St George Bank v Hammer

The transfer of St George's business to the bank

1. On 18th February 2010, the Australian Prudential Regulation Authority (APRA) approved a voluntary transfer under Financial Sector (Business Transfer and Group Restructure) Act in respect of "the total transfer of business" from St George Bank Limited to Westpac Banking Corporation and issued a certificate under s 18(1) of that Act "stating that the transfer is to take effect" (p 71). By its terms, the certificate came into force on 1st March 2010. The legal effect of the certificate coming into force was that all the assets and liabilities of St George Bank became assets and liabilities of the bank (without any transfer, conveyance or assignment): s 22 of that Act. The bank says that by force of s 22, the mortgage held by St George Bank became its property. I repeat that the borrower says that I cannot be satisfied that the Certificate of Transfer is authentic, and in any event, this mortgage, and I infer any agreement underpinning it had been "securitised" to some unknown third party, and accordingly was not an asset of St George Bank at the time any authentic certificate came into force. Whatever the force of the securitisation argument, the s 18 certificate is clearly authentic.

The borrower's evidence

1. The borrower relied upon his affidavits of 14th April 2015, 28th April 2015 and those verifying the various permutations of his defence. The 14th April affidavit annexed, or exhibited, a series of 10 letters written by the borrower between 25th July 2013 and 2nd August 2014. The first 9 were written to the bank, its officers and solicitors; the 10th dated 2nd August 2014 was to the "New South Whales [sic] Ombudsman". In each of the letters to the bank, the borrower offers in "good faith … to pay the total amount due". But there are always strings attached. For instance on 25th July 2013, he requested a "pay off invoice … signed under FULL COMMERCIAL LIABILITY". He also asked to see "all Trust Deed and Promissory Note transfers from the original lender to the last purchaser were lawfully endorsed as required by law". He asked for "the actual street address wherein I can bring the total amount of cash due, to exchange for my original Trust Deed or mortgage and Promissory Note in order to lawfully complete and finalize this transaction".
2. The bank did not respond to this letter. The borrower followed it up with another letter on 13th September 2013 in which he reiterated the expression "Good-Faith Offer to Pay the Total Amount Due". The bank did not respond. Indeed it responded to one only of his letters, that of 18th November 2013.
3. On 22nd October 2013 he wrote again, this time to the bank's solicitor. Referring to previous letters, he said: In these letters I offered to pay the entire balance due in full. He made it clear this was purely conditional upon him seeing the documents referred to in his first letter. He wrote: I am very aware of the Banking fraud that is going on in the United States and many Banks are pretending to be the lender and trying to collect money from people when in actual legal fact they are not a party of interest. He asserted the fact that the bank ignored his letters and then hired a lawyer was indicative "of fraud and deceit". He concluded: Please read my July 25, 2013 letter carefully and have the responsible party respond to my question under FULL COMMERICIAL LIABILITY and under PENALTY OF PERJURY. Then I will be assured that St George Bank claim for monies owed is valid and my payment will be made to the true creditor.
4. He wrote to the bank again on 18th November 2013 stating: I am offering to pay the total amount due but you are refusing to answer important questions concerning whether or not you are the true holder in due course of the mortgage. He acknowledged receiving letters from the bank asserting his default and wrote: Until you answer my question in my letters … I am withholding paying off the loan. I am willing and able to make the payment due but I need to make sure you are the holder of the note in due course and hence party of interest. There is so much bank fraud going on these days so I need to make sure you are the true party of interest before I pay you a considerable sum of money to pay off the mortgage in full.
5. A bank officer telephoned the borrower on 18th December 2013 asking him to contact the solicitor for proof that the money was due to the bank. He wrote to the solicitor that same day again pointing out his belief that banks in the United States pretend to be the lender "when in fact they have securitised the loan". He purported to quote an opinion expressed by someone he identified as "George Gingo, California and Florida Licensed Attorney". In this letter, he for the first time referred to "the original wet signature Note", saying "this would be the proof I need and then I can issue you a payment immediately in full and this matter can be closed". He added: On the other hand if St George Bank is a pretender Lender and is not the party of interest then I would not be comfortable paying you almost $900,000 ……would you!!! If you proceed with foreclosure action and you client St George Bank refuses to comply with my request for proof of claim that they are the true creditor then you will be doing so fraudulently. He purported to give his own "Notice of Fault" to the bank (MJH 10) demanding the production of the documents he had identified in his earlier correspondence. On 2nd January 2014 he wrote again to the solicitors (and to the CEO of St George Bank) asserting that as there had been no response to his Notice, the bank was "unwilling to reply to [his] request and [its] claim is fraudulent". He threatened legal action. But to avoid any question of him being in default, "I will be tendering you a payment in full which you will receive within 10 days".
6. On 8th January 2014, he delivered the Promissory Note PNKGC320420131039 (and other documents not attached to his affidavit) to the Lismore Branch of St George Bank. The promissory note was a two page document signed by the borrower, describing himself as "agent". So far as material, it is in the following terms: Pay to: St George Bank $1,000,000.00 … Redeemable on DEMAND at (an address in Bangalow) at 10:35 hours without; let, delay, hindrance or ado, on the 15th day of January AD 2014. Its second page stated: Promissory note for settlement of portfolio loan contract.
7. The bank did not show up at the appointed place, day and hour to redeem the note and on 17th January 2014 the borrower executed a document entitled Certificate of Protest Default Dishonour, which seems to declare that given the Bank's non- attendance it was in default and his liability to it (I will add if any) was accordingly discharged. On 4th March 2014, he requested a photocopy of his file with the bank. And on 19th May 2014 sought "the original loan application, income and expense and other papers relating to [his] loan application form for [his] records." He made the same request again on 19th June 2014. I interpolate I am uncertain why the bank did not provide a copy of the documents he requested.
8. On 2nd August 2014, he went to the Ombudsman complaining about the bank's failure to provide the requested papers. He wrote: These papers are critical for me to see as I suspect fraudulent loan activities by the Bank and they are no doubt trying to cover up this fact by not showing me what could be incriminating evidence to them.
9. Mr Pytellek tendered a Notice to Admit Facts filed and served on 19th March 2015 and the bank's notice disputing the facts. The "facts" sought to be admitted are a mish-mash of the circumstances I have just recounted, and conclusions of mixed fact and law which the borrower sees as the foundation of his case. They do not bear recitation, and in any event, the bank disputed each and all of them.
10. The affidavit verifying the Amended Defence of 8th July 2005 again recites many of the same facts I have sought to summarise. It also sets out in detail what the borrower says about his "unconscionability" case based on an assertion of "asset lending". Few facts are stated. He quotes from a newspaper article about other unspecified cases and asserts that in "all cases (of asset lending) the courts have ordered lenders to fully extinguish mortgages within 30 days". He states without disclosing any facts which might support it, that his income "could never have supported a $840,000 loan at an interest rate around 8 per cent". If the bank had exercised "appropriate due diligence" it would have found this out. No evidence is given of any other facts in support of this case, and none are stated.

