the pleadings being filed they are to be filed by 13 February 2012. If there is no consent the matter will be dealt with at the next Directions Hearing. (4) The First and Second Defendants pay the costs thrown away by reason of the amendments that are proposed now to be made, those costs including the costs of the hearing of the Notice of Motion on 9 September 2011 and today.