Satchithanantham v National Australia Bank Ltd

JUDGMENT OF: Giles JA at [1]; Hodgson JA at [2]; Young JA at [3]

DECISION: (1) Appeal dismissed with costs; (2) Order below varied so that the issue of the writ of possession is postponed so that the respondent can apply to issue the same on or after 1 November 2009 provided that the appellant pays to the Bank $4,000 interest in both September and October 2009, no later than the 15th day of each such month, in default of any one payment the writ of possession may issue within seven days thereafter.

CATCHWORDS: CONTRACTS - Contracts Review Act 1980- whether to set aside or vary loan agreement- appellant entered into loan agreement with respondent with securing mortgage- loan monies used to discharge another mortgage and to finance appellant's husband's business. EQUITY - undue influence- general principles- Yerkey v Jones- limited availability of undue influence where party seeking to set aside the transaction obtained some benefit from it.

Contracts Review Act 1980 LEGISLATION CITED: Fair Trading Act 1987 Real Property Act 1900, s 57(2)(b) Trade Practices Act 1974 (Cth)

Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 Garcia v National Australia Bank Ltd (1993) NSW Conv R 55-662 CASES CITED: Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Warburton v Whiteley (1989) NSW ConvR 55-453 Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649

PARTIES: Hemalathasothy Ranjini Satchithanantham (Appellent) National Australia Bank Limited (Respondent)

COUNSEL: J M Patel (Appellant) N Bearup (Respondent)

SOLICITORS: Appellant in person DibbsBarker (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT DATE OF DECISION: 6 February 2009

LOWER COURT MEDIUM NEUTRAL CITATION: National Australia Bank v Satchithanantham [2009] NSWSC 21

