In a statement of claim filed 30 December 2017 the plaintiff as second registered mortgagee claims possession of land at 7 Dorrigo Avenue, Hoxton Park. The land is owned by the first and second defendants. The first defendant was made bankrupt on 30 May 2017. The third and fourth defendants are his trustees in bankruptcy. The fifth defendant is the first mortgagee of the property.
The mortgage is said the secure the sum of $400,000 lent to the first and second defendants pursuant to a loan agreement dated 12 October 2001. The loan agreement provided in cl 1.1 as follows:
The lender agrees to lend to the borrower the amount of $400,000 ($400,000) ("principal sum") receipt of which is hereby acknowledged.
Clause 2.2 provided that the term of the loan was to be for two years.
The Mortgage relevantly provides:
FOR THE CONSIDERATION OF THE PAYMENT BY THE MORTGAGEE TO THE MORTGAGOR OF THE PRINCIPAL SUM OF $400,000.00 (THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED) LENT TO THE MORTGAGOR, THE MORTGAGOR
(a) …
(b) Covenants with the Mortgagee as follows:-
Secondly - The Mortgagor will, on the 12th day of October 2003, ("the due date") repay to the Mortgagee the whole of the Principal Sum advance (sic) hereunder or so much thereof as shall then remain unpaid;
The plaintiff is the trustee of a discretionary trust. Although it has the same name as the original lender, the plaintiff is a different company with the same name as the original lender who was then the trustee of the trust. The plaintiff was appointed the trustee of the trust by a deed of appointment dated 18 June 2014. The evidence establishes that the plaintiff has now been registered as the mortgagee of the relevant mortgage on the title.
The second defendant filed a defence on 7 February 2018. She did not admit entry into the mortgage as alleged but admitted that there was a registered dealing in relation to the property which she asserted did not secure any debt.
The substantive defence to the claim is found in paragraphs 8 and 9 of the defence. Those paragraphs asserted that no monies were advanced or provided by the plaintiff or the original lender, that neither provided any consideration for the registration of the mortgage, and that no monies or obligations were owing by the second defendant to the plaintiff.
There was also an assertion that the plaintiff was not entitled to possession of the property because no notices had been served under ss 57(2)(b) of the Real Property Act 1900 (NSW) or s 80 of the Consumer Credit Code (incorporated into New South Wales law by the Consumer Credit (New South Wales) Act 1995 (NSW) s 5).
On 15 February 2018 the plaintiff filed a reply in which, amongst other things, the plaintiff sought to rely on a deed said to have been executed by the lender and the defendants on 20 August 2004. That deed recited the mortgage, the loan agreement and defaults by the mortgagors in failing to pay instalments of interest and to pay amounts owing under the loan agreement and mortgage by 12 October 2003. The recitals noted that the mortgagors had requested the mortgagee to allow them further time to pay amounts owed under the mortgage. The operative provisions then provided:
Operative Provisions
1. The Mortgagors agree that:
i. The loan agreement and mortgage are valid and binding;
ii. They have not paid the Mortgagee any money owing under the loan agreement or mortgage;
iii. As at the date of the loan agreement and mortgage, they owed the Mortgagee the principal amount of $400,000.00 and this amount is still owed; and
iv. Interest is owed from the date of the loan agreement and mortgage at the rate of 15% per annum compounding daily and this interest is still owed.
2. The Mortgagor and Mortgagee agree that
i. The repayment date or due date under the loan agreement and mortgage is extended from 12 October 2003 to 12 October 2006; and
ii. Instead of monthly instalments of interest, all amounts owing under the loan agreement and mortgage are payable to the Mortgagee on 12 October 2006;
iii. In any event, all amounts owing under the loan agreement and mortgage are immediately due and payable:
(a) On completion of any sale of the mortgaged property (folio identifier 14/249696);
(b) On either of the Mortgagors going into bankruptcy or some insolvency related scheme or part agreement:
iv. If there is a further default, the mortgagors each charge in favour of the Mortgagee any other land they have or come to have an interest in.
By a notice of motion dated 22 February 2018 the plaintiff seeks to strike out paragraphs 6, 8, 9 and 11.2 of the defence and asks that summary judgment be entered in favour of the plaintiff for the possession of the land. Paragraph 6 of the defence did not admit that the defendants entered into a mortgage of the land in favour of the lender. I have summarised the effect of paragraphs 8 and 9 earlier. Paragraph 11.2 denied the plaintiff was entitled to possession of the land and then said:
The Plaintiff has failed to provide notice in accordance with section 57(2)(b) of the Real Property Act (NSW) or section 80 of the Consumer Credit Code.
