Citation : WESTPAC BANKING CORPORATION -v- McLEAN [2012] WASC 182

Practice and procedure - Respondent made loans to appellant - Appellant alleged respondent later 'securitised' loans - Appellant denied respondent entitled to enforce loan agreement or mortgage - Judgment entered for respondent - Application to strike out appeal by appellant - Whether defence of 'securitisation' has merit - Meaning of 'securitisation' - Appeal has no reasonable prospect of success

Supreme Court (Court of Appeal) Rules 2005 (WA), r 43(2)(g)(i), r 43(2)(g)(ii), r 43(2)(f)

National Australia Bank v Norman [2012] VSC 14

RHG Mortgage Corporation Ltd v Astolfi [2011] NSWSC 1526

Westpac Banking Corporation v Mason [2011] NSWSC 1241

1 NEWNES JA: The appellant has appealed against a decision of Kenneth Martin J who after trial gave judgment against her in two actions brought by the respondent. The actions were heard together.

2 The respondent has now applied to have the appeal in each action dismissed either under r 43(2)(g)(i) of the Supreme Court (Court of Appeal) Rules 2005 (WA), on the basis that none of the grounds of appeal has a reasonable prospect of succeeding, or under r 43(2)(g)(ii), on the basis that the appellant's case does not comply with r 32(4) and (5) in that the grounds of appeal and the appellant's written submissions are defective. Alternatively the respondent seeks to have the grounds of appeal struck out under r 43(2)(f), on the basis that none of them has a reasonable prospect of succeeding.

3 The appeals relate to two actions for possession commenced by the respondent against the appellant. The first action (CIV 2439 of 2009) concerned a loan of $765,000 which the respondent made to the appellant in October 2007. The loan was secured by a first mortgage registered on the title of two residential properties in Perth owned by the appellant. The appellant subsequently defaulted under the loan agreement and the respondent commenced proceedings for possession of the properties secured by the mortgage.

4 The second action (CIV 2443 of 2009) concerned a loan of $862,500 which the respondent had made to the appellant in September 2007. The loan was secured by a first mortgage registered on the title of another property owned by the appellant. The appellant again defaulted under the loan agreement and the respondent commenced proceedings for possession of the property.

5 In each action the respondent pleaded the facts giving it an entitlement to recover the debts and to possession of the properties under the respective mortgages. Those facts were admitted by the appellant, subject to a single common defence to the respondent's claims. That defence in each action was in an unusual form. It is sufficient to refer to the defence in CIV 2439 of 2009, as the defences in the two actions were in all material respects identical. That defence was (relevantly) as follows:

1. [The appellant] puts [the respondent] to strict proof that it is entitled to the relief claimed by reason of the following:

(a) [The respondent] engages in securitisation activities, whereby it equitably assigns or otherwise disposes for consideration its rights in loans and the mortgages to various third parties.

(b) If the Loan Agreement and Mortgages have been securitised, [the respondent] cannot enforce their terms and keep the benefit of such enforcement because:

1. [The respondent] would already have received a benefit for assigning or otherwise disposing of its interest in the Loan Agreement and Mortgages.
2. [The respondent] would, in truth, suffer no loss or damage from the [appellant's] breach of the Loan Agreement and Mortgages.
3. The loss and damage (if any) under the Loan Agreement and the Mortgages would have been suffered by a third party.
4. [The respondent] would be doubly compensated by enforcing the Mortgage.
5. By reason of the matter pleaded in sub-paragraphs i., ii, iii, and iv, [the respondent's] purported enforcement of the Mortgages:

1. At law must fail because [the respondent] has failed to satisfy an essential element of a debt action, namely that the [appellant] owes it money.

1. Further or alternatively, if the Loan Agreement and Mortgages have been securitised, any failure by [the respondent] to disclose to the [appellant] that it would assign to a third party its equitable interest in the Loan Agreements and Mortgages at any point prior, further or alternatively subsequent, to the [appellant] entering into the Loan Agreements or the Mortgages, in addition to any or all the matters pleaded at sub-paragraphs i., ii., iii., and iv., constitutes misleading or deceptive conduct in breach of section 52 of the TPA, further or alternatively unconscionable conduct in breach of section 51AC of the TPA.