Decision on strike out application

1. I am satisfied that the Amended Defence of 8th July 2015 should be struck out as disclosing no reasonable defence. In every respect the borrower's various defences seemed to be based upon a complete misunderstanding of the law of mortgages, possibly derived from what he believes to be the law in some parts of the United States, and informed by information obtained from unreliable sources.
2. In expressing this conclusion, I appreciate that I am dealing with an interlocutory application to strike out a defence. There has been no trial nor has the bank applied for summary judgment. This is not the occasion for final fact-finding.
3. Where, as here, the ground for striking out the defence is its failure to disclose a reasonable defence, the applicable test is the General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125 test. The power to strike out a pleading should only be exercised "in plain and obvious cases". The principle requires some slight modification for a strike out, as opposed to summary disposal, application. In the latter context Macfarlan JA pointed out that the real issue is whether there is an underlying defence that has a real, not fanciful, prospect of success, and this is distinct from the question of whether such a defence is actually pleaded: O'Brien v Bank of Western Australia Limited [2013] NSWCA 71; 16 BPR 31at [3]; see also Ward JA at [66] - [68]. Here the question must be whether the defences which are actually pleaded, on the evidence led under r. 14.28(2), and assuming the material facts (if any) actually averred can be proved, have a real, not fanciful prospect of success. As there is no question of the entry of summary judgment the bank will establish that the pleading discloses no reasonable defence if it demonstrates that the outcome of the litigation, on the pleadings as they stand, is so certain that it would be an abuse of process to permit the action to proceed to a full hearing on the merits.
4. As I have said, I am satisfied that the bank has discharged this heavy onus. However, as I will show, the Amended Defence, in many respects, does not comply with the requirements of the Rules.
5. I am satisfied to the requisite degree of the following: 1. The "privity of contract" defence as pleaded has no real prospect of success. The evidence I have recounted above demonstrates to a high degree of certainty that the mortgage and loan agreement as assets of St George Bank Limited were transferred to the bank by operation of s 18 Financial Sector (Business Transfer and Group Restructure) Act when the certificate of 18th February 2010 came into force on 1st March 2010. 2. The idea that St George Bank had already sold those assets by way of securitisation prior to 1st March 2010 has not been shown to be other than a product of the borrower's ruminations on what he believes, or may have read about, the "sub-prime crisis" in the United States as a precipitant of the GFC. There is nothing in the material before me suggesting that evidence will be available at a final hearing which, if accepted, is capable of proving that securitisation of the mortgage and loan agreement has occurred. There is no evidence or material from which I could infer that evidence of a legal assignment, as he asserts occurred as part of that process, will be available to be led at any trial. Had legal assignment occurred, the borrower would have received notice and would therefore know who the assignee was to identify it (it is overwhelmingly likely it would be a corporation) for the purpose of his defence. Even assuming for the purpose of the argument that the process of securitisation was more likely to have occurred by way of equitable assignment, legal title would remain with the bank and the borrower would be liable to it on his obligations under the loan agreement and mortgage. As I have said, this argument, on the evidence before me, does not rise above an entirely ill-founded suspicion on the part of the borrower. Moreover apart from the bare assertion, in various ways, of securitisation no material facts are pleaded showing how this was said to have occurred, and why this meant his obligations were discharged. 