Parker v Mortgage Adavance Securities P/L [2003] QCA 275

Judgment (33 paragraphs)

[1]

McCullough Robertson (Brisbane) as town agents for Middletons Solicitors (Melbourne) for the respondent

[2]

[1] DAVIES JA: This is an appeal against the refusal of an application for leave pursuant to s 471B of the Corporations Act 2001 to commence proceedings against the respondent, a company in liquidation. The order refusing leave was made on 20 November 2002.

[3]

[2] The appellant was at all relevant times the registered proprietor of a house property at 3 Williams Street Buderim. On 16 April 1999 she executed a registrable mortgage over the property to the respondent to secure an advance of $34,500. The advance was apparently in fact made to a man called Stumer with the appellant's consent. The mortgage was registered on 27 May 1999.

[4]

[3] There was default in repayment of the money advanced and on or about 22 March 2000 the respondent served a Notice of Exercise of Power of Sale on the appellant in respect of the land.

[5]

[4] The action which the appellant sought leave to commence against the respondent, which is now in liquidation, was one to set aside the mortgage either on the ground that she did not have the legal capacity to execute the mortgage (non est factum) or on the basis that the deed of loan and the mortgage which secured it were obtained by unconscionable conduct. The learned primary judge was not satisfied that, on either basis, the appellant established that there was a serious question to be tried.[1]

[6]

[5] There was some medical support for the contention that, at the time the appellant executed the mortgage she did not have the mental capacity to understand it, namely two reports from Dr Mulholland a psychiatrist dated 14 December 2000 and 10 October 2002 although, as counsel for the respondent has pointed out, there are some weaknesses in this evidence not the least of which is that Dr Mulholland did not see the appellant until December 2000, more than a year and a half after the transaction sought to be set aside and, in the meantime, the appellant had apparently suffered a second stroke in January 2000, her first stroke upon which Dr Mulholland's report was based having occurred in January 1999.

[7]

[6] Nevertheless in my opinion the appellant would have an arguable case, on the evidence so far adduced, that when she executed the mortgage she did not have the mental capacity to understand it. A more serious problem is that, unless the claim based on unconscionability succeeds, the respondent, on registration of the mortgage, obtained indefeasibility of title as mortgagee and that that indefeasibility included the covenant to repay the mortgage sum and the power of sale conferred on a mortgagee under s 83 and s 84 of the Property Law Act 1974: Land Title Act 1994 s 78.[2]

[8]

[7] Such indefeasibility is subject only to fraud by the registered mortgagee[3] and to any equity arising from the act of the registered mortgagee.[4] Whatever may have been the conduct of others involved in the transaction which gave rise to the execution of the mortgage, it was not even contended that there was any fraud attributable to the respondent. Nor, unless there is some equity against it arising from unconscionable conduct on its part,[5] was there any equity against it. It is to that question that I now turn.

[9]

[8] It may be accepted that the respondent did not know anything of the appellant's mental state at the time she executed this mortgage. Nor was it submitted that there were facts from which it ought to have known this. The appellant's contention was rather that it was arguable that there were facts known to the respondent on the basis of which it was unconscionable of it to proceed to enter into the loan transaction and take the mortgage from the appellant without making further inquiry which would have revealed that advantage had been taken of her vulnerability.

[10]

[9] Those facts known to the respondent were, according to Mr Diehm, who appeared for the appellant, the following:

[11]

1. that the whole of the loan was to be paid to Stumer, apparently to be spent on Stumer's new panel shop (Stumer was a panel beater);

[12]

2. that the only security for the loan was to be provided by the appellant and by her daughter Ms Hume, but not by Stumer notwithstanding that he owned real property which could have been mortgaged;

[13]

3. that the loan, totalling $34,500 was to be advanced on that security notwithstanding that Stumer disclosed having $20,000 in cash;

[14]

4. that the appellant was 81 years of age and a pensioner. She was also described in the application as an investor but the only asset which she owned was the house property the subject of the mortgage;

[15]

5. that it did not appear that the appellant had any income which could service the loan; and

[16]

6. that the loan was to be at an interest rate of 28 per cent reducible only to 20 per cent for prompt payment.

