Westpac Banking Corporation v Daniel Ivan Cvitanovic in his capacity as the Trustee of the Bankrupt Estate of David Mark Kenneth Rich

THE FACTS 7I am satisfied that the evidence establishes the following facts. 8At all material times Rich was the sole registered proprietor of the property. 9The applicant is not, and has never been, a registered proprietor of the property. 10Rich was declared bankrupt on 12 November 2012. Upon the making of a sequestration order, his property vested in the defendant as his Bankruptcy Trustee pursuant to s. 58 of the Bankruptcy Act 1966 (Cth). On 30 May 2013 the defendant gave his consent to the respondent obtaining orders for possession of the property. 11On 22 December 2004, Rich granted a Mortgage over the property to St George ("the 2004 mortgage"). The 2004 mortgage was stamped on 17 January 2005 and recorded the amount secured as $325,000.00. The stamping on the mortgage indicates that the amount secured was later increased to $2,814,000.00 although the date on which this occurred is not clear from the document itself. 12The memorandum accompanying the 2004 mortgage contained a number of clauses which are relevant for present purposes. Clause 23 was (in part) in the following terms: Default - and what can happen 23. You are in default if: ... c). You are, or a debtor/guarantor or another person is, in default under any "arrangement with us" or an event of default, however described, occurs under "an arrangement with us"; or ... g) You (if you are a corporation) are or become, or a debtor/guarantor (if it is a corporation) is or becomes insolvent or steps are taken to make you or the debtor/guarantor insolvent; ... k) A change occurs in your financial circumstances which, in our opinion, may have a material adverse effect on your ability to observe your obligations under this mortgage or another arrangement with us; or ... n) A person is appointed to investigate or manage your affairs or the affairs of a debtor/guarantor; (emphasis in original). 13Clause 31 was in the following terms: Certificates 31.1 We may give you a certificate about a matter or about an amount payable in connection with this mortgage. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect. 31.2 We may rely on certificates provided by any other person with a security interest over the property as to the amount that is owed to them. 14Clause 43 was in the following terms: Meaning of words 43. Amount owing means all amounts that: at any time; for any reason or circumstance in connection with any agreement (including a loan agreement, guarantee, lease or other facility document), transaction, engagement, document, instrument (whether or not negotiable), event, act, omission, matter or thing whatsoever; whether at law or otherwise; and whether or not of a type within the contemplation of the parties at the date of this mortgage; Are payable, are owing but not currently payable, are contingently owing, or remain unpaid, by you to us; or We have advanced or paid on your behalf or on your express or implied request; or We are liable to pay by reason of any act or omission on your part, or that we have paid or advanced in the protection or maintenance of the property or this mortgage following an act or omission, on your part; or Are reasonably foreseeable as likely, after that time, to fall within any of the above paragraphs. 15On 16 August 2007 Rich granted a further mortgage over the property ("the 2007 Mortgage") to St George. That mortgage was stamped on 25 September 2007 and recorded an amount secured of $3,800,000.00. The accompanying memorandum of mortgage similarly contained a number of provisions which are relevant for present purposes. Firstly, clause 8 provided (inter alia) as follows: Dealings - such as selling, renting or mortgaging 8. You must get our consent before you: ... d) Part with possession of the property; or ... g) Deal in any other way with the property, this mortgage or any interest in them, or allow any interest in them to arise or be varied. ... 16Clause 19 was in the following terms: What can happen if you are in default When are you in default? 19. You are in default if: ... b) You do something you agree not to do, or you don't do something you agree to do, under this mortgage or an agreement covered by this mortgage; or ... (emphasis in original). 17Clause 25 was in the following terms: Our Certificates We may give you a certificate about a matter or about an amount payable in connection with this mortgage. