The Trust Company (PTAL) Pty Ltd v Romeo

Background 7The following is derived from the further amended statement of claim. Unless indicated to the contrary by me, it was not the subject of dispute by counsel for the defendant. 8The defendant and his wife have for some time owned a property at Elanora Heights in the northern suburbs of Sydney ("the property"). 9Pursuant to an agreement of 26 October 2006 and a supplementary agreement of 8 May 2008, the plaintiff advanced to the defendants a sum approaching $3.6 million. A substantial portion of the sum advanced was used to discharge a pre-existing mortgage that was in effect held by St George Bank. On 26 October 2006 the defendants entered into a mortgage over the property as security for the loan. It seems that there was a variation of mortgage of 8 May 2008. 10It was a term of the mortgage that default would occur if: the principal sum or interest thereon was not repaid in accordance with the loan agreements; or one of the defendants became bankrupt; or the property became encumbered in some way. 11It is asserted by the plaintiff that the principal and interest have not been repaid in accordance with the loan agreement; that the wife of the defendant has become bankrupt; and that the property has become encumbered by way of statutory charges arising from a failure to pay council rates, and by five caveats. 12The necessary notices have been given, but the defaults have not been remedied.

Procedural history 13The matter has had a rather complicated history in this Court. 14On 6 April 2010, the plaintiff filed a statement of claim. 15On 14 September 2010, the plaintiff obtained default judgment against both defendants. 16On 16 September 2011, McCallum J set aside default judgment against the defendant in Perpetual Trustee Australia Limited v Romeo [2011] NSWSC 1116. However, it was a condition of that order that the defendant pay into Court the sum of $1.6 million. In order to understand the submissions of counsel for the plaintiff, it is necessary to quote from a portion of her Honour's judgment at [42]: "At the hearing, an offer was made on behalf of the defendants in open court to pay $1.6 million into court and to maintain interest payments on that amount at 7.75 percent as an average of advertised standard mortgage rates (T41-42 of 25.3.11). Mr Dubler explained the offer as reflecting a recognition of the broad range of remedies available under the Contracts Review Act and the fact that the proposed cross-claim does not impugn the St George mortgage, which was in approximately that sum. It was suggested that the amount should be paid into court rather than to the plaintiff, since it is not one of the "big four" banks." 17A further hearing was conducted before her Honour, founded on the proposition that there had been a lack of clarity in the submissions of senior counsel for the defendant that had led to a crossed wire between senior counsel and her Honour as to what he was proposing. On 11 October 2011, whilst accepting that that may have occurred, her Honour declined to alter the operative order: see Perpetual Trustee Australia Limited v Romeo (No. 2) [2011] NSWSC 1190. 18The defendant sought leave to appeal to the New South Wales Court of Appeal. On 30 March 2012, in Romeo v The Trust Company (PTAL) Ltd [2012] NSWCA 62, Macfarlan JA (with whom Young JA agreed, Young JA providing additional remarks) held at [11]: "Counsel for Mr Romeo accepted, for the purpose of this application only, first that $1.6 M of the debt claimed by the respondents represented an amount paid by the respondents at the direction of Mr and Mrs Romeo out of the loan proceeds to discharge an existing mortgage and secondly that Mr Romeo did not have any arguable defence in relation to that portion of the claimed debt." 19 Again, in order to understand the submissions of counsel for the plaintiff, it is necessary to quote from that judgment of Macfarlan JA at [12] - [14]: "[12] However counsel submitted that if Mr Romeo's Contracts Review Act defence succeeded, the most likely order that the Court would make would be an order under s 7 of the Contracts Review Act requiring the execution of a varied mortgage, limiting the amount secured to $1.6 M. He submitted further that if this Court regarded this as a likely outcome, it could not conclude, at least at this stage, that there had been any default by Mr and Mrs Romeo in the payment of interest in respect of the prospectively varied mortgage. To put it shortly, and somewhat simplistically, he contended that the interest Mr and Mrs Romeo had paid on approximately $3.6 M for three years, in part unnecessarily if the Contracts Review Act defence succeeded, was likely to have exceeded the interest that Mr and Mrs Romeo would have been liable to pay on $1.6 M for five years, with the result that Mr Romeo's Contracts Review Act defence, held by the primary judge to be arguable, would negate the respondents' right to possession of the property. [13] This is arguably an important consideration that her Honour did not take into account in reaching her conclusions. In fairness to her Honour I point out that this contention does not seem to have been put to her Honour in explicit terms. At best it is arguably implicit in the form of draft cross-claim that Mr and Mrs Romeo relied upon before her Honour (see [2] of the relief claimed). [14] In these circumstances I would grant Mr Romeo leave to appeal on the grounds contained in his draft Notice of Appeal, other than grounds 4 and 7 which relate to the admission of the further evidence to which I have referred above." 20Leave to appeal was granted. Before the hearing of that appeal, consent orders were entered as follows: "By consent the Court orders that: 1. Appeal allowed. 