Westpac Banking Corporation v Jarrett

Short facts 2 In early 1993 the mortgagee of the Jarrett property was Advance Bank Limited, with the amount outstanding in the vicinity of $150,000. Monies had been advanced by AGC to Endormer in September 1992 on condition that, inter alia, the Jarretts would provide security by way of a mortgage over the Jarrett property to AGC. Registration of that mortgage had not taken place by early 1993. There is no evidence, however, that any action or inaction by Advance Bank Limited was standing in the way. By late February 1993, Mr Peter Rodd became responsible (on the credit side of AGC) for the Endormer account, and met Messrs Jarrett and Paterson, the principals of Endormer, for the first time. He had various discussions, both in person and by telephone, with one or both of them, between then and late April, in which Mr Rodd expressed the view that Endormer would be better able to manage its business if it had a general business overdraft as well as the AGC floorplan facility. There is dispute about the precise content of these conversations, but it is clear enough that Mr Rodd indicated that the administration of the AGC arrangements would be more sympathetic if the overdraft was arranged. 3 The difficulty was that Endormer itself and those associated with it had no security to offer for an overdraft. Discussions then ensued between Mr Jarrett, Mr Paterson and Mr Jarrett's parents on the topic, as a result of which Mr Jarrett's parents agreed to make their home available as security for a $100,000 loan from Westpac (Parramatta branch) to Endormer. The Parramatta branch of Westpac was the bank of Mr Jarrett senior, and he had a good relationship with the manager of that branch. Endormer banked at the Drummoyne branch of Westpac. By early June 1993, it had been agreed that Westpac would advance the overdraft facility, secured by a third-party mortgage from Mr and Mrs Jarrett senior, on the basis that Westpac would take over the existing home loans of the Jarretts (and also the Patersons). On 14 July 1993, the transfer of the home loans was formally approved, and a letter of offer issued. On 19 August 1993, Mr Glenn Jarrett visited Westpac, Parramatta, and signed a home loan agreement and mortgage and Mrs Deborah Jarrett visited Westpac at Parramatta and signed the same on 26 August 1993. 4 On 10 September 1993, Mr Jarrett senior wrote to the manager of Westpac at Parramatta, proposing that the security to be provided by him and his wife for the Endormer overdraft be on the basis that Westpac pursue all recovery action against the Patersons and the Jarretts before taking action under that security. Westpac would only agree to an obligation to use its best endeavours to pursue recovery action against the Patersons and Jarretts before taking action on the Jarrett parents' security, and this was accepted. 5 On 13 September 1993, the Endormer overdraft was formally approved, and a letter of offer issued. On the same day, Mr Glenn Jarrett signed a guarantee of Endormer's liabilities in favour of Westpac, and Mrs Deborah Jarrett signed an equivalent guarantee on 15 September 1993. On 29 September 1993, Westpac paid $152,360.27 to Advance Bank Limited to discharge its mortgage. That was the only amount advanced under the agreement for loan and mortgage. 6 In April 1994, immediately prior to the appointment of the receiver to, and ultimate liquidation of, Endormer, its overdraft with Westpac was paid out, the security over the Jarrett parents' home was subsequently released, and there has been no claim against them. No claim is made in these proceedings for any monies other than the monies paid to Advance Bank, plus interest. In particular, no claim has been made on the guarantee. However, default has been made in repayment of monies due under the mortgage.

