Westpac Banking Corporation v Gilio

Judgment 1By amended motion, filed 9 September 2011, the plaintiff, Westpac Banking Corporation (hereinafter "Westpac") seeks orders striking out certain paragraphs of the defences to the amended statement of claim and a consequential order for summary judgment. The defences filed by the defendants are in slightly different form, but the principle underlying the application for strike out is the same and the terms of the defence, relevant to this application (albeit in differently numbered paragraphs), are identical. 2Westpac relies upon Uniform Civil Procedure Rule 14.28 and submits that the relevant paragraphs disclose no reasonable defence and should be struck out. Once struck out, Westpac submits that no reasonable defence is pleaded, entitling it to summary or default judgment: see Uniform Civil Procedure Rules 2005 ('UCPR'), Part 16.

Substantive proceedings and relationship between parties 3Westpac sues on a guarantee given by the defendant in relation to loans to one or more corporations to which the defendants are related. The loan was a business loan to Stateland Developments Pty Ltd (hereinafter, "Stateland"). 4By way of background, Westpac lent monies to Stateland on or about 5 May 2006. The loan was to assist with the refinance and development of property near Hoxton Park, in the west of Sydney. 5Without detailing all the events and circumstances, it is sufficient, for present purposes, to remark that Stateland defaulted on the loan. The loan was secured against certain property. The security consisted of registered mortgages. On or shortly after default by Stateland, Westpac demanded payment by the defendants under the guarantee. 6Each of the guarantees is in similar terms and incorporates documents entitled "Memorandum of Common Provisions" (hereinafter "Common Provisions"). There are no relevant differences between the terms of the guarantee as between each of the defendants and Westpac. 7Taking the guarantee in relation to the first defendant as an example (see exhibit A page 126), the first defendant guarantees Westpac in respect of money now or in the future owed by Stateland in relation to: "all liabilities and obligations of the Customer [Stateland]... now or in the future under or in respect of ... Business Finance Agreement dated 5 May 2006 or any other arrangement or obligation you agree is covered by this Guarantee..." 8The Guarantee incorporates the Common Provisions (exhibit A page 136 and following). The Common Provisions are purportedly in "plain English" and include definitions of a "Document" which includes a guarantee or indemnity, a definition of "Customer", "Guaranteed money", "Guaranteed Obligation", "Lender" and "Lender arrangement". By clause B1 of the Common Provisions, the guarantor promises: "...to pay the following amounts to the Lender. ... if you give or have given a Guarantee or money which the Customer owes to the Lender for any reason, under or in relation to the Guaranteed Obligations." 9Clause B5 the Common Provisions provide: "Except where a Lender Arrangement says otherwise, all amounts are payable on demand or when the Lender debits your account for them." 10By clause B6, the Common Provisions provide that the guarantor: "must pay them [the amount payable] in cleared funds and without any deduction except as set out in B3 "Tax" above." 11The Common Provisions set out, as would be expected, a definition of default event (See clause D2). By clause D3, the Common Provisions provide: "At any time after a Default Event which has not been waived (whether or not it is continuing) the Lender can do any one or more of the following to the extent permitted by law. Require you to pay to the Lender all principal or other amounts which you promise to pay under Part B ("Your Payment Obligations" above)." 12Most importantly, the Common Provisions has a clause relating to set off. It is clause D5 and it is in the following terms: "If any one or more of you have any money in any account with the Lender or are owed money by the Lender, the Lender can use it to pay amounts payable or secured under a Documents, but need not do so. If the Lender does this, the balance of your account will reduce by the amount used for this purpose. To the maximum extent allowed by law you give up any right to set off any amounts the Lender owes you ( for example credit balances in your accounts or any deposit subject to a Deposit Security ) against amounts you owe under the Lender Arrangements. You will pay money you are required to pay under this document without deducting amounts you claim are owed to you by the Lender or any person..." 13It is also necessary to repeat extracts from the following clauses: "E1. GUARANTEE You guarantee to the Lender that the Customer will, on time: Pay to the Lender all the Guaranteed Money; and Perform the Guaranteed Obligations E2. PAY ON DEMAND If the Customer does not pay an amount of the Guaranteed Money when it is due, the Lender may demand that you pay that amount. You must then immediately pay that amount to the Lender. The Lender can make any number of demands and demand can be made: For all or part of the Guaranteed Money; and Even if the Lender does not take action to recover the Guaranteed Money from anyone. This is an independent obligation. E3. EXTENT OF THE GUARANTEE The Guarantee is a guarantee for the full amount of the Guaranteed Money and the Guaranteed Obligations. ... E8. NATURE OF LIABILITY Your liability under the guarantee is unconditional and a primary obligation. It is not affected by anything which otherwise might release you from all or part of your obligations, including if: The Lender does not or is slow to exercise any of its security or rights against anyone; The Lender makes any arrangement, transaction or compromise with anyone, including one which varies, takes away or limits its security or rights, or its freedom to exercise them; ... E10. INVALIDITY If at any time for any reason ( for example, lack of capacity or authority, Administration, release, illegality or inadequate or improper execution or stamping ): The Lender has no legal right to recover an amount of the Guaranteed Money from the Customer or to enforce the Guaranteed Obligations; The Customer is not bound by obligations (or what would have been obligations) that otherwise would gave been Guaranteed Obligations; or The Customer does not owe an amount which would otherwise have been included in the Guaranteed Money, the amount will be taken to be part of the Guaranteed Money. You will pay it to the Lender whenever the Lender demands. ... This applies even if the Lender knew or should have known of the problem. It applies even if, because of the problem, the Customer could never have been required to pay the Lender the amount and was never subject to the obligation. ... E11. SECURITY Any other Security for all or part of the Guaranteed Money or Guaranteed Obligations is independent of the Guarantee. The Guarantee is independent of it. Nothing affecting any Security will affect the Guarantor's liability under the Guarantee. The Lender can enforce the Guarantee and any Security in any order it wishes. It can choose not to enforce any Security at all. Until the Guaranteed Money is paid in full, you can not claim the benefit of, and have no right to, the Security." 14The paragraphs of the defences to the amended statement of claim which, by motion, Westpac seek to strike out, rely on the statements of cross-claim which have been filed and claim an equitable set off to the guarantee amounts otherwise demanded by Westpac. 15The cross-claim relies on a breach of the duty by Westpac of the obligation of good faith owed to Stateland in preventing a sale of certain of the properties secured for the purpose of the loan. Further, the cross claim alleges unconscionable conduct by Westpac and breach of the Australian Securities and Investments Act 2001 (Cth) (hereinafter, the " ASIC Act" ) and the Trade Practices Act 1974 (Cth) in relation to the conduct of Westpac in preventing the sales by Stateland. 16Further, Westpac went into possession of the properties, whereafter, the mortgagee in possession (or its agent) received offers to purchase, which offers where refused by Westpac, as the mortgagee in possession. The defendants allege that the refusal of those subsequent sales was a breach of the duty of Westpac as mortgagee and unconscionable. Moreover, the defendants allege that the business finance agreement provides for interest at default rates which, given the conditions on their payment, are unconscionable under the general law and under the provisions of the ASIC Act and the Trade Practices Act . Further, it is alleged that the default interest rates are a penalty and void according to law.