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40110/09

GILES JA HODGSON JA YOUNG JA

Wednesday 2 September 2009 SATCHITHANANTHAM v NATIONAL AUSTRALIA BANK LIMITED Judgment 1 GILES JA: I agree with Young JA. 2 HODGSON JA: I agree with Young JA. 3 YOUNG JA: This is an appeal from a judgment of McCallum J [2009] NSWSC 21 in proceedings brought by the respondent, the National Australia Bank Limited ("the Bank"), for possession of the appellant's house at Westmead and for judgment for debt. 4 The appellant, Mrs Satchithanantham, migrated to Australia in 1987. She was referred to as "Mrs Satchi" during the appeal and, without meaning any disrespect, I will so refer to her in these reasons. 5 In 1992, the appellant and her husband purchased the subject property at Westmead subject to a mortgage. By September 1998, the mortgagee was the Bank of Western Australia Limited ("Bankwest"). 6 The appellant's husband became bankrupt in 2002. The husband's trustee put a proposal to the appellant as to her purchasing the trustee's half interest in the Westmead property. About the same time, the appellant received a notice to vacate from Bankwest because of an alleged default in the mortgage. 7 The upshot was that the appellant and her husband negotiated refinance with the Bank. On 7 January 2003, the Bank agreed to grant the appellant a mortgage facility. The appellant acquired the half interest in the Westmead property formerly held by her husband and the Bank took a mortgage from her over the Westmead property and advanced $680,000. 8 The terms of the mortgage provided that the Bank could, at any time, cancel the facility and require repayment. The Bank did this on about 17 January 2005 demanding repayment of $688,945.95. On about 4 February 2005, the Bank served on the appellant a default notice demanding $690,614.02 and also gave notice under s 57(2)(b) of the Real Property Act 1900. 9 The appellant resisted the Bank's claim for possession and for debt. 10 The appellant appeared in person though her husband also became involved in the proceedings purporting to assist her. The husband appears to have been the author of many of the affidavits and submissions used in this case which have not assisted resolution of the real dispute between the parties either at first instance, or before us. 11 However, reading between the lines of the defence, and looking particularly at the amended defence on pages 65 and following of the Red Book, the principal defence was that the mortgage and related documents were not signed by the appellant voluntarily; she signed them under the coercion and undue influence of her husband without clear understanding of their nature nor of their legal effect. 12 Particulars were given that the appellant was a married woman and described as a "mere housewife". She was a Sri Lankan who can only speak, read and write in Tamil and is completely illiterate in English. She did not receive any explanation of the mortgage from the Bank and her husband did all the paper work on her behalf. She said that the mortgage was executed under the undue influence of her husband; she had no benefit of independent legal or other advice and the mortgage should be set aside or relief given under the Contracts Review Act 1980. 13 The hearing at first instance appeared to occupy nine days in between April and September 2008 and her Honour gave judgment on 6 February 2009. 14 McCallum J found that she accepted the appellant's evidence and that the appellant had not seen the mortgage documents or had any knowledge of their contents before her second meeting with Ms Colbran, the Bank officer, in January 2003. Her Honour also accepted that the appellant had received no independent or other advice and was strongly influenced by her husband. Her Honour found that of the $680,000, $361,469.82 had gone to Bankwest to pay out its mortgage, $25,000 had gone to the Official Trustee in Bankruptcy so that the husband's interest could vest in the appellant, about $27,000 had gone to various barristers, solicitors, etc in connection with the transaction, and $267,000 had nominally gone to the appellant, but actually to her husband. 15 Her Honour dealt with the defences in three compartments. First, whether it was unconscionable for the Bank to enforce its mortgage against the appellant because it was privy to the undue influence of the husband. Secondly, under the principle of Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649; and thirdly, whether relief should be given under the Contracts Review Act 1980. 16 The appellant also claimed relief under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 on the basis that there were false and misleading misrepresentations made by the Bank. However, her Honour found that the appellant would have signed the documents whether or not she was labouring under any misapprehension and accordingly dismissed those claims. 17 As to the first defence, her Honour accepted that the appellant was prepared and expecting to execute a mortgage for a home loan to secure about $400,000. Regardless of that assumption, however, she signed the mortgage and a document she believed was the loan agreement out of fear of reprisal if she did not do as her husband requested [101]. 18 The judge then said at [102] that had the appellant brought her independent will to bear at that time, she may have been prepared to mortgage her home but not to secure a business facility of up to $680,000 to provide additional funds for the use of her husband. She received no independent legal advice nor financial advice, but she received the benefit of about $408,665.86. Her Honour then said at [104]: "I am mindful of the fact that I was not able to conclude, in respect of the defence on the equitable ground of unconscionability, that the bank was sufficiently aware of any disability suffered by Mrs Satchithanantham to warrant a finding of unfairly taking advantage. The ignorance of the lender is relevant, but not determinative." 19 Her Honour then continued by referring to Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; 11 BPR 20,841 and Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41. She said that those authorities justified her reaching the conclusion that relief should not be refused, placing greater reliance on the lender's indifference to the purpose of the loan. The significant factors for this view were that the loan was a substantial loan, the security for which was the appellant's only asset, and the respondent's knowledge that the appellant had no income or other assets. Accordingly, her Honour found that the approval of the additional amount, that is, the amount over the benefit received by the appellant, which additional amount was requested by the husband, was unjust even if the Bank was ignorant of those circumstances. 20 Her Honour, however, rejected the defence based on Yerkey v Jones on the basis that the appellant herself had received considerable benefit under the transaction and the present transaction was not the type of situation to which Yerkey v Jones was directed (see [75] and [81] of the primary judgment). 21 Her Honour also considered that the circumstances established by the appellant were such that relief should be given to her under the Contracts Review Act 1980. Again, she found that over and above the amount which the appellant had received for her benefit, the transaction should be varied to remove the appellant's liability. Accordingly, she made an order that the parties were deemed to have entered into a deed varying the loan agreement so that in all respects the facility should operate as if the loan amount advanced on 16 April 2003 and debited to the appellant's account had been $408,665.86. She gave judgment for the amount owing based on that original capital figure and ordered that the Bank have possession of the Westmead property. 22 The appellant appealed. The original notice of appeal appears to have been substantially drafted by counsel, but there is also an amended notice of appeal which bears the hallmarks of the appellant's husband's handiwork. In one sense the document should be read cumulatively. 23 The grounds of appeal appear to be that her Honour's fact-findings were inconsistent and incongruous, that she should have found the Yerkey v Jones defence applicable, that she denied natural justice and procedural fairness because the appellant was not permitted to present her case properly because her husband was not able to speak for her, and that the remedy which the judge had given was illusory to atone for the unconscionable conduct of the Bank. There was also a complaint that the calculations were wrong. 24 The amended notice of appeal contains 21 grounds. They are difficult to classify. Essentially, they are as follows:

(1) The appellant claims to have suffered denial of natural justice because the primary judge accepted most of the Bank's case without discerning that the Bank was in breach and violation of its own Banking Code.

(2) The judge did not behave fairly towards the appellant because she did not follow the Civil Trial Bench Book with respect to unrepresented litigants and in particular did not allow the appellant's husband to speak for her.

(3) The judgment delivered was unfair and unreasonable and a one-sided version supported by the Bank's arguments only. 25 The respondent's riposte in paras 1 and 2 of its submissions were simply this: "1. This case concerns a loan made by the respondent to the appellant which enabled the appellant to obtain the benefit of a discharge of a prior mortgage over the property she had owned jointly with her husband and the transfer to her of her husband's interest in that property so that she became the sole registered proprietor. Given these facts she could not have achieved a more favourable result than she achieved at first instance. 2. It is difficult to readily discern the basis of this appeal, particularly as significant portions of the notice of appeal … the amended notice of appeal … and the preliminary submissions filed on 12 June 2009 are unintelligible." 26 In the light of the submissions made during the oral hearing, it is significant that, neither before the primary judge, nor before us, was it alleged that the primary judge erred in only giving limited relief under the Contracts Review Act. I will return to this point. 27 As will appear later, I endorse the thought that the appellant could not have achieved a more favourable result from a primary judge than she in fact achieved. I have sympathy with the submission that the grounds of appeal and the appellant's submissions are unintelligible, but the Court had to do the best it could to interpret these. 28 Fortunately for the Court and the parties, when the appeal was commenced on 1 July 2009, Mr J M Patel of counsel appeared for the appellant. Ms N Bearup appeared for the Bank. 29 Mr Patel made it clear that he was involved in the matter on a pro bono basis, but whilst he had had some familiarity with the matter at an early stage, he had not been involved with it for some considerable period of time and was not fully ready to argue the appeal on that day. 30 The Court was very thankful to Mr Patel for undertaking to appear for the appellant and to put the appeal into an intelligible form. The decision was made, without opposition, to permit Mr Patel to take the appeal as far as he could on the basis that the argument could be finished off in written submissions. 31 At the oral hearing, the Court asked Mr Patel to specify with clarity the grounds on which the orders on the appeal were sought, and why they have substance. Mr Patel was quite willing to do this, and after a short adjournment, outlined his submissions. 32 Mr Patel said that there was no substantial issue with her Honour's findings of fact. Indeed, her Honour's judgment in the first six paragraphs gives a bird's eye of the whole matter and her perception of the case and there is no substantial challenge. However:

(1) it should be observed that the appellant signed the mortgage over her home at Westmead to secure a loan to her from the Bank;

(2) she only signed because her husband forced her to sign;

(3) she believed the loan was an ordinary home loan in the sum of $400,000;

(4) in fact, the mortgage was to secure a facility with a limit of $680,000 almost all of which was drawn down shortly after the loan was settled;

(5) the loan was not an ordinary home loan but a line of credit that could be cancelled at any time whether or not the appellant was in breach of its terms;

