National Australia Bank v Amed & Ors

The facilities granted and the security obtained 8In April 2002, the Bank provided a facility (the Flexiplus Facility) to Michael Amed and his wife, Inara, the first defendant, which was secured by a mortgage over a property at Mortdale (the Mortdale mortgage). 9In November 2004, the Bank provided a bill facility (the Bill Facility) to P & M Coastal, the third defendant, which was used to purchase land in its name known as 157-161 Bunda Street, Parramatta Park, Cairns (the Cairns property). Michael, Peter and Inara Amed were officers of P & M Coastal and owned its shares either directly, in the case of Michael and Inara or, in the case of Peter, through a related company PNA Holdings Pty Limited, whose directors and shareholders were Peter and Nina Amed. 10The Bill Facility was secured by a mortgage over the Cairns property. It was also secured by a guarantee and indemnity granted on or about 30 November 2004 (the Guarantee) by Inara, Michael, Peter and his wife, Nina (the sixth defendant), and other related companies, Lommas Pty Limited (the fourth defendant) and Agevola Pty Limited (the fifth defendant) (the Guarantors). The Guarantee was further secured by the Mortdale mortgage.

The default 11On 10 July 2009 Michael and Inara Amed defaulted under the Flexiplus Facility and P & M Coastal defaulted under the Bill Facility. The Guarantors failed to pay various demands for money owing under the Guarantee.

The proceedings 12The Bank commenced these proceeding on 2 March 2010. Inara Amed was the only party to file a defence. Default judgment was entered against the balance of the defendants on 2 December 2010. Some time later, after the Bank had taken steps to enforce the judgment, notices of motion to set aside the default judgment were filed by Peter and Nina Amed on 26 February 2011 and by Michael Amed on 10 March 2011.

The judgment of Adams J on 7 September 2011 to set aside the default judgments 13These applications were heard by Adams J who delivered judgment on 7 September 2011: National Australia Bank Limited v Amed & Ors [2011] NSWSC 988. In respect of the Bank's claims against Michael and Peter Amed under the Guarantee, Adams J, at [41] held that they: "cannot seek to have the guarantee set aside except to the extent that their obligations under it cannot be enforced until the rights of the Bank in respect of at least the mortgage over the Cairns property have been fully exercised by sale." 14In substance, Adams J permitted Michael and Peter Amed to defend the proceedings under the Guarantee on the basis of the mode of its enforcement, as distinct from the Bank's right to enforce the Guarantee at all. Michael Amed was not permitted to defend the Bank's claim under the FlexiPlus Facility.

The defence relied upon 15Pursuant to leave granted by Adams J on 7 September 2011, Michael and Peter Amed filed a defence on 19 September 2011 in which they relevantly allege that the Bank represented to them that: (1)The Guarantee would not be enforced against them unless: (a)P & M Coastal defaulted in the performance of its obligations to the Bank; (b)The Bank sold the Cairns property and there were insufficient funds from the sale to discharge the liability; and (2)The likelihood of these events occurring was very low. 16These representations were alleged to found an estoppel, in that the Bank was alleged to be: "estopped from asserting that the Guarantee is presently enforceable". 17Michael and Peter Amed filed a cross-claim on 27 September 2011 in which they substantially repeat the allegations in the defence and claim relief under the Contracts Review Act 1980 and the Australian Securities and Investments Commission Act 2001 (Cth). 18On 17 October 2011, the Bank settled the sale of the Cairns Property as a mortgagee in possession for $1.24m plus GST. The net proceeds of sale, $975,242.46, were applied to reduce the Bill Facility.

Lack of arguable defence 19The only basis for the defence filed by Peter and Michael Amed was that the Cairns property had not been sold. Since it has now been sold, there is no longer an arguable defence to the Bank's claim against either Michael or Peter under the Guarantee. For the reasons already given, Michael has no defence to the Bank's claim under the FlexiPlus mortgage.