fundamental flaw? 7 It is submitted on behalf of Westpac that these basic facts are enough to reveal that the complaints which are made by the Jarretts in relation to the mortgage are misconceived. The only monies which were advanced pursuant to the agreement for loan and mortgage were to effect a discharge from an existing liability and the Jarretts thus received full value. No case has been pleaded and no evidence led to establish that the Westpac loan was less advantageous than the Advance Bank loan. Mention was made in submissions of an early pay out fee to Advance Bank. This was not pleaded, and is hardly material to the issues. The overdraft was granted to Endormer as arranged, but, in the events which happened, never led to any liability on the part of the Jarretts under the guarantees of the obligations of Endormer to Westpac. There were, in the end, no relevant liabilities by Endormer to Westpac. 8 I agree with this submission. No conduct by or on behalf of Westpac in connection with entering into the mortgage led to any relevant disadvantage to the Jarretts, or any relevant advantage to Westpac or AGC. The Jarretts replaced one home loan with another home loan, on an ordinary basis. Westpac advanced a home loan on an ordinary basis. Furthermore, at all material times, the Jarretts were bound to AGC to provide a second mortgage, and had sought the consent of Advance Bank to that course. There is nothing in the evidence to indicate that there was any difficulty in obtaining the consent of Advance Bank Limited (if that were required) to any such second mortgage. 9 Indeed, I have great difficulty in discerning what ultimate advantage it is said that AGC gained from the arrangements, apart from having a debtor which was generally in a better position to manage the fluctuations in its own affairs by virtue of having an overdraft which it did not have before. The Westpac loan did not pay out the AGC liability or any part of it. The security position of AGC vis-ŕ-vis Endormer was not improved. The arrangements which had been made in 1992 bound the parties and were on the basis that there would be a second mortgage in favour of AGC over the Jarrett property, which would rank behind the existing loan from Advance Bank. Although problems developed later, the Jarretts had not resiled from any obligation to provide the second mortgage to AGC, although there had been administrative failures on the part of AGC in obtaining the security documents. The AGC mortgage ranked behind the Westpac mortgage in an equivalent amount to that in relation to the Advance Bank loan. In my opinion, it is irrelevant to know whether the mortgage transaction with Westpac was the result of prodding by Mr Rodd, on the one hand, or for more effective self-preservation of Mr Jarrett senior, on the other, or, which is more likely, something of each. From the lender's point of view it may have been advantageous to have management of all accounts shared between parent and subsidiary, rather than subsidiary and a third bank, but I cannot see that this advantage goes beyond administrative convenience. 10 Put another way, the only link between the mortgage transaction, on the one hand, and the affairs of Endormer, on the other, was the guarantees of the overdraft. In the events which have happened, the guarantees have been spent without any call being made upon them. If the guarantees had not been executed in the first place, this would have been, as is submitted on behalf of Westpac, an unremarkable transaction. The circumstance that the guarantee has done no work, and has no work to do, leads to a similar conclusion. 11 This analysis is ultimately an answer to most, if not all, of the claims relating to the validity of the mortgage. I shall now deal with the pleaded bases for the cross-claim.