By a notice of motion filed by the second defendant on 27 March 2018 she seeks leave to file an amended defence and to file a cross-claim. The essence of the amended defence and the cross-claim is that the loan agreement and mortgage were a sham. The matter is most clearly articulated in paragraph 6 of the proposed amended defence as follows:
6. In answer to paragraph 6 of the Statement of Claim, the Second Defendant says:
(a) Admits that a document entitled a mortgage over the Property was signed by her and the First Defendant,
(b) Says that at no time did the parties intend for the document entitled a mortgage to create any legal relations between them and that:
(i) No monies were ever advanced by RFS1 or the Plaintiff to the First or Second Defendants as referred to in the document entitled a mortgage or at all;
(ii) Mo loan was advanced by RFS1 or the Plaintiff to the First or Second Defendants at all;
(iii) No monies are owing by the First or Second Defendants to RFS1 or the Plaintiff,
(iv) the said document entitled mortgage was entered into as a sham for the purpose of defeating claims of future creditors against the First and/or Second Defendants:
(v) the said document entitled mortgage is therefore void ab initio at law, of no effect and otherwise unenforceable,
(c) Further or in the alternative, as no monies are owing to RFS1 or the Plaintiff which are secured by the document entitled mortgage and/or it is otherwise a sham, the Defendants are entitled to redeem the mortgage have the mortgage removed from the title to the Property, and
(d) Otherwise denies the allegations.
In addition, the second defendant, in response to what is contained in the reply, denies that she or the first defendant signed the deed dated 20 August 2004.
The proposed cross-claim seeks declarations that the mortgage is void or otherwise unenforceable, and that there are no moneys owing under the mortgage. It also seeks orders that the plaintiff deliver a discharge of the mortgage and do all necessary things to have the mortgage removed from the title.
The proposed cross-claim relevantly pleads:
6. In or about October 2001, Rita, Sam [the first and second defendants] and Mr Sam Cassaniti ("Cassaniti"), on behalf of the First Cross-Defendant, entered into an oral agreement for a caveat or mortgage to be prepared which could be lodged on the title of the Property when and if it would be necessary to protect it from claiming from subsequent creditors of Sam or any business of his (the "Mortgage Agreement").
…
10. There was no intention on the part of Reliance, Rita or Sam for the documents entitled Loan Agreements or Mortgage to create any legal relations, obligations or entitlements between them.
11. The documents entitled Loan Agreement and Mortgage were entered into as shams.
The plaintiff submitted that the second defendant should not be given leave to file the amended defence and the cross-claim because the registration of the mortgage, which was intended by the first and second defendants, meant that the mortgage could not be a sham. In that way there was no arguable cause of action to justify the new pleadings, and the existing defence demonstrated no defence to the claim made. That was fortified by the acknowledgments in the Loan Agreement and Mortgage of receipt by the first and second defendants of the principal sum.
The plaintiff submitted that ss 57 and 58 of the Real Property Act applied so that the power of sale has become available by virtue of the default in the observance of the covenant to repay the $400,000. The plaintiff submitted that it cannot be that the mortgage is a sham when the second defendant admitted to executing it with the intention that it be registered. The plaintiff pointed out that fraud was never pleaded by the second defendant in the original defence. The plaintiff submitted that since the principal defence is that the transaction was a sham, the second defendant cannot verify a belief that the Consumer Credit Code provides a defence because reliance on the Consumer Credit Code assumes the validity of the mortgage.
The second defendant submitted that the proposed amended defence pleads with greater clarity her original defence that the loan agreement and mortgage were entered into as shams. The second defendant submitted that the original defence clearly asserted that no loan was ever made and that, although documents were signed, they did not reflect the true position because no funds were advanced.
The Second Defendant submitted that whether or not the mortgage was a sham, if no moneys are owing under the mortgage, she is entitled to redeem her equity in the property and have the mortgage discharged. The Second Defendant pointed to fraud being an exception to indefeasibility under s 42 of the Real Property Act.
The second defendant submitted that there can be no prejudice to the plaintiff in amending the pleadings at this stage when the statement of claim was only filed at the end of December 2017.
