Plaintiff v Defendant

Supreme Court of Victoria|2009-10-02|Before: FORREST J

Permanent Custodians Ltd v Virgin Investments and Palmer (Evans As J 9 July 2009)

PRACTICE and PROCEDURE - Discovery - Particular discovery - Whether documents relevant to "Argument of no Lawful consideration" discoverable - "Credit River" decisions discredited.

2 Central to the claim is a mortgage allegedly signed by Mr Palmer on behalf of Virgin Investments Pty Ltd ("Virgin Investments"). The mortgage and accompanying guarantee relate to a property at Beach Road, Beaumaris ("the property"). The mortgage secured a loan by Permanent Custodians to Virgin Investments.

3 Default judgment was entered against Virgin Investments in July 2008; the claim against Mr Palmer based on the guarantee continues.

4 Mr Palmer has sought particular discovery of documents in three disparate categories.[1] In the proceedings before the Associate Justice, Permanent Custodians volunteered to provide documents (in its possession) within one of the categories, notwithstanding a dubious obligation to do so. That offer was repeated on the hearing before me.

5 I am of the view that the Associate Justice was correct in dismissing Mr Palmer's application. There is no basis upon which to order particular or further and better discovery; indeed, the rationale for requiring several of the categories of documents is outlandish. Particularly bizarre is the assertion, based on the theory known as "fractional reserve banking" that no lawful consideration passed from Permanent Custodians to Virgin Investments.

6 On 9 May 2006, Permanent Custodians entered into a loan agreement with Virgin Investments for the sum of approximately $1.3 million to be secured by a mortgage over the Beaumaris property with a guarantee to be given by Mr Palmer.[2]

7 On 9 May, Mr Palmer signed a guarantee of the loan.[3] The mortgage given by Virgin Investments to Perpetual Trustees is dated 30 May 2006.[4]

8 Settlement of the loan arrangements occurred on 30 May 2006. It can be inferred from the evidence that bank cheques were made out for approximately $1.23 million to Perpetual Trustees, with approximately $70,000 going to Virgin Investments and the balance accounted for by legal fees and associated charges.[5]

9 On or about 17 February 2008, Virgin Investments fell into default under the loan. Appropriate notices were given by Permanent Custodians in respect of the default and on 30 May 2008, Permanent Custodians filed the writ in this proceeding.

10 On 11 July 2008, Permanent Custodians obtained a default judgment against Virgin Investments for possession of the property and payment of the loan.[6]

11 On 11 February 2009, an Associate Judge dismissed a summons issued on behalf of Virgin Investments seeking to have the default judgment set aside.[7]

12 On 24 February 2009, a judge in the Practice Court dismissed an appeal by Virgin Investments from the Associate Judge's decision.[8] On 24 April 2009, the Court of Appeal refused its application for leave to appeal.[9]

13 The claim against Mr Palmer, relating to his liability under the guarantee, has continued with a defence being filed on his behalf and discovery having been provided by both Permanent Custodians and Mr Palmer.

14 On 9 July 2009, Evans AsJ refused Mr Palmer's application for further and better discovery.

15 The statement of claim comprehensively sets out the various loan agreements and the advances, the mortgage, the terms of the guarantee and the default and associated notices given by Permanent Custodians.

16 Mr Palmer, by his defence, denies both the existence of the mortgage and having entered into the guarantee. He also denies that he has any obligation to pay moneys to Permanent Custodians.

17 No positive allegations are made to the effect that Mr Palmer did not sign the guarantee, or that, pursuant to the loan agreement, no "lawful consideration" passed from Permanent Custodians to Virgin Investments.

18 Mr Palmer's summons sought the following groups of documents:

(a) A copy of any principal/agent agreements, contracts, treaties or like devices involving any party or entity, subject to or exerting any influence over, or taking any profit or loss relative to the alleged advances of the subject "funds".

(b) A copy of any Memorandum of Understanding as between any entity or entities having any interest in the funds, the subject of this dispute, no matter how remote or distant.

