Perpetual Trustee v McAndrew

Bassanese v Perpetual Trustees Victoria Limited [2007] NSWSC 1264 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 CASES CITED : Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Inglis v Commonwealth Trading Bank (1971) 126 CLR 161 Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27

Perpetual Trustee Company Limited (First plaintiff) PARTIES : Challenger Managed Investments Limited (Second plaintiff) Shaun William McAndrew (Defendant)

COUNSEL : Mr M J Cohen (Plaintiffs) Mr P Walsh (Defendant)

SOLICITORS : Deacons (Plaintiffs) Oliver Campbell Heslop (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

10059/2007 - PERPETUAL TRUSTEE COMPANY LIMITED v SHAUN WILLIAM McANDREW

JUDGMENT (Summary judgment - Contracts Review Act) 1 HER HONOUR: By notice of motion filed 11 September 2007 the plaintiffs seek orders, firstly that there be judgment for the plaintiffs on the statement of claim pursuant to Pt 13.13(1)(1) of the Uniform Civil Procedure Rules 2005; secondly, judgment for the plaintiffs on the cross claim pursuant to Pt 13.13(4)(1) of the Uniform Civil Procedure Rules; thirdly, in the alternative to order 2: (a) an order pursuant to Pt 9.9(8)(a) of the Uniform Civil Procedure Rules, that the cross claim be tried separately from the statement of claim; (b) an order, pursuant to s 67 of the Civil Procedure Act 2005 that the cross claim be stayed until the tender by the cross claimant of the secured moneys due by operation of registered mortgage, or until further order; thirdly, leave to issue a writ of possession. 2 The plaintiffs are Perpetual Trustee Company Limited ("Perpetual Trustee") and Challenger Managed Investments Limited ("Challenger"). The defendant is Shaun William McAndrew ("Mr McAndrew"). 3 Perpetual Trustee and Challenger relied upon the affidavit of Roy Clarence Stone sworn 30 August 2007. Mr McAndrew relied upon his affidavit sworn 29 November 2007. 4 By statement of claim filed 5 January 2007, the plaintiffs seek an order for possession of land at Kitchener.

Summary judgment and strike out defence 5 Rule 13.1(1) of the Uniform Civil Procedure Rules provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 6 Rule 13.4(1) of the Uniform Civil Procedure Rules provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are: if the proceedings are frivolous or vexatious; or if no reasonable cause of action is disclosed; or if the proceedings are an abuse of the process of the court. 7 Rule 14.28(1) of the Uniform Civil Procedure Rules provides that the court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading, firstly, discloses no reasonable cause of action or defence or other cause appropriate to the nature of the pleading; secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings; or thirdly, is otherwise an abuse of the process of the court. 8 Rule 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 9 In the well known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ at 129 stated: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'"

The pleadings 10 By deed of mortgage dated 29 April 2004, and transfer of mortgage dated 9 August 2005, the defendant mortgaged to Perpetual Trustee, as custodian of the Challenger Howard mortgage fund, the land to secure a mortgage advance of $301,000. The mortgage was registered. 11 The mortgage contained a provision that upon default being made in payment: the principal sum should immediately become due and payable and might be recoverable any time after such default, together with interest thereon at the rate therein provided; the mortgagee might exercise powers of sale and all other powers conferred on a mortgagee by Real Property Act 1900; and, upon the power of sale becoming exercisable, the mortgagee might lawfully enter upon and take possession of all or any of the mortgaged premises without notice to the mortgagors. 12 This is not in dispute. Mr McAndrew admits the paragraphs set out in the statement of claim except for paragraph [9] which reads "that the plaintiff is entitled to possession and to eject all persons there from." 13 In the defence and cross claim, Mr McAndrew pleads that he has been at all times since 25 November 1998, including on or about 26 June 2003, 10 December 2003 and 29 April 2004: "i. A person with significant cognitive impairment as a result of injuries suffered in a motor traffic accident on 25 November 2005, such cognitive impairment including deficits in: orientation; the ability to understand abstract concepts; memory/both immediate and remote; judgment; ability to initiate decisions and perform planned action; and appropriate behaviour to the situation.

ii. A person who suffered impairment of complex integrated cerebral functions that particularly limited his daily activities to directed care under confinement at home.

iii. Was prone to becoming lost when venturing unsupervised outside his home.

vi. A person whose pre-existing mood disorder, exacerbated by the motor traffic injury, rendered him more susceptible to: sustained mood disturbances centred on impulsively and variability of mood; the intoxicating effects of alcohol, marijuana or other psychoactive substances.