(6) the Bank cancelled the facility and claimed it had become entitled to judgment for the unpaid balance and an order for possession. 33 Mr Patel then sought to remind us that the case was presented under four limbs, the four that I have already outlined, that is, with the Trade Practices Act/Fair Trading Act as number 4. However, he was directed back on to the course of pointing out the alleged errors and said: "The first point we're trying to raise is that the parties were at cross purposes. Mrs Satchi believed that when she was entering into the contract she was entering into the contract for mortgage to secure for the home borrowing of $400,000." 34 Mr Patel said that for contracts, there has got to be a meeting of minds. Whether there was a unilateral mistake that the Bank did not understand what Mrs Satchi wanted or, alternatively there was a mistake by both of them thinking that they were entering into different transactions, there was such a mistake that there was no meeting of minds. He pointed out that Mrs Satchi executed the mortgage documents without reading them, more or less relying on what was conveyed by the bank manager. 35 Mr Patel said the judge did not focus sufficiently on what was the contract. Had her Honour done so, she would have realised that Mrs Satchi had never agreed to a loan transaction which could be cancelled at the whim of the Bank and the amount then owing called up on short notice whether she was in default or not. 36 At [26] of her judgment, the primary judge accepted that the appellant "was told, in Ms Colbran's [the bank officer's] presence, that the application was for a loan for $400,000 and that she believed she was signing an application for a home loan in that sum". At [40] her Honour said that: "I doubt whether anyone paused to ensure that Mrs Satchithanantham had read those documents or been made aware of the increase in the amount sought. I accept that she was not aware that the limit of the facility offered was $680,000." 37 However, there is no doubt that the appellant signed the document seeking a mortgage facility with a limit of $680,000 and that she authorised the Bank in addition to refinancing the loan and paying expenses to pay the surplus of $228,000 to her (though in fact it went to her husband). Mrs Satchi did not read the documents. However, there was no plea of non est factum (nor could there have been), nor any plea of incapacity. The law clearly is that if a person signs a document which she knows is a contract, she is bound by the terms of that contract even though she may have thought that the contract she was signing was different: a fortiori if she doesn't read it; see eg Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165. Of course there are exceptions, but none are applicable in the instant case. 38 After hearing Mr Patel outline his submissions, Hodgson JA asked: "I'm just wondering where does this ultimately lead? Does it lead to a position where you say she should be treated as having a home mortgage for $400,000 so that so long as she pays the interest up to date for $400,000 and continues to pay the interest on $400,000 then the mortgage should be maintained? Is that the ultimate goal or is it some other goal?"