(c) A copy of any documents substantiating or otherwise evidencing losses indicated in the "Statement of Claim" filed with the Supreme Court of Victoria on 28 May 2008.

(d) Copies of all Statements of Account evidencing the true origin of the "funds" allegedly advanced.

(e) A copy of any documents signed by Michael Palmer or Virgin Investments Pty Ltd agreeing to any loan or agreeing to guarantee any such loan.

(f) Any documents that substantiate/evidence alleged additional cost of "borrowing" the money that was supposedly "loaned" to Virgin Investments Pty Ltd and how that cost relates to money that was already "loaned" prior.

(g) A copy of the Articles of Association and Company Constitution of Mills Oakley Lawyers Pty Ltd.

19 The groups of documents sought by Mr Palmer can be placed in the following categories:

• "Lawful consideration" documents (a, b, c, d and f).

I have treated Mr Palmer's application for discovery of particular classes of documents as one for particular discovery pursuant to r 29.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).

20 The appeal from Associate Justice Evans came before me on 8 September in the Practice Court. In the course of that application Mr Palmer referred to an affidavit filed the day before to which he annexed a copy of a booklet entitled "Modern Money Mechanics" and two decisions emanating from Credit River Township, Scott County, Minnesota.

21 On the morning of the hearing, Mr Moffatt, who appeared for Permanent Custodians, sighted Mr Palmer's affidavit and was content to deal with it and its annexures in the course of submissions. He did not oppose leave being granted to Mr Palmer to rely upon it.

22 Mr Palmer asserted, in the course of argument, that two decisions in First National Bank of Montgomery v Daly[10] ("the Credit River decisions") were not only authoritative but stood unreversed.[11] In addition it was said that, the "Modern Money Mechanics" booklet also provided the foundation for the discovery of the "lawful consideration" category of documents.

23 Subsequently, on 14 September, Mr Moffatt provided the Court and Mr Palmer with extracts from the judgment of Byrne J in National Australia Bank Ltd v McFarlane[12] and Dodds-Streeton J in Walter v National Australia Bank Ltd.[13]

24 I also thought it necessary to research the status of the Credit River decisions in both State and Federal Courts in the United States. My Associate provided Mr Palmer with details of a number of State and Federal U.S. authorities relating to those decisions as well as details of the two Victorian cases identified by Mr Moffatt. It was then arranged that the matter be re-listed to 24 September for further argument. Mr Palmer appeared, under protest, asserting that the Court should not re-open argument about the authority of the Credit River decisions.

25 I pause at this moment to observe that it was essential that the Court re-open the debate concerning the status of the Credit River decisions. As will be seen, Mr Palmer's statements to the Court as to their status were patently wrong. The purpose in reconvening the Court was to enable Mr Palmer to put any other material forward which may have indicated that a number of decisions of the Minnesota Supreme Court, U.S. Federal Judges, other U.S. State Judges and Judges of this Court were incorrect. On 24 September, the parties made submissions in relation to these decisions.

26 Mr Palmer relied on an extract from a Permanent Custodians discovered document of a Ms Nieve Ishak which reads as follows:

"At this point in time Mr Palmer signed the loan application which matched the identification provided - this was [sic] copy of the Victorian driver's licence at the time. There wasn't anything suspicious about the application at this point in time because the signature matched the loan application form. It actually looked like it was signed Michael Palmer, but if looked at closely reads 'without prejudice'."

27 The only issue relevant to the enforceability of the guarantee is whether Mr Palmer signed the guarantee. Nowhere in the pleadings or indeed in argument does Mr Palmer assert that the signature on the guarantee is not his.

28 The existence of Mr Palmer's signature on other documents held by Virgin Investments would only be relevant, in my view, if there was a positive assertion by Mr Palmer that it was not his signature or mark on the guarantee. Then documents relevant to other transactions could be used by him to fortify that assertion.

29 Accordingly Permanent Custodians is not obliged to discover this group of documents.

30 Generally, a Court will be guided by the pleadings when considering the relevance of documents and in determining whether discovery of particular documents or classes of documents should be granted.