6 What was meant by 'securitisation' and 'securitised' was not explained in the pleading. It is, however, to be inferred from par 13(b)(vi) that they were alleged to involve an equitable assignment of the respondent's interest in the loan agreements and the mortgages to a third party. In that connection, it is significant that there was no plea by the appellant that the respondent entered into any legal assignment to a third party, and such an assignment was never part of the appellant's case.

7 In relation to par 13(b)(vi), I should also note that there were no facts pleaded which (if proved) might have been capable of establishing that the alleged 'securitisation' would constitute misleading or deceptive conduct, or unconscionable conduct, as alleged and there was no counterclaim for consequential relief. That part of the case does not appear to have been pursued.

8 The appellant's pleading was plainly defective. To the extent it was an assertion that the respondent was put to 'strict' proof of its case, it sat oddly with the appellant's defence which admitted the essential elements of the respondent's case. It appears, however, to have been intended to put the respondent on notice that the issue in the case would be whether the respondent had 'securitised' its interest in the loan agreements and the mortgages to a third party, but without actually asserting that the respondent had done so. Couched as it was, the defence went beyond timorous to being embarrassing. It was self-evidently a speculative plea and if it was intended to cast an onus on the respondent to prove that no securitisation had occurred, it did not have that effect. To the extent that such a plea was relevant (and for reasons I will come to, I do not consider it was) the onus to prove any alleged 'securitisation' lay on the appellant.

9 The respondent had previously applied to strike out an earlier version of the defence and, alternatively, for summary judgment. At that time the appellant was unrepresented. The appellant subsequently retained a solicitor who filed the defence referred to above on her behalf. The respondent then pressed its application for summary judgment. The primary judge considered that as there was a single issue to be determined the more expedient course was to order an early trial. On 18 October 2011, his Honour listed the action for trial on 9 December 2011. The evidence at trial was to be on affidavit with deponents, if required, to attend for cross-examination.

10 On 6 December 2011, the appellant applied for an adjournment of the trial. She did so on the ground that her solicitor could no longer act for her as he had a conflict of interest. It will be necessary to come back to that in due course. The result, however, was that the primary judge adjourned the trial. On 21 December 2011, his Honour set the matter down for trial on 29 March 2012.

11 The trial took place on 29 and 30 March 2012. The appellant did not have legal representation. It is unnecessary to canvass the evidence in any detail. The appellant called Mr Arthur Bonner as an expert witness on securitisation. Mr Bonner resides in the United States where he works as a realtor and mortgage broker. The respondent objected to Mr Bonner's evidence on the ground that he was not qualified as an expert. His Honour found it unnecessary to determine that issue for reasons I will come to. Mr Bonner gave evidence of a prospectus issued by the respondent in the United States in the first half of 2007 seeking to raise funds of $2.6 billion. His evidence was to the effect that it involved the 'securitisation' of mortgage backed loans made by the respondent.

12 Mr Bonner gave no evidence, however, in relation to the 'securitisation' of the loan in CIV 2439 of 2009 [49]. And he conceded in cross-examination that he was unable to say whether or not the loan in CIV 2443 of 2009 had been 'securitised' because, he said, the publicly available information did not descend to that level of detail [71].

13 An officer of the respondent, Mr Pastro, gave evidence that he had examined the respondent's records and those records showed that the appellant's loans had not been securitised.

14 I should interpose, however, that precisely what the respondent's 2007 securitisation transaction involved does not appear ever to have clearly emerged at the trial. In cross-examination Mr Pastro described securitisation in the most general terms as a sale of loans (ts 59), and Mr Bonner's explanation of it was in terms which, it must be said, were convoluted and imprecise. The primary judge concluded that 'securitisation' was not a precise term. His Honour considered that it was a generic term referring to a transaction involving the marketing of a parcel of debts as a means of raising funds [23] - [24], [86]. In the end, the particular sense in which it was used by the appellant, and therefore the proper legal analysis of the transaction alleged, was at best obscure.