Mr Patel said his Honour was correct. Hodgson JA then asked whether there was any evidence that the appellant had at all times been ready, willing and able to pay the interest on the $400,000 and had continued to do so. 39 Mr Patel conceded there was no direct evidence of that, but said that the Bank decided, without any legitimate excuse or reason, that the mortgage should be called up. The Court then pointed out to Mr Patel that there was no material in the pleadings or in the evidence to suggest that the appellant ever took the position that she accepted liability for $400,000, was willing to pay interest on it and had always been willing to do so. 40 Mr Patel put that the relief granted by the judge should not merely have deemed the parties to have varied the loan so that the amount of the loan was $408,000, but should have deemed the loan to have been varied so that it was a home loan with conditions appropriate to a home loan. 41 Unfortunately, apart from the lack of evidence referred to above, if what is set out at pages 155-6 of the Blue Book is the standard home loan contract, whilst the term appears to be 30 years, there are the usual provisions that if any default is made, then the balance of the loan will be repaid with interest and fees and charges upon demand. In the absence of any evidence that all the payments were up to date, and there was no default, and indeed, there is an overall flavour in this case that there was some default, it would not matter if the loan were a 30 year home loan. 42 Ms Bearup made the further submission that the appellant's counsel had never actually stated what were the alleged "appropriate conditions" for a home loan to which the judge should have adjusted the contract. Furthermore, no such case was ever put to the primary judge nor does it rate a mention in the original or even the amended notice of appeal. 43 Mr Patel appeared to be submitting that there was no contract because of some mutual, common or even unilateral mistake. Not only was this not pleaded, nor does it appear to have been put below and it does not appear in the notice of appeal, but also it runs contrary to the basal facts of the case. In any event, if it be correct, the consequence would still be that Mrs Satchi should refund any money paid to her under the void contract as money had and received to the use of the Bank. 44 As Ms Bearup has submitted, the judge really gave the appellant as much as she could when still doing justice to the Bank. The judge believed the appellant and modified the loan so that the amount repayable was based on the benefit that the appellant actually received. The only matter which does provoke examination is her Honour's determination that Yerkey v Jones was inapplicable in this sort of case. 45 The main reason why her Honour took that view is that Yerkey v Jones primarily deals with the situation where a wife or equivalent mortgages her property and receives no benefit at all from the funds produced by the mortgage. There is a very limited area where a wife can take advantage of the Yerkey v Jones principle where she receives some benefit, usually in the case where she is a director and shareholder of a corporate borrower; see eg the cases referred to by Clarke JA in Warburton v Whiteley (1989) NSW Conv R 55-453 at 52,287-58,291 and my decision at first instance in Garcia v National Australia Bank Ltd (1993) NSW Conv R 55-662 at 59,787. 46 None of the extensions in the cases referred to would allow the Court to bring the present case under the Yerkey v Jones principle. The primary judge's ruling on the issue was undeniably correct. 47 After hearing from Mr Patel and Ms Bearup and at the close of the oral argument, we gave leave for the appellant to file and serve supplementary written submissions by 22 July 2009, but we made it clear that those submissions "are to be signed by Mr Patel of counsel and are to be supplementary to the matters outlined today as to the matters on which Mrs Satchi relies in the appeal. That is subject to the question of costs … . The respondent's submissions in reply are to be filed and served within a further seven days thereafter". 48 As to costs, after hearing further argument we directed that the direction noted above extends also to written submissions appealing against the costs orders made by the trial judge and responding thereto. Subject to receipt of those two tranches of submissions the Court reserved its decision but extended the stay granted by Ipp JA until 4pm on the day on which we deliver judgment. 49 On 22 July 2009, the appellant filed in the Registry a further Orange Appeal Book entitled "No 3". This showed that it had been prepared in haste as one of the documents in it was marked as a working draft. 50 Orange Appeal Book No 3 actually contained four documents, (a) supplementary submissions by Mr Patel; (b) a document entitled "Supplimentary [sic] Submissions by Appellant's husband"; (c) a chronology of settlement efforts; and (d) an allied document to document (c). 51 On 29 July 2009, the appellant filed two further Orange Appeal Books Nos 4 and 5 which contained a heterogeneous mass of so-called "supplementary documents" including a copy of the appellant's husband's written case in the High Court in, apparently, a bankruptcy appeal. Page 183 of Orange No 5 alleges, inter alia, that the husband had many suspicions, but did not know why this Court had, on 1 July, rejected his efforts to help his wife's case as the Court had not given reasons for this decision. 52 No leave had been given in respect of any of the material in Orange Appeal Books Nos 3, 4 or 5 except for pages 2-10 of Orange No 4 which purports to be Mr Patel's further submissions. In accordance with the standard practice of this Court, I have ignored the material filed without leave except insofar as it was already in evidence or consists of documents referred to in the Bank's counsel's submissions in reply and associated documents. 