b. Because of the state of his physical and mental capacity as set out in paragraph 3a, at all material times since 29 November 1998 the defendant was not reasonably able to protect his interest for the purposes of s 9(2)(e) of the Contracts Review Act 1980 ." 14 Mr McAndrew has pleaded to the extent that the mortgages were explained to him, in each case but it was not adequate to give him an adequate understanding of the legal and practical effect of the mortgages and had proper explanations been given, he would not have entered into the mortgages. Further, Mr McAndrew pleads that he did not receive the substantial benefit of the moneys secured by the mortgage other than to discharge the prior Micor mortgage. 15 Also, Mr McAndrew pleads that the plaintiffs Perpetual Trustee and Micor knew, or would have known that had they followed normal and appropriate lending practices or their own guidelines for lending, that the defendant did not have sufficient income to pay interest on the principal sum secured by their respective mortgages as they fell due, or enough finance to repay the principal sum at the end of the term of the mortgage without, firstly, sale of the property; or secondly, refinance of the mortgage.

Cross Claim 16 Mr McAndrew cross-claims that the mortgage and the loan be set aside pursuant to the Contracts Review Act 1980. In the alternative, he seeks an order declaring the mortgage and the loan to be void; or, an order varying the mortgage and the loan. 17 Mr McAndrew deposes that on 25 November 1998 he sustained severe personal injuries when as a pedestrian he was knocked down by a car. He commenced proceedings in the District Court at Newcastle. 18 On 19 November 2002, these proceedings were settled and the terms were approved in accordance with the provisions of the Damages (Infants and Persons of Unsound Mind) Act 1929. The District Court also ordered that the terms of settlement would not be disclosed. Mr McAndrew says that he has not worked nor carried on a trade, business or profession since the date of the accident. If Mr McAndrew is so mentally impaired that he gets lost when venturing unsupervised outside his home, his capacity to give instructions may be in doubt. 19 In a letter of offer from Challenger to Mr McAndrew dated 6 February 2004, the purpose of the loan was described as being for "refinance Perpetual Trustee $55,000 and Micor Finance (2nd M - business debt) $170,000 plus provide $41,000 working capital" (Ex A). 20 On 2 February 2004, Michael Wishart & Co, certified practising accountants, stated: "This letter is to confirm that Shaun McAndrew used the funds from the mycor (sic) loan to purchase one half of the company known as CS & MM Pty Ltd the loan required from first pacific finance is to pay out the mycor (sic) loan." (Ex B) 21 The plaintiffs submitted that the clear and unequivocal representations in writing made by Mr McAndrew on 12 January 2004 and 6 February 2004 were that firstly, the facility provided to the defendant (was) for the purposes of refinancing business debt and to obtain fresh working capital; and secondly, such financial accommodation as was provided was to be used wholly or substantially for business or investment purposes. According to the plaintiffs, contemporaneous documents executed by Mr McAndrew disclose that the only available characterisation for the purpose of the financial accommodation provided to him was for a business purpose. 22 The plaintiffs submitted that it follows that the jurisdiction which Mr McAndrew seeks to invoke under the Contracts Review Act 1980 (which is the sole basis simultaneously of the defence alleged, and the relief pleaded in the statement of cross claim) could never be attracted by reason of the operation of s 6(2) of the Contracts Review Act. The Contracts Review Act is a remedial piece of legislation which should be interpreted liberally free from the fetters imposed by analogous legal and equitable doctrines - see Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 277. 23 The plaintiffs further submitted, therefore, it is clear that nothing in the grounds of defence is sufficient to survive an application for summary judgment, upon the footing that there is no reasonable ground of defence, or that what is asserted is nothing other than wholly embarrassing to the plaintiffs, or vexatious to them. 24 Section 6(2) of the Contracts Review Act reads: "Certain restrictions on grant of relief

(2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales." 25 It is my view that whether or not Mr McAndrew understood what he was signing, whether he had no capacity to understand what he was signing, and the state of knowledge of his capacity are matters for trial. Whether s 6(2) comes into play can only be determined once these factual matters are ascertained at trial. 26 I am not satisfied that the plaintiffs have shown that the Contracts Review Act is inapplicable by the exclusion contained in s 6(2). It is my view that Mr McAndrew has an arguable case and his claim should be permitted to go to trial. I endorse the comments of Rogers J in Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 at 80 where his Honour stated that it is generally inappropriate to determine a defence which raises the Contracts Review Act on an application for summary judgment.