Section 75B liability 12 Paragraphs 8 to 23 (inclusive) of the further amended cross-claim plead a case of misleading and deceptive conduct by AGC. Paragraphs 24 to 28 plead a case of negligence by AGC. There is then a heading "Westpac - Liability for AGC Conduct" followed by pars 29, 30 and 31, which are in the following terms (omitting the particulars of pars 29 and 30): "29. The Cross Claimants allege that at all relevant times the Bank aided or abetted, or was knowingly concerned in, or a party to, the contraventions and breaches of the Trade Practices Act 1974 (Cth) by AGC pleaded above, within the meaning and for the purposes of s 75B of the Trade Practices Act 1974 (Cth). Specifically the Cross Claimants say that from about February 1993, if not from some earlier date, the Bank through its servant or agent Peter Rodd was aware of the contravening conduct of AGC and adopted the said conduct so as to obtain certain financial benefits for itself and AGC, or alternatively, and being able to correct the said breach and contraventions, or to prevent them from causing loss or damage to the Cross Claimants, refused or failed to do so. 30. The Cross Claimants charge, and the fact is, that the mortgage given by them to the Bank, and the subject of these proceedings ("the mortgage") would not have been entered into but for the unconscionable and misleading and deceptive conduct of AGC and the involvement of the Bank in adopting that conduct. 31. As a result of the Bank's involvement in a contravention of the Trade Practices Act 1974 (Cth) the Cross Claimants suffered loss and damage within the meaning of and for the purposes of sections 82 and 87 of the Trade Practices Act 1974 (Cth)." 13 The case of breach of the Trade Practices Act and negligence by AGC mirror very closely the allegations in the Endormer proceedings and, if it were necessary, I would reject them for the reasons that the similar claims were rejected in those proceedings. However, it seems to me that the claims must, in any event, fail because, in my opinion, Mr Peter Rodd was not a servant or agent of Westpac in the relevant sense, whether for the purposes of the Trade Practices Act s 75B or under the general law. 14 Relevant portions of the affidavit of Mr Rodd of 16 June 1997 are as follows: "2. I was first employed by Westpac Banking Corporation (Westpac) in May 1982 and resigned from Westpac in October 1993. Secondment to AGC 3. Between about December 1990 and September 1993 I was seconded by Westpac to Australian Guarantee Corporation Limited (AGC). 4. During the first year of my secondment to AGC (from about December 1990 to mid 1991) I had the title "Manager Credit Control". From about mid 1991 until the end of my secondment in September 1993, I had the title "Senior Manager Credit and Lending". At all times during my secondment to AGC I worked in the Credit Policy and Control division of AGC (the AGC Credit Division). 5. When I first started my secondment at AGC in December 1990, I formally reported to Vince Preston, Chief Manager Credit at AGC. At some time between about March 1991 and May 1991, Vince Preston was replaced by Mr Hugh Spring and from that time I formally reported to Mr Spring. Mr Spring had also been seconded to AGC from Westpac. 6. The system for loan approval at AGC required all loan applications to be assessed by the AGC Credit Division. If the loan application was for an amount which was within the approval limit of the Division, the application would be assessed by a manager in the Division who would either approve or reject it. If the loan application was for an amount which exceeded the approval limit of the Division, the application would be assessed by a manager in the Division who would recommend that it either be approved or rejected and then forward the application (together with his or her recommendation) to the AGC division with authority to finally approve or reject it. During my secondment at AGC, I had authority to vary conditions of existing credit lines and to approve new lines of credit up to a limit of $4 million. 7. All of the loan accounts with which I had an involvement during my secondment were AGC loans. I had no involvement with Westpac loans. 8. During my secondment to AGC, I worked from AGC offices. From December 1990 to about January 1992 I worked at AGC's head office in the city. From January 1992 to the end of my secondment in September 1993 I worked at AGC's office in Parramatta. 9. During the whole of my secondment, I used AGC stationary and letterhead when communicating with customers. … 13. In relation to the allegations made by the Jarretts and the Patersons in these proceedings concerning my involvement with the Endormer account: (a) I deny that I had any contact with anyone at Westpac concerning the Endormer loan account. The only contact I had with anyone who had any connection with Westpac during my secondment to AGC arose out of the fact that during the latter part of my secondment I reported to Hugh Spring who was also on secondment from Westpac to AGC. However, I did not speak to Hugh Spring about the Endormer loan account. From January 1992 I was based in AGC's Parramatta office whereas Hugh Spring was at all times based at AGC's city office. I only reported to Hugh Spring about large credit risks and the Endormer account was, in relative terms, not in that category. (b) …" 15 Mr Rodd did not resile from this evidence in cross-examination, and I accept it. No doubt Mr Spring and Mr Rodd were seconded to AGC by the parent company in order to improve credit control at AGC. It was also true that Mr Rodd's employment contract and related benefits such as seniority and superannuation were with Westpac during the relevant period. However, in my opinion, counsel for Westpac is correct when he submitted that during his period of secondment Mr Rodd was part of the organisation of AGC, subject to the control and direction of AGC, and acted solely for its purposes and on its behalf. He was a line manager within AGC, doing his duty in relation to the transactions of AGC. The only authority cited by either counsel was Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 24, 26-29, 35-37. I agree with counsel for Westpac that it assists his argument.

misleading and deceptive conduct - westpac 16 Paragraphs 32 to 35 of the further amended cross-claim make a direct claim of misleading and deceptive conduct against Westpac. Paragraph 32 is in the following terms: "32. The Cross Claimants charge and the fact is that the said mortgage was procured by the Bank as the result of conduct which was, independently and separate from the allegations referred to above, misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the said Act. PARTICULARS (a) The contravening conduct relied upon was engaged in by Peter Rodd as servant or agent of the Bank in the period about February to July 1993. (b) The contravening conduct consisted of representations made by Peter Rodd particularised in paragraph 29 above." It will be seen that this claim again depends upon Mr Rodd being a servant or agent of the Bank, and accordingly fails for that reason. Further, for the reasons I have outlined earlier, I find that there was no relevant actual loss or damage which flowed from any misleading and deceptive conduct which might have occurred. 17 In any event, there was no relevant misleading and deceptive conduct. I reject the cross-claimant's central contention that the suggestion that Endormer obtain an overdraft from Westpac was designed to advantage AGC at the expense of Endormer and those associated with it, leading to the trickery (and coercion) complained of.