3. The argument that the transaction was not a loan secured by a mortgage but rather consideration for the purchase by the bank of the "original completed bona fide wet ink signature loan application" is so fanciful that it may be completely rejected out of hand. A related point, based upon what appears to be his misunderstanding of the law of mortgages, is that the borrower seems to regard his loan application as a document of title. This is not so. The bank's title to sue for possession, and that is the only remedy sought, is its mortgage registered under the Real Property Act. His original loan application is a preliminary document which does not form part of the loan contract. Moreover, he repeatedly "offered" to pay the total amount due, if only his conditions were met. This itself is a potent evidential admission of what the documents overwhelming demonstrate: this was a loan. 4. His delivery of the Promissory Note to the bank could not, of itself, discharge any liability of the borrower under the mortgage and loan agreement. If anything, it created a new obligation to pay had the bank presented the note to him on the date, time and place it specified. The bank's failure to do so discharged him from any liability on the note: ss 89 and 93 Bills of Exchange Act 1909 (NSW). It did not discharge him from any liability on the mortgage or loan agreement, the latter of which specified the required mode of payment in terms which did not include by Promissory Note. 5. The borrower's main argument going to "unjustness" or "unconscionability" is his "asset lending" claim. As Mr Gor correctly points out, this is a matter upon which the onus lies squarely on the borrower: he who asserts must prove. Lending money without regard to the ability of the borrower to maintain his repayments only because the security is adequate in the event of a default may be one limb of a successful argument that the transaction is unjust within the meaning of the Contracts Review Act 1980 (NSW), or unconscionable: Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639; Elkofairi v Perpetual Trustee Co Ltd [2002] NSWCA 413; 2003 11 BRP 20,841. But as Campbell JA pointed out in Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 77 NSWLR 205 at 227 [96] the question must in any case depend upon "other matters as well". That is to say, the matter will depend upon all the circumstances of the case. The only averments made by the borrower are that this was a "low-doc" loan, at a somewhat higher interest rate than the norm (8 per cent) and if the bank had made proper inquiries, it would have realised that the borrower would have difficulty servicing the loan. There is no pleading of what his financial circumstances actually were at the relevant time or of what particular steps were, or should have been, taken by the bank to ascertain his true position. His pleading in this regard completely falls short of the requirements of the rules that all material facts necessary to make good the case at trial must be summarised in the pleading: r 14.7. And this part of the defence must be struck out as inadequate on that basis alone. However, I allow myself the additional comment that it is doubtful whether any such case is even "pleadable". He at all times maintained his willingness and ability to pay the total amount due; he provided a Promissory Note in the sum of $1 million, which presumably he was prepared to honour if it was presented as specified; and on the evidence before the court he frequently makes trips overseas to Europe and the United States of America for the purposes of his business. However, obviously, this is not the occasion for coming to any conclusions about that matter. The allegations about the bank's failure to mediate or provide documents after his default do not go to the bank's title. 6. The allegation that the mortgage is "fraudulent" is entirely baseless. More pertinently the pleading is completely devoid of the high level of specificity required of a party raising fraud: r 14.14. The allegations of breaches of federal criminal laws are entirely irrelevant, and for that reason "embarrassing".
6. I deal with the question of "vexation" raised by the Amended Defence when I deal with the borrower's motion for summary dismissal.
7. The Amended Defence of 8th July 2015 must be struck out. Given the history of the matter which includes a number of "iterations" of the defence filed without leave, and the apparent baselessness of the defences raised so far, I think it appropriate to accede to the bank's application that the borrower should not be permitted to file a further defence, without the leave of a judge first obtained.
8. Naturally, when a borrower raises questions of unjustness or other forms of unconscionability, a court will be slow to shut him out. As Sheller JA explained in Horrobin v Australia & New Zealand Banking Group (1996) 40 NSWLR 89, if such a case is made good, it undermines the bank's title to sue for possession (see p 100). At least on a summary judgment application, the court will be astute to avoid shutting a borrower out from a trial on that issue, provided, as Macfarlan JA pointed out in O'Brien, the borrower demonstrates a real, not fanciful, prospect of success.