31 Here, the pleadings, as I have observed, constitute a series of denials but no positive assertion. In particular, there was no assertion that lawful consideration had not passed from Permanent Custodians to Virgin Investments in return for Virgin Investments entering into the mortgage. This allegation was spelt out by Mr Palmer in oral and written submissions.

32 Notwithstanding the general principle that discovery should be determined having regard only to the pleadings, I think that the interests of justice require that I determine the matter based upon the arguments raised by Mr Palmer. Mr Palmer is self-represented and cannot be expected to understand the finer points of pleading. More significantly, I have little doubt that Mr Palmer is determined to run this point at trial and will, in due course, amend his pleadings, if permitted, to reflect this issue. Commonsense dictates that the matter be dealt with now.

33 Mr Palmer's argument concerning the lack of lawful consideration turns upon a proposition known as "fractional reserve banking". The proposition, as it affected the claim by Permanent Custodians against Mr Palmer, was summarised in argument by Mr Palmer as follows:

"MR PALMER: Now, on numerous occasions I have submitted the equivalent Reserve Bank of Australia statistical tables before the court and these show the same facts, that there is more credit circulating in this country than there is actual currency in existence. In layman's terms, Your Honour, the banks are loaning out more money than they actually have and this is the basis of the fraud that the lending institutions of this country are perpetuating.

HIS HONOUR: Let me just make a note of that. The banks are lending?

MR PALMER: Are loaning out more money than they actually have.

HIS HONOUR: And that is? What was that about fraud?

MR PALMER: That is fraudulent, Your Honour. You cannot lend out something is that you do not have. If Your Honour has one pen, he cannot lend me ten."[14]

34 In relation to the "lawful consideration" class of documents, Mr Palmer went on to say:

"MR PALMER: You can see already, just by that definition already, that money does not actually have any real value, and therefore it cannot ever be lawful consideration. If it has no value, then it's not valuable consideration. If it's not valuable consideration, it's not lawful consideration.

HIS HONOUR: Does that proposition underpin a number of the grounds?

MR PALMER: Absolutely, Your Honour, because as you'll note from the request of discovery of documents, most of them relate to either the origin of the funds or any connection that the plaintiff supposedly has to the origin of the funds, the fact that they have suffered any lawful loss, the fact that the contract and in any way valid inasmuch as they haven't put up any lawful consideration."[15]

35 In support of his argument, Mr Palmer relied upon the two quite different sources which I have already referred to. Firstly, the booklet "Modern Money Mechanics", which has no named author. Secondly, the Credit River decisions.

36 "Modern Money Mechanics" appears to be a treatise describing the U.S. banking system. It is described as "the workbook on bank reserves and deposit expansion". It was apparently published by the Federal Reserve Bank of Chicago in February 1994. One passage, in particular, is relied upon by Mr Palmer:

"In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.

What, then, makes these instruments - cheques, paper money and coins - acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so."[16]

37 Putting to one side that this analysis is of the US banking system and, in particular, the operations of the Federal Reserve, the contents of the booklet do not support Mr Palmer's contention. The booklet simply sets out the manner in which the U.S. banking system operates and the role of the Federal Reserve.

38 The facts of this case demonstrate the fallacy of Mr Palmer's assertion that there was no lawful consideration. The moneys advanced by Permanent Custodians were used to pay off an existing mortgage (of about $1.2 million) and other costs associated with the loan and the registration of the mortgage. In addition, Virgin Investments directly received nearly $70,000 by way of bank cheque.[17] Each of these transactions had a value. Virgin Investments was relieved of its indebtedness to the previous mortgagee, creditors were paid out and Virgin received funds which it was able to utilise for its own benefit. Virgin received value as a result of it entering into the loan agreement and the mortgage.

39 The second limb to Mr Palmer's argument was based upon the Credit River decisions. In fact, the first of those decisions (First National Bank of Montgomery v Daly)[18] related to a trial by a jury of 12 "talesman" presided over by Martin V. Mahoney in the township of Credit River, Scott County Minnesota.[19] The second related to the appeal by the Bank against the jury's decision.