Interference with contractual relations 18 Paragraphs 36 and 37 plead a case of interference with contractual relations on the part of Westpac, which again depends upon Mr Rodd being the servant and agent of Westpac and is rejected for that reason. Further, I reject the substance of the allegations. The 1992 contractual relationship existed, and no case of breach by AGC has been established. I have held to the contrary in the Endormer judgment.

Economic duress 19 Paragraphs 39 and 40 plead a case of economic duress, which, again, depends upon the actions of Mr Rodd as a servant or agent of the Bank, and is rejected for that reason. Further, as I have said, I can see no evidence of damage resulting from any duress which might have taken place. In any event, I reject the substance of the allegation. AGC was bound by the 1992 contractual arrangements, and could not depart from them. It did not threaten or intend to do so. If the suggestion of an overdraft (and what followed from it) had been rejected, AGC would still have been bound. The circumstances that less leeway may have been granted in administering the contract does not involve the kind of illegitimate pressure necessary to establish this allegation (see Schanka v Employment National (Administration) Pty Ltd (2000) 97 FCR 186 and the authorities referred to therein).

Contracts Review Act 20 For the reasons set out in par 48 of the Endormer judgment, the Court does not have jurisdiction to deal with these claims. This is a most unfortunate outcome in view of the procedural history of the matter, but cannot be avoided.

Undue influence - Westpac 21 Paragraph 42 purports to plead what is called undue influence by Westpac. It is plainly not a case of undue influence. If anything, it is another pleading of economic duress with additional particulars. Insofar as the particulars repeat earlier allegations, they have already been dealt with. Insofar as they are new, they apparently relate to the action or inaction of Westpac employees who dealt with the actual transaction. These matters were not dealt with extensively in the submissions, although the point was made that the relevant Westpac employees were not called. I am quite satisfied that Mr Glenn Jarrett had a full understanding of the transaction and its implications. If any coercion was exercised in relation to him, it was by AGC not by the Westpac officers with whom he dealt in relation to the grant of the overdraft and the related mortgage and guarantee transactions. 22 The position in relation to Mrs Jarrett is rather different. She says that she was never given the opportunity to read the documents in detail, or to take the documents away from Westpac to receive independent advice, and it was never suggested to her that she should. She says that she was not at any time informed by the officers of Westpac that an overdraft facility was to be created for the benefit of Endormer, a company with which she had no day-to-day involvement. She says she was not at any time informed by the officers of Westpac that the documents were to provide security including her personal guarantee for an overdraft facility for the benefit of Endormer. There was no significant challenge to this evidence in cross-examination. Counsel for Westpac seeks to explain the absence of the relevant Westpac witnesses who might have denied this evidence by reference to contemporaneous file notes. These file notes may have assisted in accepting the evidence of witnesses if called, but cannot, in my view, be taken to contradict in any significant respect the evidence of Mrs Jarrett. Her evidence does not, however, amount to a case of coercion as pleaded. It is also worth noting that Mrs Jarrett does not give evidence that she did not, in fact, understand that signing the mortgage and guarantee would have the effect of making the Jarrett property collateral security for the overdraft to Endormer. Furthermore, absent the link with Endormer through the guarantee, there is no suggestion of any failure of knowledge, understanding or coercion concerning the mortgage itself. There is no relevant loss or damage.

Section 51AA(1) Trade Practices Act 23 Paragraphs 43 and 44 plead contravention of s 51AA(1) by Westpac, relying upon "matters particularised above". Insofar as this allegation depends upon the actions of AGC officers, including Mr Rodd, as being the actions of Westpac, they are rejected. I should also make clear that, in any event, I do not regard any conduct of any officer of AGC as unconscionable. As I have explained earlier, my finding is that the suggestion that Endormer should obtain an overdraft was not put forward with any intention of advantaging AGC at the expense of Endormer or those connected with Endormer. No conduct which could be described as unconscionable was involved. 24 Insofar as the particulars pick up conduct of the Westpac officers concerned with the negotiation of the overdraft and the company's securities, leaving aside for the moment the position of Mrs Jarrett, no case is established of any unconscionability. Westpac was approached for an overdraft and granted it, taking appropriate security for it. In the events which happened, there was no occasion to utilise the securities obtained to support the overdraft. No complaint can be made about the mortgage itself and no relevant loss or damage as pleaded has been established. I shall deal with the issue of Mrs Jarrett in relation to the next cause of action.

