In 2004 the plaintiff, Secure Funding Pty Ltd formerly known as Liberty Funding Pty Ltd ("Liberty"), lent the defendants an amount of $255,000 secured by a mortgage over a property at St Andrews in Sydney ("the Property") which the defendants jointly owned. At the time of the application to Liberty for the loan the Property was mortgaged to Australian Wholesale Lending Mortgages Pty Ltd a company connected with ING Bank Ltd and to which I shall refer in the balance of these reasons as "ING". The debt to ING was $191,000 and that amount was paid to ING out of the $255,000 lent by Liberty. There were other payments made out of the $255,000 which are listed in Exh A and accepted by the second defendant to have been paid, details of which I have set out at [26] and [27] below.
From 2004 to 2012 the defendants met the mortgage repayments to Liberty but in 2012 the first defendant lost his job and he and the second defendant were unable to meet their obligations to Liberty.
On 1 August 2014 Liberty obtained judgment against the first defendant for $311,313.36 and obtained an order for possession.
The second defendant resists Liberty's claim. Notwithstanding the terms of her defence Mrs Egan does not now dispute that pursuant to the Contract she owes Liberty the amount of $366,556.74, or that Liberty would, but for a defence based on the Contracts Review Act 1980 (NSW) ("the Act"), be entitled to an order for possession as against her (in addition to the first defendant). Unconscionability was also raised by Mr Brennan initially as a ground but he accepted that the pleadings did not encompass such a defence: see T9.12- 15.
Ms Egan (as she wishes to be known) was married to the first defendant Phillip Egan ("Mr Egan") in 1975. They were divorced in 1994 and had one child together in 1977. Ms Egan says that although she and Mr Egan were divorced in 1994 they have continued to live under the same roof since then, and apart from some domestic squabbles which have increased since the problems with the Liberty loan in 2012, are and have always been friends.
Secure Funding Pty Ltd (formerly known as Liberty Funding Pty Ltd) v Phillip... [2015] NSWSC 340 | Case summary | Zoe
Ms Egan's evidence contained in her affidavit of 2014 included the following assertions of fact:
1. that she (now 64 years of age) has always left all matters of a financial nature to Mr Egan
2. that she left school at fifteen, has very low self-esteem, "is terrible with money" and "unable to comprehend complex maths". She says she has
"always relied on other people to look after my money and to explain complicated documents to me. I also have trouble reading and writing and need assistance with this task". (Para 3 of her affidavit of 9 October 2014)
1. that she met Mr Egan when she was in her early twenties and married him in 1975
2. that she signed whatever documents Mr Egan asked her to sign and was not aware of whether any document she signed was a mortgage
3. that she and Mr Egan maintained separate bank accounts, and he would pay for bills and living expenses and he would give her housekeeping money. She says she has no idea how much Mr Egan earnt at his job or what he spent his money on- that they rarely discussed finances. Mr Egan provided for Ms Egan's financial needs and the needs of their daughter up until their daughter moved out of home
4. that she and Mr Egan purchased the Property for $38,000, with Mr Egan using
"the money he had received from his father as a gift to purchase my home. At the time of purchase there was no loan or mortgage on our home, as far as I knew" (para 12)
1. that her marital relationship with Mr Egan broke down but they continued living in the Property after the divorce in June 1994 (see para 13 of Ms Egan's affidavit)
2. Ms Egan says she only became aware of the various mortgages after the commencement of these proceedings (para 20)
3. at para 21 of her affidavit, Ms Egan said:
"At the times I signed the mortgage and discharge documents necessary to give effect to the transactions below I had no idea what the First Defendant was using the borrowed funds for. I had no idea what amounts were borrowed and I did not read or understand any of the mortgage documents that the First Defendant gave me to sign. I trusted the First Defendant implicitly to have my best interests at heart."