Alternative relief 27 Counsel for the plaintiffs referred to Bassanese v Perpetual Trustees Victoria Limited [2007] NSWSC 1264 and Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27. The plaintiffs submitted that the defendant is precluded from taking this action until he had paid the amount outstanding under the mortgage into court. 28 The plaintiffs referred to Paragraph 10.14(1) of the memorandum of mortgages which reads: "The Mortgage and the right to receive any moneys payable hereunder are free from any equities, set-off or cross-claim which but for this provision the Mortgagor would be entitled to set up against the Mortgagee or the Lender or any intermediate Mortgagee or any assignee." 29 Counsel for the plaintiffs referred to Overton Investments v Cuzeno RVM at [60] to [64] where the Court of Appeal where Hogdson JA stated:

"60 Turning to the question of costs, the Supreme Court Rule raises two questions: first, are the relevant costs incurred "in the capacity of a … mortgagee"?; and if so, did the mortgagee act unreasonably? Under the mortgage itself, there are questions similar to the first question, namely whether the costs are "in respect of the mortgage" or in respect of something that the mortgagee is permitted to do under the mortgage.

61 Even where there is no express provision in the mortgage, a mortgagee is generally entitled to all costs it incurs in ascertaining or defending its rights, in preserving the security or in recovering the mortgage debt: see Fisher & Lightwood's Law of Mortgage (AustEd) [40.3], National Provincial Bank of England v Games (1886) 31 ChD 582 at 592. A mortgagee does not lose the right to costs merely by making a bona fide claim beyond its entitlement, at least so long as that claim has some merit: Fisher & Lightwood [40.11], Cotterell v Stratton (1872) 8 ChApp 295, Credland v Potter (1874) 10 ChApp 8, Bird v Wenn (1886) 33 ChD 215, Kinnaird v Trollope (1889) 42 ChD 610.

62 I think it is clear that costs incurred in resolving matters of accounting on which minds can reasonably differ are plainly recoverable by a mortgagee, on the general principles discussed in Fisher & Lightwood, and also pursuant to provisions such as those referred to in par.[58] above. It is perhaps not so clear in relation to a question of whether or not a mortgage, properly interpreted, does or does not include certain debts. In my opinion, costs incurred by a mortgagee in making a claim that the mortgage includes debts which the mortgage on its true construction does not include, even if this claim has some support in the text, are not necessarily incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage. The more doubtful the question, and the more reasonable the claim, the readier the Court would be to find in the mortgagee's favour on this matter. On the whole, although I think the appellant's arguments were not entirely without merit, in my opinion the costs it incurred in seeking to have the mortgage extend to debts that it did not in fact cover are not properly regarded as costs incurred in the capacity of a mortgagee, or in respect of the mortgage, or in respect of something that the mortgagee is permitted to do under the mortgage.

63 Another relevant matter is that the mortgagee failed to give a payout figure which bears any reasonable relationship to the amount truly required to pay out the mortgage. Where a dispute has arisen or is reasonably anticipated, a mortgagee is entitled to require not merely payment of the amount secured by the mortgage but also payment or security for the probable costs of any contest: see Bank of New South Wales v O'Connor (1889) 14 AppCas 273; Project Research Pty. Limited v. Permanent Trustee of Australia Limited (1990) 5 BPR 11,225. If the mortgagee does not specify a payout figure which bears some reasonable relationship to the amount truly owing and anticipated costs, then this may amount to unreasonable conduct or misconduct which disentitles the mortgagee to costs subsequently incurred in determining the rights of the parties: see Cotterell v Stratton (1872) LR 8 ChApp 295, In Re Watts (1882) 22 ChD 5, Rourke v. Robinson [1911] 1 Ch 480, Webb v Crosse [1912] 1 Ch. 323, Charles v Jones (1885) 35 ChD 544, and Heath v Chinn (1908) 98 LT 855. Furthermore, where the mortgagee does not require payment or security for the probable costs of any contest, and a question later arises as to whether the mortgagor's tender was sufficient to entitle the mortgagor to redemption, the mortgagee cannot then claim that the tender was insufficient because it did not include provision for those costs: I know of no direct authority for that proposition, but in my opinion it follows from the principles I have discussed.