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect. 18Clause 36 included the following: Meaning of words Amount owing means at any time, all money which one or more of you owe us, or will or may or owe us in the future, including under this mortgage or an agreement covered by this mortgage. Without limiting this definition, it includes money owing (or which will or may be owing) to us in our capacity as an assignee because we have taken an assignment of an agreement covered by this mortgage or this mortgage itself, and whether or not; you were aware of the assignment or consented to it; or the assigned obligation was secured before the assignment; or the assignment takes place before or after this mortgage is delivered. 19As will be evident from the provisions above, both the 2004 mortgage and the 2007 mortgage are "all monies" mortgages. They secured such monies as were owed to the respondent from time to time in connection with any agreement executed between it (or St George) and Rich. 20On 4 February 2009 St George wrote to the Directors of Air Sea Customs Services (NSW) Pty Limited (a company of which Rich was a director) offering two commercial bill facilities totalling $985,000.00, together with a commercial overdraft facility in a sum of $100,000.00 ("the 2009 offer"). The letter setting out the 2009 offer provided (inter alia) that the security for each facility was to include: "First registered real property mortgage by David Mark Kenneth Rich and Kim Rich over the property located at 40 Village High Road, Vaucluse NSW 2030 (Existing)". 21On 6 December 2011 St George again wrote to the applicant and Rich offering a further commercial bill facility of $925,000.00 ("the 2011 offer"). The letter setting out the 2011 offer provided (inter alia) that the security for the facility was to include: "First registered real property mortgage by David Mark Kenneth Rich and Kim Louise Rich over the residential property located at 40 Village High Road, Vaucluse New South Wales 2030 (Existing)." 22Each of the letters of 4 February 2009 and 6 December 2011 was signed by the applicant and Rich. The amounts advanced pursuant to those offers form part of that which is now owing to the respondent. 23As I have previously noted the applicant is not, and has never been, a registered proprietor of the property. At the time at which each of the 2009 and 2011 offers were made, the only existing Mortgages were the 2004 mortgage and the 2007 mortgage, both of which had been granted solely by Rich as registered proprietor of the property. 24On 30 November 2012 the respondent made a demand on Rich for the payment of the monies outstanding. A further demand, made pursuant to s. 57(2)(b) of the Real Property Act 1900, was made on 13 December 2012. Rich did not comply with either demand. 25Annexed to the affidavit of Mr Layden of 29 August 2013 is a valuation report of the property prepared by Jones Lang LaSalle on 7 March 2013. That report assessed the current market value of the property as $3,400,000.00, and the "forced sale price" as $2,800,000.00. 26Also annexed to the same affidavit is a certificate prepared by reference to clause 31.1 of the memorandum to the 2004 mortgage, and clause 25 of the memorandum to the 2007 mortgage. That document certifies the amount presently outstanding as $4,768,824.07. There is, therefore, a substantial shortfall between the present market value of the property and the amount of the debt owing to the respondent. 27The applicant's evidence demonstrates that when married to Rich she knew little about the financial arrangements which were entered into by him. For example, at paragraphs (5) and (6) of her affidavit of 29 August 2013 the applicant stated: "Although I have been aware of David's various business interests and dealings over the years, I have not been privy to the great majority of his business decisions and the many business arrangements he has made. Until recently, I was unaware of our financial position, and I have never had access to any of our bank accounts, credit card accounts or loan accounts. I have never received any statements from our banks for our loans, credits (sic) cards or everyday accounts and I do not have any access to passwords and/or internet banking for any of our accounts". 28On 9 August 2013 the Family Court of Australia ordered that the interests, rights and entitlements of Rich in the property be transferred to the applicant. The applicant continues to reside at the property with her two children.