[2]
Consideration
The concept of fraud as it is used in the Real Property Act was clarified by the Privy Council in Assets Co Ltd v Mere Roihi [1905] AC 176 at 210 as follows:
By fraud … is meant actual fraud, i.e. dishonesty of some sort, not what is called construction or equitable fraud. … Further, it appears to their Lordships that the fraud … must be brought home to the person whose registered title is impeached or to his agents.
In other words, fraud does not affect the title of a registered proprietor unless it can be imputed to that registered proprietor.
In Anderson v Anderson (2017) 94 NSWLR 591; [2017] NSWCA 131 Leeming JA (with whom Basten JA and Sackville AJA agreed) said:
[33] There was no dispute that, in order to establish fraud within the meaning of s 42 of the Real Property Act, it was necessary to establish fraud in the sense of moral turpitude which was brought home to the registered proprietor. "'Fraud' in s 42(1) means 'actual fraud, moral turpitude'": Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [192]. Moreover, such fraud by persons from whom a registered proprietor claims "does not affect [the registered proprietor] unless knowledge of it is brought home to him or his agents": Assets Company Ltd v Mere Roihi [1905] AC 176 at 210; Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425; [2015] HCA 2 at [32].
In circumstances where the first and second defendants intended to sign the mortgage and intended that it be registered, there was no fraud that operated as an exception to the indefeasibility of the title of the original lender or its successors including the plaintiff. A mere finding that the mortgage along with the loan agreement was a sham does not necessarily lead to a conclusion that the registration of the mortgage was obtained by the fraud of the mortgagee. The assertion now, if the amended pleadings are permitted, of a sham arrangement could only mean that fraud might be able to be alleged against the plaintiff in seeking now to enforce an arrangement which was never intended to be a real arrangement. I am not thereby suggesting that there is any fraud in that way. However, if there was, that would not be fraud that could impeach the plaintiff's title.
If the second defendant is permitted to defend the claim on the basis that the arrangement was a sham, her rights to have the mortgage discharged would be because of personal equities that she had against the mortgagee: Egan v Egan [2018] NSWSC 202 at [68]-[72]; Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 at [178]-[182]; Tang v Bongreen [2003] NSWSC 824 at [49]-[50].
What those personal equities or rights in personam may be was recently clarified in Anderson v Anderson. Justice Leeming said:
[50] …[T]he premise of an in personam claim against a registered proprietor is that the plaintiff has a claim founded in law or in equity: Frazer v Walker [1967] 1 AC 569 at 585; Breskvar v Wall (1971) 126 CLR 376 at 384-5; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 613, 637-8, 653-6. The expressions "personal equity" and "right in personam" encompass only known legal causes of action or equitable causes of action: Garafano v Reliance Finance Corporation Pty Ltd (1992) 5 BPR 97,420; Grgic v Australian and New Zealand Banking Group Ltd (1994) 33 NSWLR 202 at 222. It is clear from Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [193]-[196] that only certain causes of action operate against a registered proprietor so as to give rise to an exception to indefeasibility, as Gleeson JA observed, with the agreement of Sackville AJA and me, in Despot v Registrar General of New South Wales [2016] NSWCA 5 at [164].
[51] There is a debate in the authorities whether, in accordance with one reading of the reasons of Hayne J in Vassos v State Bank of South Australia [1993] 2 VR 316 at 333, a registered proprietor is not susceptible to an in personam claim unless the proprietor is acting unconscionably or unconscientiously. Without being exhaustive, the narrower view may be seen in the dissenting judgment of Davies JA in White v Tomasel [2004] 2 Qd R 438; [2004] QCA 89, which was preferred by Campbell J in Battenberg v Union Club [2005] NSWSC 242; 215 ALR 696 at [53]; the wider view may be seen in the judgment of McMurdo J, with whom Williams JA agreed, in White v Tomasel and the review by Brereton J in Harris v Smith [2008] NSWSC 545 at [55]-[68].
[52] It is not necessary to resolve that issue in this appeal. However, if the requirement of unconscionability means only that equity regards the assertion of a registered proprietor's statutory rights as unconscientious in circumstances where a plaintiff has a recognised cause of action at law or in equity, then the requirement adds nothing to the premise that there is a known cause of action at law or in equity which is not inconsistent with the Real Property Act 1900 (NSW). Alternatively, if there are known causes of action at law or in equity which, merely because they lack an element of unconscientiousness, are defeated by the rights of a registered proprietor, then it is difficult to see a statutory basis for such differential treatment. I respectfully agree with the observation that "the concept of 'indefeasibility' [is] less helpful than the words of the various statutes ... in defining what claims fall outside Torrens protections": L Moses and B Edgeworth, "Taking it Personally: Ebb and Flow in the Torrens System's In Personam Exception to Indefeasibility" (2013) 35 Sydney Law Review 107 at 114. And it should not be forgotten that the statutes do not speak with one voice: compare for example the exception in s 185(1)(a) of the Land Title Act 1994 (Qld) in cases where there is "an equity arising from the act of the registered proprietor".