The borrower's application for summary dismissal

1. As I have already observed, an applicant for summary judgment, or dismissal, is required to demonstrate that the outcome of the litigation is so certain that it would be an abuse of the processes of the court to require the action to proceed to a full hearing on the merits. This is another way of stating the "plain and obvious" test derived from Dey.
2. The borrower has completely failed to discharge this heavy onus. The bank's evidence which I have recounted above satisfies me that it has a very strongly arguable case for possession. This finding in my view also takes care of the "defence" that the proceedings are "vexatious".

The costs of 23rd May 2015

1. The bank sought the costs of the aborted hearing before Schmidt J on 23rd May 2015, when these motions were last listed for hearing. The matter was adjourned on that day in compliance with the provisions of s 78B Judiciary Act. I accept the bank's argument that although the court was required by federal law to adjourn the proceedings until notice had been given to the Attorneys General as required, the borrower's "constitutional" argument is now seen to be so clearly untenable that he should pay the costs thrown away by what was in effect an exercise in futility.
2. My orders are: 1. The defendant's notice of motion filed on 13th March 2015 (as amended on 1st May 2015) seeking summary dismissal of the proceedings is dismissed. 2. The defendant's notice of motion filed on 17th April 2015 to transfer the proceedings to the Federal Court of Australia is dismissed; 3. Under r 14.28 Uniform Civil Procedure Rules 2005, the Amended Defence dated 6th July 2015, filed on 8th July 2015 (and, to the extent necessary, all former editions of the defence) are struck out; 4. No further defence is to be filed in the registry without the prior leave of a judge of this court obtained by motion on notice; 5. The defendant is to pay the plaintiff's costs of each of these applications including the costs thrown away by reason of their adjournment on 23rd May 2015.

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: 17 July 2015