The proposed cross-claim: why it cannot, even if arguable, defeat the plaintiff's claim for summary judgment 20However, Peter and Michael Amed submitted that they have a cross-claim, presently unpleaded, against the Bank on the basis of their allegation that the Cairns property was sold at an undervalue. The third cross-claim as filed contained other allegations but the Bank has tendered correspondence between the parties which establishes that Michael and Peter Amed do not press paragraphs which make allegations other than that identified above, since they accept that such paragraphs fall outside the leave granted by Adams J. 21In written submissions filed on 20 March 2012, the respondents submitted: "A mortgagee should make a reasonable effort to sell a mortgaged property at market value or, failing that, at the best price available in the circumstances. We submit that the mortgagee in this case did not act reasonably as they did not take the following steps: (a) get an up-to-date professional valuation for our property from an independent valuer; (b) advertise our property to reach a reasonable pool of potential buyers; (c) leave our property on the market for a long enough period of time; (d) sell our property by auction." 22The affidavits of Michael Amed and Kumok Zammit, a real estate agent, establish the following: (1)A valuation in 2008 valued the Cairns property at $4.45m; (2)Two purchasers expressed interest in purchasing the Cairns property for $2.5m and $4m respectively but neither made an unconditional offer which was capable of acceptance; (3)Mr Zammit believes that the Cairns property could have been sold to one of the potential purchasers for $2.5m. 23There is, as Young CJ (in Eq) concluded after a review of the authorities in Ultimate Property Group Pty Limited v Lord [2004] NSWSC 114; 60 NSWLR 646 at [26], no common law duty in negligence which makes a mortgagee liable for common law damages if it fails to obtain a good price for a mortgaged property. Accordingly the matters referred to above cannot ground any action for damages. 24Although there is no pleading or submission to this effect, the relevant principle (if there were facts to support it) was expressed by McLelland CJ (in Eq) in Hawkesbury Valley Developments Pty Limited v Custom Credit Corp Limited (1995) NSW ConvR 55-731 at 55,650, as follows: "If a failure by a mortgagee to take reasonable steps to obtain a proper price is sufficiently serious to be characterised as unconscionable as that expression is understood in equity, then in the taking of accounts between the mortgagee and the mortgagor, the mortgagee will be accountable on the basis of wilful default for the price which would have been obtained if the mortgagee had not been guilty of unconscionable conduct." 25In my view, no evidence has been adduced which would support an allegation of unconscionability against the Bank. Taken at its highest, the evidence of Mr Zammit and Michael Amed does not go so far as to support such an allegation. The written submissions, too, fall short of alleging, much less establishing, any unconscionability. 26However, even assuming, against the Bank, that such an allegation were made and that it could somehow be established that the Bank acted unconscionably in the sale of the Cairns property, such a claim would, in my view, be excluded by the terms of the Guarantee until the debt under the Guarantee had been repaid. 27Clause 14.2 of the Guarantee relevantly provides: "Your obligations under this guarantee and indemnity are not affected by anything that might otherwise affect them under the law relating to sureties, including: ... (c) the fact that, in relation to any amounts which the customer owes the Bank or any security, guarantee or indemnity for them, the Bank: ... (ii) gives us, releases, varies or exchangers or fails to obtain, perfect, register or realise, or deals in any other way with any security, guarantee or indemnity;" 28Clause 15.2 relevantly provides: "You give up in favour of the Bank any right against the Bank and against any other person, estates or assets which would reduce your liability under this guarantee and indemnity, or would reduce the Bank's claims against the customer or any other person for the amounts which the customer owes the Bank, until the Bank has received 100 cents in the dollar of all the amounts which the customer owes the Bank and all amounts payable by you under this guarantee and indemnity." 29Clause 19.1 of the Guarantee provides: "You must make payments to the Bank without any set-off or counterclaim and without any deduction or withholding for taxes." 30Clause 20.2 provides: "Subject to 7 [the basic liability clause], the Bank may demand and recover from you any amounts which the customer owes the Bank without taking into account any amounts which the Bank may owe the customer for any reason." 31Similar clauses have been found to have the effect that the guarantors are obliged to pay the whole of the shortfall to the creditor and may not set off any claim or amount that they have or may have against the creditor: Permanent Custodians Limited v AGB Developments Pty Limited [2010] NSWSC 540 (Permanent Custodians) at [55], per Davies J. Such clauses are effective and not contrary to any principle of law: see the discussion of Bryson J's decision in GE Capital Australia v Davis [2002] NSWSC 1146 set out in Permanent Custodians at [47]-[56]. 32It has also been found that the position is sufficiently clear to warrant an order for summary judgment where the only defence, set-off or counter-claim relied upon is excluded by the Guarantee: Permanent Custodians; The "Fedora" [1986] 2 Lloyd's Law Rep 441; Eureka 2 Holdings Pty Limited v Palasty [2010] NSWSC 526 at [25]-[29], per Price J; National Australia Bank Limited v Zaza [2009] WASC 314. 33In my opinion, the Guarantee has the effect that Michael and Peter Amed are under an obligation to pay the whole amount of their indebtedness still owing pursuant to the Guarantee. They have no arguable defence to it and the cross-claim is not maintainable until the Bank has recovered 100 cents in the dollar of the debt under the Guarantee. 34The Bank has established its claims against Michael Amed under the FlexiPlus facility and the Guarantee and against Peter Amed under the Guarantee. For the foregoing reasons I am satisfied that neither Michael nor Peter Amed has any arguable defence to these claims. 35Accordingly the Bank is entitled to summary judgment against Michael Amed for the amount outstanding under the FlexiPlus Facility and the Guarantee and against Peter Amed under the Guarantee. For the reasons given, there will be no stay of execution of the judgment.

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: 17 April 2012