1. Ms Egan says she signed the mortgage to the Commonwealth Bank (an earlier mortgage in 1985)
"without hesitation. I did not read them. I trusted Phillip that there was good reason to sign the papers"
and similarly in respect of mortgages to Railways Staff Credit Union, the Australian and New Zealand Bank, the Perpetual Trustee Company Ltd, the Australian Wholesale Lending Mortgage Pty Limited-
"I simply signed whatever documents were put in front of me by the First Defendant"
1. in relation to the application made to Liberty that she signed the application given to her. She noticed that it has been filled in by someone other than Mr Egan and that her name was spelt incorrectly and that it referred to her as "Mrs" when in fact they were divorced in 1994
2. she must have (T33.43) drawn attention to the misspelling of her name (or may have done so- T33.46) but not to the incorrect reference to "Mrs"
3. in para 37 Ms Egan said:
"I am not aware of what the First Defendant has done with the funds borrowed from various lenders, including the Plaintiff over the years. He made no improvements to my home. I can only guess that he may have gambled the monies away as I have seen him on several occasions waste considerable amounts of money on poker machines at the Catholic Club in Campbelltown and the Minto Hotel."
1. that she rarely has holidays and lives simply within her means
2. at para 39 she recounts:
"In or about 2010 the First Defendant paid for an overseas trip for me. We had a conversation to the following effect:
PHILLIP: "I want you to take a holiday."
ME: "We don't have the money for that."
PHILLIP: "Yes, I am going to take money from my superannuation fund so you can go overseas. Go ahead and book it."
and at para 40 that in addition to the trip itself Mr Egan also paid for accommodation for her during her during her holiday in the United States
1. at para 42 she said:
"My home is the only asset of value I own. I am very attached to my home. Had there been more communication from the Plaintiff with me about the borrowings the First Defendant had taken out over the years I might have been able to prevent him from borrowing so much money or I would have refused to sign documents."
Mr Dowdy of counsel appeared for Liberty and Mr Brennan of counsel appeared for Ms Egan.
There were some aspects of cross examination which led me to have doubts that Ms Egan was as naïve and incapable as she sought to present herself including the fact that she appeared to have no difficulty reading (with her glasses) material that was put to her. She was unconvincing in her explanation of how it was that she (who claimed to have no knowledge about their finances) was able to inform Mr Egan that they did not have enough money for her to be able to go to the United States on a holiday. There also seemed to be a theme in her evidence to the effect that the Property was solely hers rather than jointly owned and that she obtained no benefit from the loan from Liberty, when she clearly did have a benefit since most of the money was used to pay off debt for which she was jointly and severally liable. Her evidence that the house was originally purchased out of a gift from Mr Egan's father was demonstrated to be incorrect- as in fact a significant portion of the purchase price was borrowed and secured over the Property.
There was an exchange at T43.15- 37:
"DOWDY
Q. If you were going to lose your home in 2004 because ING was going to sell the property, you would have signed the mortgage to my client to get the money to pay out ING, correct?
A. I probably would have gone - told him to go to a bank or something. I don't know where he got you lot from. It was just a broker that had come and - he told me that broker had come and asked him, you know. As I understood it, that he'd gone to a bank or something, but I suppose my ex, being impatient, went - and this bloke came on the scene and that was it, and he's been in trouble ever since.
Q. At all costs, you would not have wished to have lost the home in 2004, correct?
A. No. Well, I would have probably looked into it then, eh, by then? But I still didn't understand what he was going [semble- doing] - Phil looked after everything so I had nothing, you know, I just sat back and let him take control.
Q. That was your choice, wasn't it?
A. Well, because I still don't understand what, you know, all this.
Q. You made no effort to understand over the years, have you?
A. No, I wouldn't have. He looked after it and so it was just left to him."
Mr Dowdy submitted that Ms Egan's evidence demonstrated a knowledge that Mr Egan was looking to refinance the ING loan which undermines Ms Egan's assertion that she had no knowledge of what she was signing when she signed the Contract and mortgage.
I have set out at 6 what is contained in para 37 of Ms Egan's affidavit. That paragraph although expressed to be a 'guess' is quite at odds with the facts since the precise distribution of all of the $255,000 is known: see Exh A. It was untrue to suggest that Mr Egan might have spent any of the $255,000 borrowed on gambling and Ms Egan's persistence in cross examination that she did not know what Mr Egan had done with the money (see T35- 37) gave credence to the suggestion put to her at T37.17- 25 that she had deliberately sought to create the false impression that Mr Egan had gambled the money away.
Mr Dowdy submitted that I should draw a Jones v Dunkel (1959) 101 CLR 298 inference from Mr Egan's absence namely that his evidence would not have assisted Ms Egan's case. Mr Brennan contended that Mr Egan should not be seen as in Ms Egan's camp. I do not rely on the absence of evidence from Mr Egan in relation to the conclusions to be drawn.