[53] There is to my mind much to be said for the proposition that the only question is whether the known cause of action is inconsistent with the Real Property Act 1900 (NSW), especially s 42 read with s 43. For one thing, that would that seem to accord with first principle. For another, it would appear to accord with authority. That is how I read Tadgell JA's statements in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 156 and 157 that "there is neither room nor the need, in the Torrens system of title" and "I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall". His Honour was thereby observing that a claim for knowing receipt was not available because it was inconsistent with statute: where registration was honestly obtained, there was no "receipt" of property, even if the registered instrument was forged, because that would be inconsistent with an essential aspect of the statutory scheme, namely, title by registration. Of course, that reasoning was endorsed by the High Court in Farah at [194]-[196].
During the course of the hearing of the motions the second defendant accepted that the cross-claim needed to be re-pleaded to take account of the need to identify the equity she was seeking to rely on to have the mortgage set aside. Accordingly, I adjourned the hearing of the motions for that to take place.
The next form of the proposed cross-claim contained a confused pleading of an express agreement concerning the lodgement of a caveat or mortgage to protect the first defendant against creditors, without alleging the caveat or mortgage was fictitious, with an alternative claim that the asserted arrangement contained a number of implied terms that the mortgage would not be enforced.
Ultimately, the second defendant put forward a third form of the cross-claim which relevantly pleaded:
6. In or about late 2001/early 2002, Rita, Sam and Sam Cassaniti ("Cassaniti"), on behalf of the company also known as Reliance Financial Services Pty Ltd but with ACN 003 478 966 (the "First Reliance"), entered into an oral agreement for a fictitious caveat or fictitious mortgage to be lodged on the title of the Property to protect it from claims from subsequent creditors of Sam or any business of his (the "Mortgage Agreement').
7. It was an implied term of the Mortgage Agreement that:
(a) First Reliance (or its successor) would not exercise or seek to exercise any terms of or statutory or other legal rights arising in respect of the Mortgage, including any rights that may arise from registration of the document entitled Mortgage, concerning the enforcement of any debt expressed to be secured by the document entitled Mortgage or concerning possession or the sale of the Property; and/or
(b) First Reliance (or its successor) would deliver up to Sam and Rita a Discharge of Mortgage form when and if required by them; and/or
(c) Sam and Rita were entitled at any time to require Reliance (or its successor) to take all such steps as may be required to ensure the title to the Property was free of the document entitled Mortgage and that their interest in the Property was not subject to the document entitled Mortgage and/or
(d) The document entitled Mortgage and all rights and obligations thereunder, including rights accruing on registration were to be held on trust for Sam and Rita and would only be exercised for the benefit of Sam and Rita or otherwise at their direction.
…
14. No funds were ever advanced by First Reliance to Rita and/or Sam pursuant to the document entitled Loan Agreement, the document entitled Mortgage or at all.
15. There was no intention on the part of First Reliance, Rita or Sam for the documents entitled Loan Agreement or Mortgage to create any legal relations, obligations or entitlements between them.
16. The documents entitled Loan Agreement and Mortgage were entered into as shams.
…
24. Rita is entitled to exercise her equity of redemption and require Reliance to deliver up a Discharge of Mortgage form in respect of the document entitled Mortgage.
It is convenient to deal first with the second defendant's motion because if leave is given to amend the defence and to file a cross-claim on the basis that the second defendant establishes that there is an arguable case on the sham, the plaintiff will not be entitled to summary judgment.
It should first be noted that in the defence filed on 7 February 2013 there is no mention of the arrangement being a sham. While the plaintiff was not prepared to say that the argument was a recent invention in terms of the amended pleading, counsel for the plaintiff asserted that the second defendant was perjuring herself in so asserting. A similar type of assertion was made in the plaintiff's reply filed to the initial defence.