2. Set aside the orders of McCallum J of 11 October 2001 and in lieu thereof make the following orders: (1) Set aside the default judgment entered on 14 September 2010 against the first defendant, Giuseppe Romeo. (2) The costs of the motion filed on 20 October 2010 before McCallum J be reserved. 3. The respondents pay the appellants' costs of the Appeal including the Leave to Appeal." 21Shortly afterwards, the second plaintiff filed a separate statement of claim. Eventually, pursuant to a motion, those proceedings were joined with the proceedings commenced in 2010. Orders of Adams J with regard to the filing of an amended statement of claim and any defence and cross-claim were complied with by both parties. 22Turning to the amended defence of the defendant filed 5 December 2012, reliance is placed upon the Contracts Review Act 1980 and the Consumer Credit Code. At [3(i)], it is said that the defendant: "denies that the First Plaintiff advanced to the First Defendant the sum of $3,578,435.31". 23At [4(ii)] of the amended defence, it is said that the defendant: "denies that he understood what he was signing and says that he does not have a good understanding of English and can not comprehend written English and that his Wife, Anna Maria and others have always written and read any documents in English to him and that he was sick at the time of signing the Loan Documents and was later diagnosed with cancer..." 24It is noteworthy that [13] of the defence is as follows: "Further, and in answer to the entire claim, the First Defendant says that it is unjust for any enforcement action to be taken by the Plaintiff prior to the First Defendant seeking to buy out the mortgage of the Plaintiff for $1.6million because the First Defendant has offered to buy out the mortgage of the Plaintiff for $1.6million and further: (a) The primary judge in Supreme Court proceedings number: 83709 of 2010 found that the First Defendant and the Second Defendant had an arguable Contracts Review Act defence (to be advanced by way of cross claim), other than as to about $1.6M of the amount that the respondents claimed to be owing. Particulars Judgment of her Honour Justice McCallum in the Supreme Court, proceedings number: 2010/83709 delivered on 16 September 2011 and 11 October 2011. (b) If the First Defendants Contracts Review Act defence succeeded, the most likely order that the Court would make would be an order under s.7 of the Contracts Review Act, requiring the execution of a varied mortgage, limiting the amount secured to $1.6M and would negate the Plaintiffs right to possession of the property. Particulars Judgment of the Court of Appeal in Supreme Court, Court of Appeal proceedings number: CA 2010/83709 delivered on 30 March 2012". 25In a cross claim in which the defendant is the cross claimant and the plaintiffs the two cross defendants, relief is sought by way of a declaration pursuant to s 7 of the Contracts Review Act or s 87 of the Competition and Consumer Act 2010 (Cth) that the following documents are "void": the mortgage of 26 October 2006; a variation of mortgage of 8 May 2008; the deed of loan of 26 October 2006; and the supplementary loan agreement of 8 May 2008. The defendant also seeks in the cross claim that the plaintiffs be ordered to repay a sum equal to interest paid by him pursuant to those various documents, along with an order for costs. 26At [5] to [7] of the cross claim, it is said: "5. In 1999 the cross claimant and Anna Maria Romeo were victims of an armed home invasion. 6. As a result the cross claimant and Anna Maria Romeo had difficulties dealing with and attending to or were unable to deal with and attend to their financial affairs, particularly those relating to the Pasadena [a property from which the defendant operated a restaurant and bottle shop] and the Church Point General Store, because they were suffering anxiety and depression. 7. In order to deal with and attend to their financial affairs the cross claimant and Anna Maria Romeo were introduced to a financial advisor, Tony Murray, who subsequently took control of dealing with and attending to the cross claimants' financial affairs." 27Thereafter, to state the contents of the cross claim succinctly, it is asserted that the financial adviser, Mr Murray, is liable on various bases for the serious financial troubles of the defendants. 28It is also asserted that, due to an awareness that it possessed, or ought to have possessed, of the behaviour of Mr Murray and the grossly vulnerable position of the defendants, and due to other behaviour of the plaintiffs that it is not necessary to detail, the loan and mortgage are unjust within the meaning of s 7 of the Contracts Review Act. It is also asserted that the plaintiffs engaged in unconscionable conduct, said to be founded upon s 51AB or s 51AC of the Competition and Consumer Act. 29It is noteworthy that the cross claim asserts that, in June 2003, the defendants received from the plaintiffs an earlier loan of over $1.8 million. With regard to the alternatives that may have been adopted if the plaintiffs had behaved differently, it is said at [18] and [19]: "18. Had the first cross defendant declined to take the mortgage, the likelihood is that St George and the cross claimant and Anna Maria Romeo would have agreed to realize the security over the other assets so that the cross claimant and Anna Maria Romeo would have been left with the Property unencumbered. 19. This course was open and available to be taken by reason of the cross claimant Anna Maria Romeo having over $15 million in equity in real property other than the Property." 30To complete the procedural history, as I have indicated a further amended statement of claim was filed in Court on the day of the hearing of the motion. I was informed by counsel for the plaintiff that it does nothing more than expand the defaults under the mortgage that are relied upon by the plaintiff.