I am unable to accept that when Ms Egan signed the disbursement authority at Exh B p 42 and the document at p 1-12 of Tab 7 Exh B (the application to Liberty for a loan) she did not appreciate that she and Mr Egan were making an application for a loan, and that when she signed the document as 'mortgagor' on the mortgage (pp 29-30 Exh B) she did not appreciate she was signing a mortgage. Even more obvious and hence throwing doubt on her reliability generally is the mortgage to Bank of Queensland (see Exh B) since the page on which she signed bears the heading "Mortgage" in dark type and block letters and her signature is appended beneath the label "Signature of Mortgagor".
The Act in s 9(1) sets out the matters to which the Court shall have regard and in (2) sets out the matters to which the Court must have regard to the extent that they are relevant to the circumstances. The only subparagraph of the Act to which Mr Brennan made express reference was s 9(2)(i), which sets out, as one of the matters to which the Court should have regard:
"the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect"
Mr Brennan's closing written submissions (received on 19 March 2015 in response to Mr Dowdy's written submissions of 17 March 2015) contained the following contentions:
1. that Liberty failed to ensure that Ms Egan had matters explained to her as to her liability under the loan and mortgage
2. that there was history of poor financial management by Mr Egan and Ms Egan- and that the loan and mortgage were disadvantageous to Ms Egan
3. that Liberty was
"on actual or constructive notice of the ever increasing mortgage on the property which called into question the judgment of the defendants and their capacity to repay the loan"
1. Mr Egan apparently had a nervous breakdown whilst making these payments which Mr Brennan contended is consistent with the idea that the regime of payment was too stressful for Mr Egan to manage them indefinitely
2. that the substantial application fee gave rise to a legitimate expectation that the loan would be properly and fully considered by the lender
3. proper inquiries would have revealed that Ms Egan and Mr Egan were divorced
"and that the second defendant did not have an income able to support the repayments and the loan would not have been advanced"
1. that Liberty
"comes to Court seeking to benefit from its own wrong and the Court should decline to intervene in its favour."
The last submission, 15, clearly misapprehends the position from a number of points of view. First, Liberty is entitled to judgment (as Mr Brennan's opening written submissions conceded) unless Ms Egan can persuade the Court to set aside or ameliorate the terms of the loan and mortgage that she entered into by recourse to the Act. Further, and these points also apply to a number of the other of Mr Brennan's points:
1. Ms Egan signed a document describing herself as 'married'. Liberty had no information to point to that being untrue and the only correction Ms Egan made to the form was in relation to the spelling of her first name
2. there was no evidence before the Court that Mr and Ms Egan could not support the loan they had taken out from Liberty. The only evidence before the Court is that they were in fact able to meet repayments from 2004 until 2012 when Mr Egan lost his job
3. there is no evidence that they could not meet the payments to ING
4. Mr Egan and Ms Egan used a broker to obtain the loan. As Mr Dowdy pointed out (and was accepted by Mr Brennan) the broker was the agent of the defendants, not Liberty (see Octapon Pty Ltd v Esanda Finance Corporation Ltd NSWSC 3 Feb 1989 (unreported) at 27, Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) (2013) 295 ALR 472 at pp 75-77 (Full Federal Court of Australia) and Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1, at p 123 [632]
5. there is no duty on a lender to make further inquiries: see Micarone p 121 [625] and no obligation on a lender to make inquiries about the ability of a borrower to pay. This is also an answer to 15
6. Mr Brennan accepted that a lender owes no duty of care to a borrower: see T60.21 and Burt v Australia & New Zealand Banking Group Ltd (1994) ATPR (Digest) 46-123 per Bryson J (as his Honour then was), is authority for the proposition that, for the purpose of assessing unconscionability a lender who is not on notice of a disability or disadvantage is not required to establish that the borrower did obtain independent advice
7. it was not established that there was anything unusual about the loan agreement or the mortgage or that there was any oppressive feature that needed to be drawn to Ms Egan's attention
8. the evidence of Ms Egan establishes that she trusted Mr Egan and was prepared to sign whatever document he presented to her and she continued to do so even after they were divorced
9. she permitted Mr Egan to manage their affairs and never had any reason to doubt his honesty and integrity and the mortgages enabled her to live at the Property: T50.45- 50