40 In the course of his submissions, Mr Palmer said the following:

"MR PALMER: Yes, Your Honour. This ruling has gone unchallenged for 40 years because they cannot dispute his findings. No-one can fault his findings that no lawful consideration was ever tendered either in the initial contract with Mr Jerome Daly, nor was lawful consideration tendered to the court on the appeal with the $2.

HIS HONOUR: On your argument, would they ever have been able to appeal?

MR PALMER: Yes, they would have, Your Honour.

HIS HONOUR: How would they have done that?

MR PALMER: With either paying two silver dollars, four half dollars, eight quarter dollars or indeed 200 pennies, Your Honour."[20]

41 Mr Palmer's assertion that the two decisions of the Justice of Credit River Township have gone unchallenged is quite wrong, indeed, misleading.

42 Mr Daly, an Attorney, was sued by the Bank for possession of a property he owned in Scott County. The jury concluded that the loan of $14,000, secured by a mortgage given by Mr Daly, did not constitute "lawful consideration". Martin V. Mahoney was, in fact, a justice of the peace with no legal qualifications. He presided over the trial and wrote in the "judgment and decree":

"The jury found there was no lawful consideration and I agree. Only God can create something of value out of nothing ... Plaintiff's act of creating credit is not authorised by the Constitution of laws of the United States, as unconstitutional and void and is not a lawful consideration in the eyes of the law to support any thing or upon which any lawful rights can be built."[21]

43 The saga did not end there. The Bank appealed and provided security, perhaps unwisely in the context of the first decision, in the form of two one dollar bills. On 6 January, the Court filed a notice of refusal to allow the appeal. On 22 January at 7.00pm, Mr Daly again appeared before Justice of the Peace Mahoney. The bank was unrepresented. The nub of Mr Mahoney's decision was:

"That the Federal Reserve notes on deposit with the clerk of the court are not lawful money of the United States; are in violation of the Constitution of the United States and are not valid for any purpose."[22]

44 It is necessary, for a few moments, to look at events in Minnesota subsequent to the Credit River decisions.

45 On 11 July 1969, Justice C. Donald Peterson, acting for the Minnesota Supreme Court, directed "Martin v Mahoney, Justice of the Peace of Credit River Township and Jerome Daly to show cause", in respect of a separate proceeding, as to why they should not be permanently restrained from further proceedings in the Justice Court.[23] The death of Mr Mahoney on 22 August 1969 rendered the proceedings against him moot, however Mr Daly was suspended by the Supreme Court from the practice of law in Minnesota courts from 1 October 1969.[24]

46 In July 1971, Mr Daly's disbarment hearing came on before the Minnesota Supreme Court. Mr Daly appeared for himself. The tenor of his argument and the Court's response can be gleaned from the following remarks by the Court:

"Contrary to the respondent's fanciful assertions that these proceedings are a conspiracy by banks and their directors to put an end to his persistent attacks upon the constitutionality of the monetary system of the United States, disciplinary proceedings, including this one are not designed to punish an attorney or to prevent him in good faith espousing a legal cause however unpopular or seemingly untenable, but rather to discharge this court's responsibility to protect the public, the administration of the justice and the profession ...".[25]

47 The concluding remarks of the court in disbarring Mr Daly are worth summarising:

"No useful purpose would appear to be served by repeating the detail of the instances supporting the foregoing summary of ultimate findings, all of which are adopted as the basis for respondent's removal from practice. It should be noted, however, that respondent's persistent and continuing attacks on our national monetary system can hardly be regarded as zealous advocacy or a good-faith effort to rest the validity of repeated decisions of courts of record. For, as found by the referee, up to the time of his findings and recommendations respondent had avoided payment of any Federal income tax from 1965 and subsequent years on the asserted ground that he has not received gold and silver coin and, therefore, had no earnings that were taxable. Also, he has taken personal advantage of the system he attacks by borrowing money from a bank to purchase lakeside property, only to subsequently defeat the bank's repossession after mortgage foreclosure by taking the position that the bank's extension of credit was unlawful, obligating him neither to pay the debt, nor to surrender possession following expiration of the time to redeem.[26]

48 The argument that paper dollars have no intrinsic value and therefore nothing of any worth has been loaned has surfaced regularly in Courts in the United States, often with references to the Credit River decisions. For instance, in 2007 Sneed v Chase Home Finance LLC[27] Judge Burns of the United States District Court said as follows:

"Plaintiff's allegations concerning the loans appear to be contradictory. She alleges both that Defendants never loaned anything of value ... and also that payment of the loan in full was attempted ... . The nature of the alleged business relationship, where nothing of value was lent but where Plaintiff attempted to repay the loan anyway, is never explained.