Submissions of the respondent 49In opposing the order sought, counsel for the respondent firstly relied upon a number of general (and largely undisputed) factual matters, including the following: (i)the respondent had the benefit of two registered mortgages in respect of the property; (ii)both of the mortgages were signed by Rich as the sole registered proprietor of the property, and both were stamped; (iii)both mortgages were "all monies" mortgages; (iv)as such, they operated to secure all monies owing to the respondent at any time, in connection with any agreement; (v)Rich had not complied with formal demands made on him; (vi)the certificate annexed to the affidavit of Mr Layden of 6 November 2003 certified that the amount of $4,768,824.07 was owing by Rich as at 6 November 2013; (vii)the respondent made no claim whatsoever upon the applicant in the current proceedings and, in particular, did not rely upon any guarantees that the applicant may have given at any time. 50Counsel for the respondent then proceeded to address the three substantive submissions advanced on behalf of the applicant in support of the orders sought. 51As to guideline 2, counsel for the respondent submitted that there was, as had been conceded, a complete dearth of direct evidence as to the purpose for which the original advance was used. He submitted that the inference sought to be drawn in respect of the contents of exhibit A was purely speculative. 52As to guidelines 3 and 4, counsel submitted that there was no substantive difference between the 2004 and 2007 mortgages granted by Rich, and those to which reference was made in the correspondence setting out the 2009 and 2011 offers. As I understood it, counsel submitted that the reference to "existing" mortgages in each letter of offer could only be understood as a reference to the 2004 and/or 2007 mortgages. 53As to guideline 7, counsel for the respondent submitted that the certificate annexed to the affidavit of Mr Layden of 6 November 2013 provided a complete answer to the proposition that the original debt had been fully discharged. 54In respect of the issue of default, counsel for the respondent submitted that when Rich's bankruptcy was viewed in the context of the provisions of the memoranda accompanying the 2004 and 2007 mortgages, there was no available argument that default had not occurred. 55In relation to the 2004 mortgage, counsel submitted that there had been clear default within the meaning of clause 23(k) of the accompanying memorandum because Rich's bankruptcy constituted a change in his financial circumstances. 56In relation to the 2007 mortgage, counsel relied upon the provisions of clause 19(b) of the accompanying memorandum which provided that Rich was in default if he did something he agreed not to do. Counsel submitted that when this provision was read in conjunction with clause 8(d), it was clear that Rich had parted with possession of the property without the respondent's consent and was therefore in default. In addition, counsel relied upon the provisions of clause 8(g) which prohibited Rich from dealing with the property without the consent of the respondent. 57As to the issue of quantum, counsel for the respondent relied upon Mr Layden's certificate. He further submitted that the differing amounts referred to in the documents relied upon by the plaintiff were largely immaterial in view of the fact that there would, on any view of the evidence, be a substantial shortfall upon the sale of the property. 58Finally, counsel for the respondent submitted that in light of the evidence of that shortfall, any equitable interest of the applicant in the property was of no value at all. He submitted that these circumstances tended against an order joining the applicant, and relied upon the decision in Hammond v J P Morgan Trust Australia Limited [2012] NSWCA 295. CONSIDERATION 59Having considered the evidence and submissions, I am not satisfied that an arguable defence has been made out. 60Firstly, as to guideline 2, counsel for the applicant frankly conceded that there was no direct evidence before me as to the type and character of the original debt which was incurred. I accept the submission of counsel for the respondent that inference I was asked to draw from the contents of exhibit A was purely speculative. 61I have had regard to the fact that in her affidavit of 29 August 2013 the applicant expressed a "belief" that the Toorak property was purchased with the loan of $3,800,000.00 obtained from St George. However, the basis of that belief has not been set out. Moreover, the applicant candidly admitted in paragraph (6) of the same affidavit that during the course of her marriage to Rich, she had never had access to any bank account, had never received any bank statement in respect of any loan or account, and had never had any access to passwords or the like through which any accounts could be accessed. 62Secondly, the terms of guideline 3 are that an all monies clause will often cover future debts only where documents evidencing those debts specifically refer back to the clause. In any event, there was a clear reference in the letters setting out the 2009 and 2011 offers to an "existing" mortgage. The only existing mortgages at that time were the 2004 and 2007 mortgages. In my view, it is to be inferred that the parties intended that those mortgages would secure the additional advances. 63Thirdly, as to guideline 4, the respective letters containing the 2009 and 2011 offers recorded that the security in each case included that which already existed. Had the security agreed upon been exclusive of the existing mortgage(s) there may well have been an inference available that the parties did not intend that such mortgage(s) would secure the amounts advanced. However, in circumstances where the security included the existing mortgage(s) that inference, in my view, is not open. 64Fourthly, as to guideline 7, I am not satisfied that the question posed by counsel for the applicant, namely whether the initial debt had been extinguished by the time of the 2009 and /or 2011 offer, arises. There is, in my view, no evidence which would even remotely suggest that the initial debt was extinguished. 