Unconscionable conduct 25 Paragraphs 45 to 48 (inclusive) plead a case of unconscionable conduct against Westpac in relation to Mrs Jarrett based upon the special disability such that there is no reasonable equality between them. The particulars of special disability were as follows: "(a) The Cross Claimants repeat the particulars at paragraphs 29 and 42 above; (b) The transaction was improvident for the Second Cross Claimant; (c) The transaction resulted in the Cross Claimants putting their only substantial asset at risk; and (e) [sic] The Second Cross Claimant was in no way able to make a judgment as to her best interests as she was not in receipt of any independent legal advice nor any independent financial advice concerning the agreement which she allegedly entered." It is not at all clear what the special disability is alleged to be. There was some mention of advanced pregnancy (although not pleaded) in the course of submissions, but Mrs Jarrett disavowed this in her own evidence. I can see that if Westpac had sought to enforce the mortgage for default of payment of monies due under the guarantee of the overdraft, there might have been an arguable case if the evidence of Mrs Jarrett were to be accepted. I can see no such case in relation to the mortgage itself. Mrs Jarrett, in her cross-examination, made it quite plain she understood all that needed to be understood about that transaction. She was in no different position than any other borrower. Furthermore, there is no relevant loss or damage to properly found relief.

Further undue influence 26 Paragraphs 49 to 52 purport to plead a claim of undue influence against Westpac. As the pleading is unusual, I shall set it out: "49. At the time of execution of the mortgage, and the execution of the loan agreement by the First Cross Claimant, there was an antecedent relationship between the First Cross Claimant and the Second Cross Claimant being the relationship of husband and wife. 50. The First Cross Claimant had ascendancy over the Second Cross Claimant in such a manner that her will in this matter was suborned. PARTICULARS The Cross Claimants repeat the particulars at paragraphs 42 and 45. 51. The Bank was sufficiently aware of the situation as to put them on notice that the will of the Second Cross Claimant was suborned by her husband (the first Cross Claimant). PARTICULARS (a) The Bank was aware that the First Cross Claimant had a strong motive to procure the execution of the mortgage and that the mortgage was, in an overall sense, to the benefit of Endormer Pty Ltd; (b) The Bank was or should have been aware that the First Cross Claimant would have some influence over the Second Cross Claimant due to their antecedent relationship; and (c) The Second Cross Claimant received no independent legal or financial advice. 52. The Bank is thus liable for the undue influence of the First Cross Claimant." 27 This claim was not elucidated during submissions. The evidence from Mr and Mrs Jarrett falls far short of establishing a claim of undue influence. This makes it unnecessary to decide whether the facts pleaded against the Bank would or could involve it in any undue influence by Mr Jarrett. In the event, whatever may have been said about the guarantee, I cannot see any basis for attacking the mortgage on this footing. There is also no relevant loss or damage in relation to which relief should be granted.

conclusion 28 I have rejected each head of cross-claim and this effectively removes any defence to the proceedings. An order will be made for possession and for recovery of the amount claimed, together with an appropriate amount for interest. I will stand the matter over for a short period to enable counsel for Westpac to bring in short minutes of order. At that time I will hear any argument as to costs and any other consequential matter, including any issue that I have overlooked. The Jarretts can consider their position in relation to the Contracts Review Act in the meantime. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate: Dated: 21 November 2000 Counsel for the Applicant: TGR Parker

Solicitor for the Applicant: Allen Allen & Hemsley

Date of Hearing: 6-10, 13, 15 September 1999, 27 September-1 October, 11-15, 19, 22, 25, 29 October 1999, 1-4, 24-26 November 1999, 1-3, 13-17 March 2000