The resolution of this paradox appears to be that Plaintiff does not recognize U.S. Federal Reserve notes as legal tender (or 'lawful money', as she terms it). Plaintiff repeatedly either implies or asserts that Defendants did not lend lawful currency. ... In particular, Plaintiff reveals her thinking in a boldface paragraph citing what purport to be cases of Minnesota state courts for the proposition that 'Federal Reserve Notes [are] fiat money and not legal tender ...

...

Furthermore, the Minnesota cases cited by the plaintiff are not only unreported but they have been vacated by the Minnesota Supreme Court reported decisions. ... The plaintiff is hereby admonished. She must not cite any decision under which Justice Martin Mahoney purported a question of the validity of Federal currency or the constitutionality of the Federal Reserve Act, nor may she cite any opinion or decision as authoritative which no longer has authoritative status".[28]

49 It is also clear that in this State, like the United States, arguments concerning fractional reserve banking have been raised and rejected on a number of occasions: Smart v ANZ Banking Group Limited,[29] Walter v National Australia Bank Limited[30] and National Australia Bank Limited v McFarlane.[31] In each of these cases, the argument based on "no lawful consideration" was raised in a similar fashion to that articulated by Mr Palmer. It suffices to repeat what was said by Byrne J in McFarlane:

"The defendants next contend that there was no lawful consideration given for the mortgages as the Bank did not advance the money claimed but only created a credit in the accounts of the McFarlanes. ... As best I understood him, he based his conclusion on the fact that the Bank, as lender, does not in fact lend money, that is, cash, banknotes or bullion, but merely creates a book entry. This, he said, was a fraud on the customer who believes that they are receiving a loan. Unless the supposed lender in a transaction such as the present hands over bullion, banknotes or coin, he continued, the mortgage entered into is invalid. It is apparent to me that this is arrant nonsense. It has no regard to the legal obligations which are created by a bank loan; it ignores the reality of modern commerce where it is money, in the broad sense of that term, including choses in action, and not only gold, banknotes and coin, or indeed legal tender, which plays a most important part.

I was referred also to the decision of Justice of the Peace Martin V Mahoney in First National Bank of Montgomery v Daly decided in 1969 in the Justice Court, Township of Credit River, County of Scott, State of Minnesota in the United States of America. I have read this decision with care. This is not an easy task as its procedural aspects are unfamiliar to an Australian practitioner and its logic is bizarre. Insofar as His Honour relied upon the provisions of the Constitution of the United States of America, the Constitution of the State of Minnesota and the laws of the United States, these precepts have no application in Victoria. I am not bound by this decision. In any event, I am not persuaded that His Honour's reasoning is valid.[32]

50 This overly long narrative places in context the Credit River decisions. Absent his death, it is fair to assume that Justice of the Peace Mahoney would have been removed from office.[33] The Credit River decisions are worthless as authority for any proposition in any Court in this country.

51 The argument put by Mr Palmer that s 115 of the Constitution[34] and s 22 of the Currency Act (C'wealth)[35] render the printing of paper money by the Reserve Bank illegal is so unmeritorious it does not warrant any further attention.

52 I have spent far too long in endeavouring to deal with the submission based on "fractional reserve banking" and the absence of lawful consideration; it does seem, however, to be a recurrent theme advanced by litigants in person when confronted with loan default. The argument is totally devoid of merit and should be rejected. If there was a power of admonition, such as that possessed by a US Federal Court Judge, I would apply it unhesitatingly.

