Summary judgment - Yerkey v Jones - Undue influence - Unconscionable conduct - 'Some other reason' not to award judgment - Extent of equity which a mortgagor is required to do if a loan is set aside - [2015] WASC 153 - WASC 2015 case summary — Zoe

WAWASC

Summary judgment - Yerkey v Jones - Undue influence - Unconscionable conduct - 'Some other reason' not to award judgment - Extent of equity which a mortgagor is required to do if a loan is set aside

[2015] WASC 153

Supreme Court of WA|2015-05-04|Before: Dixon J

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At a glance

Source facts

Court

Supreme Court of WA

Decision date

2015-05-04

Before

Dixon J

Catchwords

Summary judgment - Yerkey v Jones - Undue influence - Unconscionable conduct - 'Some other reason' not to award judgment - Extent of equity which a mortgagor is required to do if a loan is set aside

Source

Original judgment source is linked above.

Catchwords

Summary judgment - Yerkey v Jones - Undue influence - Unconscionable conduct - 'Some other reason' not to award judgment - Extent of equity which a mortgagor is required to do if a loan is set aside

Judgment (284 paragraphs)

[1]

1 ACTING MASTER GETHING: By a series of three loan agreements between 2004 and 2006 the plaintiff, HSBC Bank Australia Ltd (HSBC), advanced $2.472 million to the first and second defendants, Michael Moojan Mavaddat and Fariba Mavaddat. The loans were secured by a first registered mortgage over a property on Bateman Road, Mount Pleasant (Property). Mrs Mavaddat is the registered proprietor of the Property. The third defendant, FCFL Pty Ltd as trustee for the Mavaddat Family Trust, is said to have guaranteed the payment by Mr and Mrs Mavaddat of the amounts payable pursuant to the three loan agreements. It is now deregistered.

[2]

2 HSBC asserts that Mr and Mrs Mavaddat have defaulted on their repayment obligations, and has issued notices of default under the loan agreements and the mortgage. HSBC says that Mr and Mrs Mavaddat have failed to remedy the default. It seeks orders for repayment of all amounts due under the loan agreements, as well as possession of the Property pursuant to the mortgage.

[72]

The basis of the equitable jurisdiction to set aside an alienation of property on the grounds of undue influence is the prevention of the unconscientious use of any special capacity in or opportunity for the disponee to affect the disponor's will or freedom of judgment in reference to the transaction: Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134.

The jurisdiction to set aside a transaction procured by undue influence is exercised on two bases. The first is where undue influence is proved as a fact. The second is where undue influence is presumed by reason of the antecedent relationship between the parties, and the presumption has not been rebutted: Johnson v Buttress (119); Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VicRp 69; [1971] VR 573, 575. The former is 'actual' undue influence and the latter is 'presumed' undue influence: Powell v Powell [2002] WASC 105 [120] - [121].

Actual undue influence requires proof that the transaction was the outcome of such an actual influence over the mind of the disponor that it cannot be considered to be the free act of the disponor: Johnson v Buttress (134). The source of power to practise such influence or domination over the disponor may not arise from an antecedent relationship, but may arise in the particular situation, or by the deliberate contrivance of the disponee: Johnson v Buttress (134).

...

The doctrine of undue influence looks to the quality of the consent, or assent, of the weaker party: Commercial Bank of Australia v Amadio (474); Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457, 478.

Where a third party, who is a volunteer, obtains the benefit of a transaction tainted by the undue influence of the influencer, the volunteer will be affected by the equity (unless the volunteer has taken through some intermediate bona fide purchaser for value without notice): Bainbrigge v Browne [1881] UKLawRpCh 148; (1881) 18 Ch D 188, 196 - 197; Giarrantano v Smith (1985) NSW ConvR 55-267.

Even where the third party has given value, or provided consideration, the transaction may be voidable by the party the subject of the undue influence. Such cases often involve a guarantee or charge given by the person the subject of the undue influence to a bank to secure the indebtedness of the bank's customer.

The receipt and retention of a benefit by a third party bank arising from the customer's undue influence has generally been held to be unconscientious on three principal bases. The first is where it has participated with notice, the second is agency, and the third involves special principles historically developed and applied to married women.