[17]

[10] On the basis of those facts Mr Diehm submitted that this was known by the respondent to be an improvident loan secured by a mortgage of a very old woman of her only asset. Moreover, he submitted that the above circumstances in which it was obtained arguably required further inquiry by the respondent before taking such a mortgage.

[18]

[11] The relevant principles applicable to these facts are not in doubt. What the appellant must show, in order to succeed in her claim, is knowledge or means of knowledge by the respondent of some condition or circumstance affecting the appellant's ability to make a judgment in her own best interest, and unconscionable advantage taken by the respondent of that condition or circumstance.[6]

[19]

[12] Mr Clothier, for the respondent, relied heavily on a certificate provided to the respondent from a solicitor, who was independent of the respondent, to the effect that the mortgage was executed in her presence; that she explained the effect of the mortgage to the appellant before it was executed by the latter and that the appellant stated to her that she had read the document, understood its effect and her obligations under it, approved the conditions of the document and signed the document voluntarily; that she explained to the appellant that to understand the risk in giving the mortgage she should have an understanding of the financial accommodation which the mortgage secured and advised her to obtain independent financial advice; and that to the best of her knowledge, information and belief the appellant signed the mortgage voluntarily having appeared to understand its terms and after stating to her that she did understand its terms.

[20]

[13] The form of the certificate gives some cause to doubt the care with which the certifier satisfied herself about any of the above matters. It was in a standard form, appropriate whether the borrower was male or female or a company. And it was incorrectly executed, the solicitor signing only as a witness to the signature of the appellant. Nevertheless Mr Clothier pointed out, accurately, that the respondent had no direct contact with the appellant in this transaction, it having been handled through a broker and, in those circumstances he submitted, the respondent was entitled to rely upon this certificate from the solicitor notwithstanding its defects.

[21]

[14] It is true that the certificate was provided by a solicitor whom the respondent knew was independent of it. But what the respondent did not know, and made no attempt to ascertain, was whether that solicitor was independent of Stumer. The transaction had about it the hallmarks of one in which a person, weakened at least by age, was prevailed upon by a younger and stronger person to mortgage her property in an improvident way for the benefit of that younger and stronger person. It is therefore arguable, in my opinion, that the respondent, knowing what it did, was unconscionable in proceeding with the transaction which included the mortgage without making inquiry as to whether the appellant had entered into this transaction independently of any influence exerted over her by Stumer.

[22]

[15] For that reason I think that the learned primary judge erred in refusing the application.

[23]

2. Set aside the order made by the learned primary judge on 20 November 2002.

[24]

3. In lieu grant the appellant leave to institute the proceedings against the respondent to set aside the bill of mortgage granted by her to the respondent on 19 January 1999.

[25]

4. Order that the respondent pay the appellant's costs of the application to the learned primary judge and of this appeal to be assessed.

[26]

[16] WILLIAMS JA: I have read the reasons for judgment of Davies JA and agree with what he has said, and with the orders he proposes.

[27]

[17] JERRARD JA: I have read the judgment of Davies JA and respectfully agree with his reasons and proposed orders.

[28]

[1] It being common ground that that was the correct test. See Vagrand Pty Ltd (in liquidation) v Fielding & Ors (1993) 41 FCR 550.

[29]

[2] Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; (1976) 136 CLR 326 at 343; PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 675 - 679; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 196.

[30]

[3] Land Title Act s 184(3)(b).

[31]

[4] Land Title Act s 185(1)(a).

[32]

[5] It is an arguable question whether unconscionability, or unconscionability of the kind said to arise here, gives rise to an equity against the respondent. As to the meaning of s 185(1)(a) see Tara Shire Council v Garner & Ors [2002] QCA 232; see also LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; Full Court, Supreme Court of Western Australia, 23 October 2002.

[33]

[6] Commercial Bank of Australia Ltd v Amadio & Anor [1983] HCA 14; (1983) 151 CLR 447 at 462, 466, 476 - 477; Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457 at [39], [40], [75], [76].

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Judgment (33 paragraphs)

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