The submissions of the plaintiff 31Counsel for the plaintiff did not deny that a high hurdle must be cleared before summary judgment is entered against a party. However, he submitted that it has been cleared in this case. He emphasised the following matters. 32First, the plaintiff seeks possession pursuant to the mortgage. Its right to possession under that security may arise by way of monetary or non-monetary defaults. 33Secondly, despite the fact that the defence and cross claim impugn the whole indebtedness pursuant to the loan and the mortgage, he submitted that in truth there had been "tacit admissions" that the defendant is indebted to the plaintiff in the sum of $1.6 million. 34He relied upon what senior counsel for the defendant had said (on either interpretation) to McCallum J; what McCallum J had said in the passage from her first judgment that I have extracted; what senior counsel said to the Court of Appeal, as recorded in the passage that I have extracted; and, finally, what is said in the amended defence with regard to the offer to "buy out" the mortgage for $1.6 million. 35In those circumstances, he submitted that I would be satisfied that judgment should be entered in the sum of $1.6 million, and possession ordered concomitantly. 36He submitted that no defence founded upon the Contracts Review Act could succeed in avoiding repayment of the principal, or at least that part of it that was applied to the previous mortgage of the defendant. In answer to my query whether Perpetual Trustee v Khoshaba [2006] NSWCA 41 was such a case (that is, a case in which the defendants were relieved not only of interest payments but also repayment of some or all of the principal advanced), he submitted that that case could be clearly distinguished on its facts. 37In short, he submitted that I could be comfortably satisfied that the defence and cross claim are doomed to failure, at the least with regard to indebtedness in the sum of $1.6 million. It follows that I would order summary judgment in that amount and thereafter possession.

The submissions of the defendant 38Counsel for the defendant submitted that so-called "tacit admissions" could hardly found summary judgment. He noted that that the cross claim seeks a declaration that the loans and mortgages are void in their entirety, not partially. He further submitted that submissions of senior counsel as to likely outcomes in a particular forensic setting can hardly found a basis for summary judgment. And he emphasised that, whatever submission was made or acceptance indicated by senior counsel for the defendant in the Court of Appeal, it was clearly for the purpose of that application only. 39He submitted that, in light of the absence of any evidence whatsoever from either party about the circumstances surrounding the loan agreement and the mortgage, it would be impossible for me to determine that the defence and cross claim founded on the Contracts Review Act and similar considerations are doomed to failure. 40In short, he submitted that the plaintiff had failed to maintain its default judgment before McCallum J. Furthermore, the Court of Appeal had granted leave to appeal against the orders of her Honour that were contrary to the interests of the defendant. Thereafter consent orders were made in the Court of Appeal that generally favoured the defendant. In those circumstances, he submitted, it was hardly appropriate for the plaintiff to be now seeking to shut the defendant out of court. 41The following exchange took place between counsel for the defendant and me during oral submissions: "HIS HONOUR: Is it conceivable that a gentleman who owned a property worth $5 million, and as I understand it owned two other properties and also ran a restaurant and a bottle shop, to not understand the important of a mortgage and loan contract? O'NEILL: Yes, because of the involvement of a further party who, on our case, was also acting with the knowledge of the plaintiff. HIS HONOUR: Why hasn't that person been joined as a party to the cross claim? O'NEILL: I cannot answer, your Honour." 42In short, he submitted that the defendant has not admitted, either directly or tacitly, that he owes the plaintiff $1.6 million. Accordingly, judgment should not be entered in that sum, or possession granted to the plaintiff as a consequence. And whilst he accepted that a case founded on the Contracts Review Act and related considerations may have its difficulties, he submitted that the test for summary judgment had not been made out.