As to the first of those, the third party is affected in equity where it participates in the transaction with actual or constructive notice of the circumstances giving rise to the impropriety, ie of the actual undue influence exercised, or of the circumstances from which the presumption of undue influence arises: Yerkey v Jones (677); Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42, 55, 70 - 72, 85 - 86; Commercial Bank of Australia v Amadio (464); Garcia v National Australia Bank (408); Budget Nominees Pty Ltd v Registrar of Titles (1988) V ConvR 54-311, 63-988. (But see also [204] below.)

[81]

Equity's jurisdiction to set aside a transaction for unconscionable dealing is invoked where one party to the transaction is under a special disadvantage or disability in dealing with the other party, and that special disadvantage or disability was sufficiently evident to the other party to make it prima facie unfair or unconscionable for that other party to accept or retain the benefit of the transaction: Commercial Bank of Australia v Amadio; Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621, 637.

The underlying equitable principle may be invoked 'whenever one party by reason of some condition or circumstance' is placed at a special disadvantage of which unfair and unconscientious advantage is taken by the other party: Commercial Bank of Australia v Amadio (462).

The special disadvantage will be sufficiently evident to the other party if the other party knows facts which would raise the possibility of the special disadvantage in the mind of a reasonable person: Commercial Bank of Australia v Amadio (467 - 468, 479).

Where such circumstances are shown to exist, the onus is on the other party to establish that the transaction was fair, just and reasonable: Commercial Bank of Australia v Amadio (474).

The special disadvantage need not have been created by the party taking the benefit of the transaction: Louth v Diprose (629).

The special disadvantage alleged must be one 'which seriously affects the ability of the innocent party to make a judgment as to his own best interests'; mere difference in bargaining power is insufficient: Commercial Bank of Australia v Amadio (462). The 'essence of such weakness is that the party is unable to judge for himself': Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, 392; or 'to conserve his own interests': Blomley v Ryan (415); ACCC v C G Berbatis Holdings [12], [46], [55].

In this regard care must be taken not to 'eviscerate unconscionability of its meaning': NZI Capital Corporation v Fulton [1998] FCA 667 Black CJ & Lehane J, quoting Mason CJ in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489, 503.

In ACCC v C G Berbatis Holdings, Gleeson CJ [14] said:

[150]

105 However, in the present case, there is no justification for an order that Mrs Mavaddat only be required to prepay a portion of the amount lent as she was only a joint owner of the Property at the time the money was lent. This is because the other joint owner, Mr Mavaddat, is also liable on the First Loan Agreement. HSBC provided just under 80% of the acquisition price of the Property, which Mrs Mavaddat now owns as sole registered proprietor. There is no evidence of her having provided any consideration for this transfer. There is no evidence of her personally having ever paid the interest on the First Loan Agreement, nor having ever repaid any capital. If she was entitled to have the First Loan Agreement rescinded, then, without more, she would be in the position of having had the fruits of the $1.16 million advanced by being the sole registered proprietor of the Property which the funds were used to purchase (subject to the claims in relation to the Second Loan Agreement and Third Loan Agreement). It would be an entirely inequitable outcome if HSBC was not permitted to recover the funds lent pursuant to the First Loan Agreement which Mrs Mavaddat has had the benefit of for the past 10 years. Consistent with the decisions in Maguire and Permanent Mortgages Mrs Mavaddat would be required to do equity by restoring the benefit she received, being the funds advanced pursuant to the first mortgage plus interest. The interest rate under the First Loan Agreement was HSBC's standard variable rate, less a discount whilst the 'HSBC Premier Package' applied. This does not appear exorbitant.[175] There may be some penalty interest which would may have to be rebated. But in effect, she would be in more or less the same position as if judgment were awarded against her in relation to the First Loan Agreement on the ground that she has no arguable defence to that claim. In other words, even if successful, Mrs Mavaddat would have had to repay the sums advanced under the First Loan Agreement, with interest.

Summary judgment - Yerkey v Jones - Undue influence - Unconscionable conduct - 'Some other reason' not to award judgment - Extent of equity which a mortgagor is required to do if a loan is set aside

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Judgment (284 paragraphs)

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Cases Cited (34)