10. Ms Egan benefited from the income earnt by Mr Egan including her trips overseas
11. the loan which she and Mr Egan obtained was used to pay off the existing mortgage that was in place over their Property, which secured a $191,000 loan- a debt for which both Ms Egan and Mr Egan were jointly and severally liable
12. this case has no similarity to Commercial Bank of Australia Ltd v Amadio [1983] HCA 14, 151 CLR 447 a case in which the parents of a borrower put up their house as security for their son's business which was already at the time in a parlous financial state, in circumstances where the son misled them as to the limit of their liability and the period for which their guarantees and the mortgage would extend
13. the application to Liberty sought to consolidate several loans (see Exh B Tab 7 p 42). They were well known institutions and there was nothing to indicate that Ms Egan had no interest in the loans being consolidated. In a broad sense since she lived in the house with Mr Egan she had an interest in no action being taken against Mr Egan by any of the creditors
14. although Ms Egan and Mr Egan were divorced in 1994 they lived together and in the application made to Liberty described themselves as married (see Exh B Tab 7 p 2). The defendants did not in the application inform Liberty that Ms Egan was in receipt of a disability pension (due to a spinal condition)
15. Ms Egan signed the application form (together with Mr Egan) seeking the loan from Liberty and her signature was witnessed by her 27 year old daughter. She did not ask either Mr Egan or her daughter what the document she was signing was
16. Ms Egan, it should be inferred, drew attention to the fact that her name had been incorrectly noted as Christine (when it is, in fact, Christene)
17. Liberty was not aware of any fact relevant to Ms Egan's defence- namely that she was not well educated, did not read what was put in front of her to sign, and, on her case, did not even appreciate that what she was signing was a mortgage
18. there is no evidence that Mr Egan was not trustworthy and acting in what he thought were his and Ms Egan's best interests in organising the Liberty loan, and there is no evidence that Mr Egan did anything inappropriate before or after the loan from Liberty was obtained and the mortgage given to Liberty
19. Ms Egan had signed six other mortgages before the Liberty mortgage
Even were I to accept Ms Egan's assertion that she did not appreciate that she was mortgaging her home that fact would not assist her: her evidence is that she regularly signed documents that Mr Egan asked her to signed without inquiring what those documents were because she trusted him implicitly and had no reason not to trust him: see T23.10- 11, T27.1-19, T27.43- 46, T28.36- 41, T30.5- 6, T31.8- 11, T31.42- 43. In Provident Capital Ltd v Naumovski [2013] NSWSC 40 Garling J said in respect of the Act:
"Discernment
[295] The first question to be considered is whether the contract was unjust in the circumstances in which it was made, having regard to the factors set out in s 9 of the Contracts Review Act.
[296] In answering this question, it is convenient to first note that s 9 of the Contracts Review Act requires the court to have regard to "… the public interest and to all of the circumstances of the case …".
Public Interest
[297] Latham CJ in Wilton v Farnworth [1948] HCA 20 ; (1948) 76 CLR 646 at 649, emphasised the importance of adherence to the fundamental principle of contract law, namely, that a person is bound by the terms of the contract which they sign. He warned:
Any weakening of these principles would make chaos of everyday business transactions.
[298] This reflects the general policy of the law, namely, that people should honour their contracts because to do so is just: Nguyen v Taylor (1992) 27 NSWLR 48 at [70]. As Gleeson CJ said in Baltic Shipping v Dillon (1991) 22 NSWLR 1 at 9:
The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what it just.
[299] This policy reflects the public interest because it is in the public interest to hold parties to their contract: Fisher v Marin [2007] NSWSC 1411 at [110] per Patten AJ."
In Marzouk v Westpac Banking Corporation BC9201553 14 October 1992 Meagher JA said in relation to the claim for relief under the Act by a wife that there was nothing unjust
"about suggesting that she should perform the promises she makes in the resultant legal documents, which she executes voluntarily, even if at the insistence of the husband whom she trusts and on whom she relies?"
In relation to 15 and (3) the history of mortgages over an almost thirty year period did not call into question the judgment of the defendants or their capacity to repay the loan.
In relation to 15 this involves events eight years after the loan was made.
In respect of 15 there is no evidence that Liberty did not fully consider the loan application made by Mr Egan and Ms Egan (or Mrs Egan as Liberty would have understood the position).