15 In any event, the primary judge considered that the appellant's claim that the loan agreements and the mortgages had been securitised was not made out. His Honour considered that Mr Bonner's evidence did not assist the appellant in light of his concession in cross-examination that he could not say whether or not the appellant's loan agreements and mortgages had been 'securitised' by the respondent. In those circumstances, his Honour found it unnecessary to rule on the respondent's objections to the admissibility of Mr Bonner's evidence. The primary judge accepted Mr Pastro's evidence that the appellant's loan agreements and mortgages had not been 'securitised'.

16 His Honour went to find that, in any case, there was no substance in the 'securitisation' defence. As there had been no legal assignment it was immaterial whether or not the loans had been the subject of some form of securitisation. The primary judge referred with approval to two other cases where such a defence had been run and rejected: Westpac Banking Corporation v Mason [2011] NSWSC 1241, and National Australia Bank v Norman [2012] VSC 14. His Honour concluded:

Substantial loans have been made by the Bank to [the appellant]. They were not repaid. [The appellant's] properties secure those loans. To suggest that she, as debtor, can be excused from rendering proper repayment of her loans in circumstances where she has not received any notice (under the Property Law Act 1969 (WA)) of an assignee of her debt, is not capable of acceptance as a proposition of law.

Here, [the appellant's] securitisation argument fails both in fact and as a proposition of law [98] - [99].

17 The primary judge accordingly gave judgment for the respondent.

18 The appellant's grounds of appeal in each appeal are identical and are as follows:

1. His Honour pre-judged the issue relating to the hearing of the matter.
2. His Honour erred in law and practice in that he failed to accept the sworn evidence and documented evidence of the witness Mr Arthur Bonner.
3. His Honour erred in law and fact in that he accepted the [respondent's] submissions and evidence, when that evidence and those submissions and documents before the court were incorrect.
4. His Honour erred in law in that [the respondent] failed to refute the testimony and evidence of the witness Mr Arthur Bonner and yet he refused to accept Mr Bonner's evidence.
5. His Honour on the evidence before the court and the testimony of the appellant and Mr Bonner should have ordered, declared and found that the respondent, was without 'clean hands' and accordingly at law should have found that [the respondent] had no place in this matter in a court of equity.
6. His Honour erred in law and equity, in that he failed to take into account the sharp, dishonest and the unprofessionalism of the [respondent's] lawyer in pretending to call the appellant's counsel - which in fact denied the appellant legal representation through the trial.

19 The appeals suffer from the fundamental and fatal flaw that the appellant's so-called defence of securitisation was in law no defence at all. So far as it was given any specific meaning, the 'securitisation' alleged involved an equitable assignment of the respondent's interest in the loan agreements and the mortgages to a third party. That, contrary to the appellant's case, did not have the effect that the respondent was no longer able to enforce its securities. It will be necessary to come to that, but, subject to that comment, it is convenient to deal with each of the grounds of appeal in turn.

20 It is evident from the appellant's written submissions, and from her oral submissions on this application, that the appellant contends there was a reasonable apprehension of bias on the part of the primary judge arising from an email sent by his Honour's associate to each of the parties on 28 March 2012, the day before the trial was to commence. The email was in the following terms:

His Honour has asked me to draw your attention to the following cases, copies of which are attached.

National Australia Bank v Norman [2012] VSC 14

Westpac Banking Corporation v Mason [2011] NSWSC 1241

21 The appellant submitted that pre-judgement of the issue of securitisation was evident from the absence of any reference in the email to cases contrary to the cited cases. I should say that the appellant did not refer to any cases falling into the latter category and she cited none at the trial.

22 This ground is utterly misconceived. The obvious purpose of the letter was simply to draw to the parties' attention two cases of which his Honour was aware which appeared to be relevant to the issues in the action and to which neither party had referred in their written submissions, so that the parties would be in a position to make submissions on those cases at trial. No reasonable apprehension of bias could arise because his Honour did not take it upon himself to comb the authorities so that he could refer the parties to an equal number of cases which went the other way. And had his Honour undertaken that task, it would have been fruitless.

23 These grounds can conveniently be considered together. The substantive contention is that the primary judge erred in refusing to accept Mr Bonner's evidence concerning the securitisation by the respondent of Australian residential mortgages in a trust offered to investors in the United States. As I understand her submission, the appellant says, in effect, that as, on Mr Bonner's evidence, securitisation is commonly engaged in by banks and as the respondent had undertaken a securitisation of a large number of residential mortgages, the primary judge should have found that the loan agreements and mortgages entered into by the appellant were securitised.