Nevertheless, the assertion that the arrangement was a sham did not come from nowhere in terms of the pleading. The second defendant was careful in her initial defence to accept that there was a registered mortgage but to deny that it was effective to do anything because no debt was secured by it. She specifically pleaded that no monies were advanced pursuant to the loan agreement or mortgage and she asserted that the plaintiff and its predecessors provided no consideration for the registration of the mortgage.
The proposed amended defence has been verified by the second defendant. Although counsel for the plaintiff said that the affidavit went no further than saying that the second defendant believed that the allegations of fact contained in the defence were true and did not swear that they were true, I do not think I should place any importance on that semantic difference. The second defendant has verified the facts in the defence in the terms of the affidavit required by the Rules to be sworn. I do not consider in the circumstances that swearing to belief in the truth of the facts is saying anything different from swearing to the truth of the facts. If there is a difference in meaning, that difference can be justified on the basis that it will be for the Court to determine the truth of the facts and, while those facts are in dispute, the best a party can do is to swear that the party believes them to be true.
The plaintiff's resistance to the filing of the new pleadings is based on the assertion that a sham cannot be argued where the mortgage has been registered and was intended by the party now asserting a sham to be registered. With all due respect, that seems to misapprehend the notion of a sham. The sham is a challenge to the whole of what otherwise appears to be the legal arrangements between the parties.
In Lewis v Condon; Condon v Lewis (2013) 85 NSWLR 99; [2013] NSWCA 204 Leeming JA (McColl JA and Sackville AJA agreeing) said:
[56] In my opinion, the reasoning and conclusion of the primary judge in this respect are correct.
[57] It is well-recognised that "sham" is an ambiguous term and uncertainty surrounds its meaning and application in various legal contexts: Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 453; Raftland Pty Ltd v Federal Commissioner of Taxation [2008] HCA 21; (2008) 238 CLR 516 at [35]. It is necessary to use the term precisely.
[58] The essence of a sham for present purposes is as stated by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at [46]:
"[Sham] refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences."
[59] That is to say, it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, "to say that a document or transaction is a 'sham' means that while professing to be one thing, it is in fact something different": WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323.
[60] Basic to the legal notion of sham is that it is a confined and exceptional aspect of the process of giving legal meaning to a document, as Professor Conaglen has pointed out ("Sham Trusts" (2008) 67 CLJ 176 at 206):
"The relevance of the sham doctrine, and the difference between it and normal processes of construction, lies in the fact that it justifies the court in ignoring (as opposed to construing) the usual primary material regarding that transaction, and focusing its attention instead on all other material factors which indicate the arrangement that the parties in fact intended."
[61] That echoes the words of Windeyer J in Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265 at 279:
"The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front ... concealing their real transaction."
[62] The sham doctrine is thus one of those relatively rare doctrines in the law where legal meaning is given to a document by reference to a subjective intention. Other examples are a plea of non est factum at law and a claim for rectification in equity. All these doctrines "must necessarily be kept within narrow limits", for all subtract from the objective theory of contractual obligation, and if unchecked would cause "serious mischief": see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [46]-[47]. This has long been the law: see for example Jordan CJ's reasons in Perpetual Trustee Co (Ltd) v Bligh (1940) 38 SR NSW 33 at 39-40. In all these areas, strong evidence is required in order to displace the orthodox approach to construction. Hence the "heavy onus" that must be discharged by the plaintiff in a non est factum case (Petelin v Cullen (1975) 132 CLR 355 at 360) and the need for "clear and convincing proof" in a rectification suit (Franklins Pty Ltd v Metcash Pty Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [451]-[460]).
As was made clear in Egan, Black Uhlans and Tang v Bongreen, registration of an instrument such as a mortgage does not of itself mean that the mortgage cannot be held to be a sham. If a sham is proved, the result is that the registered instrument is set aside or discharged.
The revised proposed cross-claim pleads the second defendant's equity as her equity of redemption. Her right in that regard to call for the mortgage to be discharged in reliance on that equity of redemption would appear to derive from the agreement pleaded in paragraph 6 of the proposed cross-claim. That was an oral agreement for a caveat or mortgage to be lodged on the title of the property to protect it from claims from subsequent creditors of the first defendant or any business of his. In that way the second defendant is asserting that her right is based on a breach of that agreement. Her cause of action is, therefore, one for breach of contract which provides her right in personam to overcome the indefeasibility brought about by the registration of the mortgage. If, as appears to be left open by Anderson v Anderson at [51] and [52], there is a requirement of unconscionability before the second defendant can establish such a right, I would consider that the reliance on the registered mortgage by the plaintiff in breach of that agreement (if that is established at the hearing) would amount to the necessary unconscionability, at least for the purposes of considering whether the second defendant has an arguable case.