64 Having regard to these principles, I am not satisfied the primary judge was in error in the costs order that he made. I think also that it should be made clear that Overton is not entitled to add its own costs of the proceedings below to the amount secured by the mortgage." 30 The issue in Overton Investments v Cuzeno RVM that was being addressed was the question of whether the relevant costs were incurred "'in the capacity of a …mortgagee?'; and if so did the mortgagee act unreasonably?" 31 The plaintiffs' counsel then referred to Bassanese v Perpetual Trustees Victoria Limited where Barrett J at [9] to [14] stated: " While the case cannot be said to be a particularly compelling one, at least at this stage, I am satisfied that there is a serious question to be tried on the Contracts Review Act aspect concerning the clause which includes enforcement expenses in the moneys secured.

10 If the plaintiff were ultimately fully successful in that claim, the result would not only be that the enforcement costs were not secured by the mortgage but also that they were not recoverable at all by Perpetual. The circumstances may thus be regarded as akin to the case where a mortgage secures a contingent liability. In such a case the mortgagor who wishes to redeem cannot be stopped by the existence of the contingency.

11 The situation in that kind of case is as discussed by Palmer J in Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100. His Honour said at para 25: "The usual way in which a mortgagor can obtain a discharge where a contingent liability remains secured under the mortgage is to pay into court the amount of the contingent liability or a reasonable estimation thereof if the amount cannot be fixed with certainty. 12 In Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27, a case to which Palmer J referred, Hodgson JA referred at para 63 to a mortgagee's right to require not merely payment of the amount secured by the mortgage but also "payment of or security for the probable costs of any contest". His Honour was referring to costs of determining by an accounting the precise amount of the secured moneys. Payment into court would be a form of security for that kind of purpose.

13 Payment into court is in any event an established solution in cases where there is doubt about the extent of the secured debt. One need only refer to the decision of the High Court in Inglis v Commonwealth Bank of Australia (1972) 126 CLR 161 where it was held that exercise by a mortgagee of the power of sale should only be enjoined if there is paid into court the amount claimed by the mortgagee.

14 Given the analogy in this case with a contingent liability, I consider that moneys should be paid into court. However, the court should not make the order for which the plaintiff contends, that is, an order that the whole of the net proceeds of sale over and above the secured principal and interest be paid into court. Rather, in the manner suggested by Inglis v Commonwealth Bank of Australia , Perpetual should nominate the estimated amount of its claim under clause 2.4 with respect to "enforcement expenses" and that amount should be paid into court pending determination of the Contracts Review Act claim concerning clause 2.4. I will make an order to that effect unless the parties prefer to agree to some regime which sees the amount in question, that is the amount nominated by Perpetual, as sufficient to cover enforcement expenses go into an interest-bearing controlled monies account with interest to follow the principal when it is paid out." 32 In Bassanese v Perpetual Trustees Victoria the issue in dispute was whether the particular clause of the mortgage which included enforcement expenses in the moneys secured the contingent liability was the amount of enforcement of costs. In Bassanese v Perpetual Trustees Victoria the mortgagor was seeking to redeem the mortgage. In these proceedings the mortgagor is not seeking to redeem the mortgage. 33 The general rule in Inglis v Commonwealth Trading Bank (1971) 126 CLR 161 at 169 relates only to interlocutory applications to restrain the exercise by a mortgagee of his rights and powers under the mortgage. The rule is not a rule of general application to all matters in which a mortgagor challenges a mortgage. The rule is not inflexible - see Restraining Sales by Mortgagees and a Curial Myth (1993) 11 ABR 1 per Bryson J, which discusses the origin and application of the rule; and Fisher and Lightwoods Law of Mortgage 2nd ed at [20.36] and [20.37]. 34 It is my view that a defendant seeking to have mortgage documents set aside on the basis of his lack of mental capacity should not be required to pay the amount due and owing under the mortgage before he is entitled to take court action. This would be contrary to the intention of the Contracts Review Act. Overton Investments v Cuzeno RVM and Bassanese v Perpetual Trustees Victoria are limited to the costs of enforcement expenses. The cross claim in these proceedings seek the whole of the mortgage and loan be set aside. The defendant says that he did not receive any of the proceeds of the loan. In these circumstances he should not be required to pay into Court a sum of over $300,000. 35 The plaintiffs' notice of motion filed 11 September 2007 is dismissed. 36 Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant's costs as agreed or assessed.

(1) The plaintiffs' notice of motion filed 11 September 2007 is dismissed.

(2) The plaintiffs are to pay the defendant's costs as agreed or assessed. **********

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