53 If one merely took cognisance of the index to Orange 3, one would think that the extra material was filed by leave of the Registrar. This is clearly not the case as other material shows. 54 Mr Patel's further submissions 1-44 deal with material which suggests that the appellant was at a severe disadvantage during the hearing. This was of little use. Not only did it not develop Mr Patel's principal submissions made at the oral hearing, but it also did not take account of the fact that it was really impossible for any advocate on behalf of the appellant to obtain a better result than obtained before the primary judge. 55 The fact that the appellant cannot surmount is that she received an actual benefit from the Bank of approximately $408,000. In so far as she seeks relief in equity, the maxim applies that "she who seeks equity must do equity". She needs to see that $408,000 is repaid or at least come to an acceptable commercial arrangement with respect to that sum. This she has never offered to do. 56 So far as the Contracts Review Act is concerned, the Court's jurisdiction only goes so far as avoiding, as far as practicable, an unjust consequence or result. The circumstances of this case did not permit the primary judge to absolve the appellant from the consequences of entering into this written contract over and above that which was unjust and that, according to the primary judge, and in my view her Honour made no mistake in this, was limited to the amount over $408,000. 57 I expected that the additional submissions would have expanded on the submission that the primary judge should have further adjusted the contract to remove the "right" of the Bank to demand repayment short of the period allowed in a home loan mortgage. However, there is no such additional submission. It may well be that this is because: (a) the submission was doomed for reasons set out earlier in these reasons; and (b) it was never raised before the primary judge or even in the amended notice of appeal. 58 Paragraph 45 of the submissions by Mr Patel are hard to follow. It consists of 15 sub-paragraphs the gravamen of which may be summarised by quoting from para 45.8 that the Bank has "not removed the blinkers to see what is absurd about the facility they advanced to Mrs Satchi" and that the Bank constantly refused to accept Mrs Satchi's attempts to reach a fair and reasonable compromise. 59 Ms Bearup responded to the additional submissions. She pointed out much of what was said bore no relation to the grounds of appeal. She further pointed out that appeals from orders made under the Contracts Review Act 1980 are appeals from discretionary orders and appeals from such orders face the difficulties always faced by those who appeal from such orders. 60 In my view, the decision of the primary judge was correct and, even if it were open to Mr Patel to put the arguments he has put to us, the appeal still would have to be dismissed. 61 Before turning to questions of the proper order for costs below, because the appellant's husband appears to be alleging that he still does not know why this Court would not permit him to "help" his wife on the appeal, I should say plainly that it would not serve the interests of justice principally for two reasons: (1) the husband's submissions made in this case previously have been of no assistance; and (2) it is almost impossible for a court to accept as an appellant's "McKenzie friend" the very person accused of applying undue pressure on the appellant. Reasons to this effect were given at the oral hearing. 62 As to the costs below, the additional submissions suggest that the Bank was unjustifiably intransigent and forced costs to amass without justification. 63 The appellant's submissions as to costs are somewhat difficult to comprehend. However, I cannot see anything in those submissions which would make me rule that her Honour's decision as to the costs below was not an appropriate exercise of her discretion. 64 Ms Bearup's response to these submissions was that, before the primary judge, the appellant did not rely on any offers made by her during the proceedings on the issue of costs. The judgment on costs was a discretionary judgment made on a proper consideration of the issues and should not be disturbed on appeal. I agree. 65 As the appeal has been wholly unsuccessful, the appellant should pay the Bank's costs of the appeal. 66 Accordingly, in my view the appeal should be dismissed with costs. 67 The appeal was expedited and a stay was granted which we extended until the delivery of these reasons. The property concerned is the appellant's home. It is usual, in such a case, to stay the execution of the order for six to eight weeks at least. In my view we should amend the order below by giving leave to the Bank to issue a writ of possession on or after 1 November 2009; however, that order should be conditional upon the appellant paying to the Bank $4,000 (which is my approximate calculation of the monthly interest), in each of the months of September and October 2009, failing any payment being made, a writ of possession to be issued within seven days after such default. 68 Accordingly the orders that the Court makes are these:

(2) Order below varied so that the issue of the writ of possession is postponed so that the respondent can apply to issue the same on or after 1 November 2009 provided that the appellant pays to the Bank $4,000 interest in both September and October 2009, no later than the 15 th day of each such month, in default of any one payment the writ of possession may issue within seven days thereafter.

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