No particular prejudice is identified that would preclude an amendment to the defendants' pleadings being permitted. An explanation has been provided on behalf of the second defendant for the desire to amend. Although an explanation that relies on a new lawyer's different view of the proceedings is not an entirely satisfactory explanation, I do not consider that at the stage the proceedings have reached, the defendant should not be permitted to amend. Certainly, the original defence made reference to the fact that no monies had ever been advanced pursuant to the terms of the loan agreement and mortgage.
In terms of the various tests in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, it cannot be said that the defence of a sham is hopeless or unarguable. In those circumstances, the plaintiff is not entitled to summary judgment.
I am somewhat strengthened in that view because in the affidavit by the principal of the plaintiff in support of the plaintiff's motion for summary judgment nothing is said about the advance of funds. Both the loan agreement and mortgage contain an acknowledgment in that regard, but they are said by the second defendant to be part of the sham. When even the original defence filed by the second defendant asserted that no funds had ever been advanced despite what the documents said, it seems to me to be a singular omission on the part of the plaintiff in seeking summary judgment not to have demonstrated that funds were actually advanced. Had that happened, it is likely to have been a sufficient answer to any assertion that the whole arrangement was a sham. I consider that I can draw a Jones v Dunkel inference in that regard, at least for the purposes of considering whether the second defendant has an arguable defence: see also Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 419.
I do not consider that the second defendant should not be able to plead in the alternative that the mortgage is governed by the Consumer Credit Code. In Egan v Egan the defendant was entitled, in the alternative to an allegation of sham, to rely on the Contracts Review Act 1980 (NSW) if the sham allegation was not made out, as was in fact the case.
In circumstances where the second defendant demonstrates an arguable defence in the proposed amended defence and cross-claim, the plaintiff is not entitled to summary judgment.
As far as costs are concerned there are two issues. The first concerns the costs of the amendment of the defence and the filing of the cross-claim. Costs thrown away by the amendment to the defence should be paid by the second defendant. The cross-claim should have been filed at the same time as the defence. It concerns the same matter, namely, the alleged sham mortgage.
The second issue concerns the costs of the motions. While the plaintiff has been unsuccessful on its summary judgment motion, there is no doubt that its motion focused the second defendant's attention on the need to amend the defence and seek leave to bring a cross-claim so that the true issue could be clearly identified. The plaintiff seeks its costs of both motions for that reason. The second defendant submitted that both sides had a measure of success so that each party should pay its own costs of both motions. Somewhat inconsistently, the second defendant submitted that the costs should be reserved.
There is no basis for displacing the usual rule that costs thrown away by an amendment should be paid by the party seeking to amend. Further, the second defendant was seeking an indulgence in asking for leave to file a cross-claim out of time. The second defendant needed three attempts to plead the proposed cross-claim adequately. The plaintiff should be compensated for costs incurred in relation to those matters. That the mortgage was said to be a sham was not easily discernible from the defence originally filed. It was not unreasonable for the plaintiff to seek summary judgment. However, the plaintiff persisted with its application when it became clear that the real issue was a sham.
It is not helpful to the parties to make a number of different costs orders. Taking into account all of the matters in [41]-[43] above, the second defendant should pay 50% of the plaintiff's costs of both motions.
Accordingly, I make the following orders:
1. Grant leave to the second defendant to file an amended defence in the form of the document annexed and marked "C" to the affidavit of Hannah Sue Veldre sworn 27 March 2018;
2. Grant leave to the second defendant to file a cross-claim in the form attached to an email from the second defendant's solicitor to my Associate date 26 April 2018;
3. Dismiss the plaintiff's notice of motion dated 22 February 2018;
4. The second defendant is to pay 50% of the plaintiff's costs of the plaintiff's notice of motion dated 22 February 2018 and the second defendant's notice of motion dated 27 March 2018, such costs to include costs thrown away by reason of the amendment to the second defendant's defence and the filing of the cross-claim.
[3]
Amendments
02 May 2018 - Hearing date amended on coversheet
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Decision last updated: 02 May 2018
Parties
Applicant/Plaintiff:
Reliance Financial Services Pty Ltd
Respondent/Defendant:
Criniti
Legislation Cited (5)
Consumer Credit (New South Wales) Act 1995(NSW)s 5, s 5).