24 The premise of the appellant's contention is misconceived. The primary judge did not refuse to accept Mr Bonner's evidence. As I have said, his Honour found that Mr Bonner's evidence did not assist the appellant because of Mr Bonner's concession that he could not say whether or not the appellant's loan agreements and mortgages had formed part of the securitisation carried out by the respondent. The appellant acknowledged that concession on the hearing of this application.

25 The appellant also submitted that the primary judge should not have accepted the evidence of the respondent's witness, Mr Pastro. There is no basis for that submission. Mr Pastro's evidence was not successfully impugned in cross-examination and his Honour was entitled to accept it.

26 There is no substance in these grounds of appeal.

27 It appears from her written submissions that the appellant's essential contention under this ground is that his Honour should have found the respondent had failed to prove the loan agreements and mortgages had not been securitised. That contention suffers from several difficulties.

28 First, as I have said, the appellant's plea, embarrassing in form, did not have the effect of casting the onus onto the respondent to prove that they had not been securitised. It was for the appellant to prove securitisation assuming for present purposes that it was relevant.

29 Secondly, the respondent adduced the evidence of Mr Pastro that the loans had not been securitised. As mentioned above, his Honour was entitled to accept that evidence, as he did. His Honour was also entitled to find, as he did, that Mr Bonner's evidence did not assist the appellant. There being no other relevant evidence on the subject, it followed that any defence based on securitisation had to fail.

30 But most importantly, the issue was irrelevant. As I have said, it was never part of the appellant's case that there had been a legal assignment to a third party of the respondent's interest in the loan agreements and the mortgages. In the absence of a legal assignment, the contention that the respondent was not entitled to enforce the loan agreements or the mortgages must fail. As the legal title remained with the respondent, it was clearly entitled to do so.

31 Finally, I might observe that 'securitisation' seems to be something of the defence du jour among self-represented defendants resisting actions for possession by financial institutions: see Westpac Banking Corporation v Mason; National Australia Bank v Norman and RHG Mortgage Corporation Ltd v Astolfi [2011] NSWSC 1526. Its popularity is not, however, a reliable measure of its merit. At least on the facts of this case and of the cases cited, it had no merit at all.

32 These grounds, as amplified in the appellant's written submissions, do not go to the merits of the decision of the primary judge at all but to a peripheral issue. However, given its nature it should be dealt with. It arises in the following way. During the time that the appellant was represented by a solicitor, several affidavits were filed on her behalf. One of those was an affidavit sworn by her solicitor. The respondent's solicitors informed the appellant's solicitor that if that affidavit was to be relied upon by the appellant at trial, the respondent would require the solicitor to attend for cross-examination on it. It seems that the solicitor subsequently informed the appellant that he could no longer act for her in the action. Whether that was because it was considered the affidavit was

a necessary part of the appellant's case at trial, thereby precluding the solicitor acting as counsel at trial, or for other reasons is unclear. For the purposes of this appeal, I will assume it was the former.

33 The gravamen of the appellant's complaint comes from a misunderstanding of the respondent's position. The appellant maintains that the respondent forced her solicitor to withdraw by falsely pretending that it was going to call him as a witness. It is apparent from the correspondence passing between the solicitors that that is not what happened. The respondent's solicitors simply informed the appellant's solicitor that if his affidavit was going to be relied on by the appellant at trial he would have to attend for cross-examination on it. That was an entirely proper course for the respondent to take. I note, too, that the primary judge had raised with the appellant's solicitor the potential difficulty of his position at a directions hearing as early as 20 October 2011 (ts 13).

34 I would add that, contrary to the appellant's submission, it was not the case that the effect of her solicitor's withdrawal was to deprive her of the opportunity to have legal representation at the trial. The trial was adjourned for a period of almost four months to give the appellant an opportunity to retain other solicitors. In fact she did not do so. The appellant chose to represent herself, as she was entitled to do.

35 Having said all that, the issue is, as I have said, irrelevant to the correctness of his Honour's decision. The ground of appeal is misconceived.

36 None of the grounds of appeal has a reasonable prospect of success and the appeals should be dismissed.