53 It follows that none of the documents within the classes sought by Mr Palmer are relevant to the issues in this proceeding.

54 This is another irrelevant issue, not raised in any of the pleadings. The issue appears to be based on the fact that the writ was signed in the name of Permanent Custodians' solicitors. In Permanent Custodians Limited v Palmer,[36] the Court of Appeal held that a written statement of claim may be signed in the name of a law firm (as is the case here) even though the firm is not a separate legal entity, further there is no requirement to identify the person signing in the name of the firm.

55 The point has no merit, and has been determined by the Court of Appeal. There is no obligation on Permanent Custodians to provide discovery of these documents.

56 None of the classes of documents are relevant to the issues in this proceeding. The Associate Justice was correct in dismissing Mr Palmer's application. The appeal should be dismissed with costs.

[1] Supreme Court (Civil Procedure) Rules 2005 (Vic) R 29.08.

[2] Affidavit of Andrew Brown, 24 November 2008, Exhibit APB7.

[3] Affidavit of Andrew Brown, 23 January 2009, Exhibit APB13.

[4] Affidavit of Andrew Brown, 24 November 2008, Exhibit APB9.

[5] Affidavit of Andrew Brown, 23 January 2009, Exhibits APB16 and APB17.

[6] Affidavit of Andrew Brown, 17 April 2009, Exhibit APB1.

[7] Affidavit of Andrew Brown, 17 April 2009, Exhibit APB3.

[8] Affidavit of Andrew Brown, 17 April 2009, Exhibit APB5.

[10] Justice Court State of Minnesota, Martin V. Mahoney.

[11] Transcript of proceedings, Permanent Custodians Ltd v Virgin Investments Pty Ltd (Supreme Court of Victoria, Justice Forrest, 8 September 2009), at p 26.

[13] [2004] VSC 36 [237] and ff.

[14] Transcript of proceedings Permanent Custodians Ltd v Virgin Investments Pty Ltd (Supreme Court of Victoria, Justice Forrest, 8 September 2009) p 12.

[15] Transcript of proceedings, Permanent Custodians Ltd v Virgin Investments Pty Ltd (Supreme Court of Victoria, Justice Forrest, 8 September 2009) p 13-14.

[16] Reserve Bank of Chicago, Modern Money Mechanics page 3.

[17] Affidavit of Andrew Brown, 23 January 2009, Exhibits APB16 and APB17.

[18] (12/07/1968) Justice Court State of Minnesota, Justice Martin V. Mahoney.

[19] Affidavit of Michael Palmer, 7 September 2009, Exhibit MGP10.

[20] Transcript of proceedings, Permanent Custodians Ltd v Virgin Investments Pty Ltd (Supreme Court of Victoria, Justice Forrest, 8 September 2009), p 26.

[21] Exhibit MGP10 to the affidavit of Mr Palmer, 7 September 2009.

[22] Exhibit MGP11 to the affidavit of Mr Palmer, 7 September 2009.

[23] Jerome Daly v Savage State Bank & Anor 171 NW (2d) 218.

[24] In Re Jerome Daly 284 Minn. 567, 171 NW 2d 818 (1969), at 568.

[25] In Re Jerome Daly 291 Minn. 488, 189 NW 2d 176 (1971), at 489.

[26] In Re Jerome Daly 291 Minn. 488, 189 NW 2d 176 (1971), at 495.

[27] 2007 WL 185 1674 (S.D. Cal. June 27, 2007).

[28] Sneed v Chase Home Finance LLC 2007 WL 185 1674 (S.D. Cal. June 27, 2007), p 3-4.

[32] [2002] VSC 116, [7] and [8]. Cited with approval by Dodds-Streeton J in Walter v National Australia Bank Limited [2004] VSC 36 [246].

[33] Daly v Savage Stone Bank (1969) 171 NW (2D) 218.

[34] Commonwealth of Australia Constitution Act (Cth).

Court (Civil Procedure) Rules 2005(Vic)

Court (General Civil Procedure) Rules 2005

At a glance

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Decision date

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Judgment (115 paragraphs)

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Legislation Cited (2)