65As to the second submission advanced by the applicant, the provisions of a number of clauses contained in the relevant memoranda tend wholly against the proposition that no default has occurred. 66In respect of the 2004 mortgage, Rich's bankruptcy clearly constituted a change in his financial circumstances which, in turn, had a material adverse effect upon his ability to observe his obligations to the respondent. That, in my view, is clear evidence of default within the terms of clause 23(k). Moreover, upon the making of the sequestration order, the defendant in the proceedings was appointed trustee of Rich's bankrupt estate, an event which falls squarely within the provisions of clause 23(n). 67In respect of the 2007 mortgage, it is common ground between the parties that Rich has relinquished possession of the property and that he did not, as was required by clause 8, obtain the respondent's consent before doing so. In these circumstances, there is evidence of default having regard to the provisions of Clause 19(b) of the relevant memorandum. 68In respect of quantum, Mr Layden's certificate specifies an amount of $4,768,824.07 currently owing to the respondent. That certificate is stated by Mr Layden to have been issued pursuant to clause 31.1 of the memorandum to the 2004 mortgage and clause 25 of the memorandum to the 2007 mortgage. Those clauses reflected an agreement between the parties that a certificate in the nature of that produced by Mr Layden would be "sufficient evidence" of the relevant amount unless it was "proved to be incorrect". It was not agreed that such a certificate would constitute conclusive evidence of indebtedness and to that extent the present case differs factually from Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643. However, the terms of the agreement as to certificates in the present case were similar to those considered by Hansen J in Permanent Trustee Limited v Gulf Import and Export Co [2008] VSC 162. In that case his Honour said (at [85]): "The clause in Dobbs was different from that in the present case, in that it made the certificate "conclusive evidence of indebtedness" whereas cl. 18.1 merely states that the certificate is "sufficient evidence" of the matter or sum stated in the certificate "unless the matter or sum is proved to be false". Nevertheless, it is clear from Dobbs that cl. 18.1 should be read, and given effect, in accordance with its terms. The object of cl. 18.1 was to provide a means by which the plaintiff could, by tendering a certificate, establish both the legal existence and the amount of the guarantors' debt, unless it is proved that the matter or sum referred to in the certificate is false". 69For the purposes of establishing an arguable defence, the applicant does not have to conclusively prove that the sum referred to in the certificate is false. However, as I have already outlined, the submission of counsel for the applicant as to quantum was based upon a possibility that the amount secured by the 2004 and 2007 mortgages may be less than the current market value of the property. The existence of a theoretical possibility, which is unsupported by any evidence, does not mean that an arguable defence has been made out. In my view, there is no evidence which raises the possibility upon which the submission was based. Although discrepancies do exist in the sense I have outlined, all of the amounts stipulated as owing are substantially in excess of the present value of the property. 70For all of these reasons I am not satisfied that the applicant has an arguable defence to the proceedings brought by the respondent. 71Further, and quite apart from the matters to which I have already referred, any interest of the applicant in the property is, in the circumstances, an equitable interest. On the evidence before me, the amount owing to the respondent substantially exceeds the current market value of the property, such that the applicant's equitable interest is of no value whatsoever. More importantly, the applicant's interest does not have priority over the 2004 and 2007 mortgages held by the respondent. In these circumstances, the effect upon the applicant of any judgment for possession which is entered in favour of the respondent is indirect. That is a factor which tends against the joinder of the applicant as a defendant (as to which see Hammond v J P Morgan Trust Australia Limited [2012] NSWCA 295 at [69] - [72] per Meagher JA, with whom Basten JA and Bergin CJ in Eq. agreed). 72Counsel for the applicant submitted that the decision in Hammond was factually distinguishable from the present case, on the basis that the applicant for joinder in Hammond did not seek to make any assertions regarding the mortgagee's claim, but simply sought to be joined because of an equitable interest in the relevant property. I am not satisfied that this is so. It is apparent from the recitation of facts at first instance (see Hammond v J P Morgan Trust [2012] NSWCA 261 at [10]) that the applicant in that case was seeking to agitate a number of arguments, including the proposition that the relevant mortgage did not secure the property in question, and that no monies were owing to the mortgagee. In any event, in my view such matters do not affect the ultimate conclusion reached by the court on the hearing of the appeal (at [69] - [72]). 73Finally, I note that counsel for the applicant submitted that even if I came to the view that no arguable defence had been made out, I should nevertheless order that the applicant be given leave to bring a cross-claim against the respondent. In view of the conclusions I have reached, there is no utility in doing so. ORDERS 74I make the following orders: (1)The amended notice of motion filed on 7 November 2013 is dismissed. (2)I stand the matter over for further directions before me on 6 December 2013 at 9.30 am. (3)I will hear the parties on the question of costs.

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