In relation to 15 Liberty was not required to investigate whether Mr Egan and Mrs Egan (as she was described on the form) were divorced, or that Ms Egan was in receipt of a disability pension. Mr Brennan's contention that somehow Liberty had an obligation to discover the untruthfulness of the representations made in the application signed by Ms Egan or the existence of something not disclosed in that application is fanciful.
I accept that Ms Egan was not given legal advice but I do not think that there was anything unjust or unfair about the Contract. Nor, for that matter, were it relevant, has any unconscionable conduct on the part of Liberty been established. Even were I to accept that Ms Egan did not read anything which she signed and did not understand what it was she was signing I do not think that fact coupled with the fact that she was not given advice by a lawyer could justify the intervention of the Court on the basis of the Act.
A further matter on which Mr Dowdy relied relates to the fact that most of the money borrowed from Liberty was used to pay out the ING loan. In Collier v Morlend Finance Corp (1989) NSW ConvR 55-473. Meagher JJA with whom Hope and Clarke JJA agreed said:
"In so far as it was alleged that the transactions in question were to be impugned as against Morlend because it was a party to the exercise of undue influence under the general law, no such case could be made out, as it is clear enough that Morlend did not have knowledge, either actual or constructive of any vitiating factor: see Hart v O'Connor [1985] 1 AC 1000. In so far as the allegations were made under the Contracts Review Act, there is some authority, though only by way of dicta, that a lender's ignorance of any vitiating factor does not preclude the court from making an order: see St. Clair v Petricevic (1988) ASC 55 - 688. Nonetheless, the circumstances would be rare indeed when a court should, in the exercise of its duty to make a just order, deprive an innocent party of the benefit of its contract, particularly when, as here, the party seeking to have the transaction set aside does not offer terms. The lender, after all, had lent the monies in question and the borrowers had utilized the greater part of those monies for their own purposes in discharging a prior mortgage. In these circumstances it would seem to me to be monstrous to suggest that the Court should exercise a discretion to set aside the transaction in question so far as Morlend is concerned."
A recent application of this is found in Bank of Western Australia Ltd v Tannous [2010] NSWSC 1319 [32] per Davies J. The approach of the New South Wales Court of Appeal is binding on me and based, with respect, on sound principle. Mr Brennan said nothing about this case or its applicability to the present case notwithstanding Mr Dowdy's reliance on it in both his written and oral submissions. Ms Egan made no offer to repay the $191,000.
Even were the Act otherwise applicable, I would not regard it as appropriate to relieve Ms Egan from liability to repay the $191,000, or the amount of $12,404.88 which are in the same category since they were paid so that the loan could be obtained namely:
1. the equalisation fee $3,528
2. the mortgage broker's fee $3,025
3. the application fee $2,520
4. mortgage stamp duty $961
5. document preparation fee $745
6. mortgage processing fee $295
7. search fee $130.60
8. mortgage registration fee $64
9. discharge of mortgage registration fee $64
10. bank cheque fee $10.80
11. Phillip and Christene Egan total $823.43
12. Campbelltown City Council $238.05
That would leave only the amount of $50,806 made up of the following amounts:
1. Daimler Chrysler $16,450
2. Encompass Credit Union $12,325
3. GE Finance $10,400
4. St George Bank $6,209
5. Source (GE Capital Finance Australia) $5,422
There is insufficient information to be able to determine for what purposes these loans were effected although the first item would appear to be connected with the purchase of a vehicle (see p 4 of Tab 7 Exh B) and the GE debts are connected with household items (see p 3 Tab 7 Exh B). I am not satisfied that these were debts for items for which Ms Egan received no benefit.
[2]
Conclusion
I am not satisfied that the Contract or mortgage or any provision of either of these is unjust in the circumstances relating to the Contract and mortgage at the time they were made and do not consider that there is any basis for the Court taking any of the steps enumerated in s 7 and 8 of the Act.
There should be judgment for the plaintiff against the second defendant in the amount of $366,556.74 (agreed as at 16 March 2015) and interest from that date until today as well as an order for possession of the Property.
The second defendant must pay the plaintiff's costs.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 30 March 2015
Parties
Applicant/Plaintiff:
Secure Funding Pty Ltd (formerly known as Liberty Funding Pty Ltd)