The rule 43Rule 13.1 of the Uniform Civil Procedure Rules 2005 is as follows: "13.1 Summary judgment (1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and (b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires. (2) Without limiting subrule (1), the court may give judgment for the plaintiff for damages to be assessed. (3) In this rule, a reference to damages includes a reference to the value of goods."

Legal principles 44I reviewed some of the leading cases with regard to the test for summary judgment in my judgment in Martinez v Heavy Machinery Pty Ltd [2013] NSWSC 340, and will not repeat that review here. I am content to adopt the formulation of Barrett JA (with whom Beazley JA (as her Honour then was), McColl JA, Macfarlan JA, and McClellan CJ at CL (as his Honour then was) agreed) in Shaw v State of New South Wales [2012] NSWCA 102 at [32] as follows: "[32] The question is therefore whether the claims in question are so obviously untenable or groundless that there is 'a high degree of certainty' that they will fail if allowed to go to trial; and whether this is one of the 'clearest of cases' in which the court may accordingly intervene to prevent the claims being litigated." 45Furthermore, with regard to matters in which the Contracts Review Act is relied upon generally, it has been said that this Court should be slow to enter summary judgment: see Commercial Banking Co of Sydney Ltd v Pollard [1983] 1 NSWLR 74 and Commonwealth Bank of Australia v Tarrant [2011] NSWSC 1087.

Application of principle 46I am not satisfied that summary judgment should be entered against the defendant. That is so for the following reasons. 47First, I do not consider that the alleged "tacit admissions" can found summary judgment in the sum of $1.6 million. The things recorded as having been said by senior counsel in the Court of Appeal were expressly limited to those proceedings only. The things said before McCallum J were, it seems, not entirely clear in their meaning. And a prediction by counsel as to the likely outcome of a matter can hardly be characterised as an admission that a defence is manifestly groundless. 48Secondly, the defence and cross claim attack the whole of the indebtedness and the mortgage. 49Thirdly, whilst it tells against the submissions of the defendant that the defence itself perhaps contains an implicit offer to "buy out" the mortgage for $1.6 million, I do not regard that as determinative. 50Fourthly, speaking of the proceedings as a whole, in the absence of any evidence from either party I am simply unable to make anything other than a very general assessment of the strength or weakness of the defendant's case. For example, was the restaurant a sophisticated business operation? Or was it little more than a simple café? Are there witnesses who will swear that the command of English of the defendant is halting and primitive? Or are there witnesses who will swear that he can easily comprehend sophisticated prospectuses? I am simply unable to tell. 51Having said that, it does appear remarkable that a man who, according to his own cross claim, had, at one stage, built up with his wife a property portfolio with equity in the sum of $15 million could rely upon the Contracts Review Act. But although on the very limited information available to me it might seem that the case of the defendant has very serious difficulties, I cannot say that it is doomed to failure. 52Fifthly, whilst it is true that it is most unusual for a defence under the Contracts Review Act to result in a borrower not being liable to repay a principal, of some of which he or she has had the benefit, I cannot rule out completely the possibility of that occurring as a result of this litigation. 53Sixthly, whilst it may be unarguable that there have been a number of separate defaults under the mortgage, that does not deal with the deeper question of whether the mortgage and loan agreement that underpin the defaults are able to be successfully impugned. 54In short, I am not satisfied that, contrary to the defence and cross claim, the defendant has tacitly admitted liability for part of the debt that is said to found possession. Nor am I satisfied that his resistance to enforcement of the mortgage is doomed to failure. 55For those reasons, I decline to make the orders sought in the notice of motion. 56As for costs, it is true that, up until the start of the hearing, the order in the notice of motion with regard to the filing of the further amended statement of claim was also in play. But the whole hearing revolved around the question of whether summary judgment should be entered or not. In those circumstances, the plaintiff should pay the costs of this motion.

Orders (1)The notice of motion filed 11 January 2013 is dismissed. (2)The plaintiffs are to pay the costs of the second defendant on the motion.

Amendments 30 September 2013 - Changed from "The Trust Company (PTAL) Pty Ltd v Romeo" to "The Trust Company (PTAL) Pty Ltd v Romeo (No 3)" Amended paragraphs: Coversheet - Case Title 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 September 2013