Westpac Banking Corporation v Jarrett - [2000] FCA 1675 - FCA 2000 case summary — Zoe

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Westpac Banking Corporation v Jarrett

[2000] FCA 1675

Federal Court of Australia|2000-11-21|Before: Gyles J

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Court

Federal Court of Australia

Decision date

2000-11-21

Before

Gyles J

Source

Original judgment source is linked above.

Judgment (16 paragraphs)

[1]

REASONS FOR JUDGMENT 1 The applicant, Westpac Banking Corporation ("Westpac") is the registered first mortgagee of the property known as 8 Bataan Place, Kings Park ("the Jarrett property"), owned by the first and second respondents and cross-claimants, Glenn Robert Jarrett and Deborah Allison Jarrett. Westpac claims that the Jarretts are in default in their obligation to repay monies due under the mortgage, and makes application for possession of the mortgaged property and for payment of the outstanding balance of monies due plus interest. It was made clear in final submissions that it is accepted that there is no defence, as such, to the claims for monies due. The Jarretts, however, cross-claim for relief of various kinds pursuant to the Contracts Review Act 1980 (NSW), the Trade Practices Act 1974 (Cth) and the general law. The manner in which the cross-claim is pleaded involved some issues which are linked with issues arising in the related proceedings between Glenn Robert Jarrett and others and Australian Guarantee Corporation Limited and Peter James Hedge (No. NG 3244 of 1995) (Endormer Pty Ltd v Australian Guarantee Corporation Ltd [2000] FCA 1669 - "the Endormer proceedings") so that the matters were heard, to an extent, together, and the decision in the Endormer proceedings will be delivered immediately prior to this decision. The same counsel represented the respondents here as represented the applicants in the Endormer proceedings. This judgment is framed upon the basis that the judgment in the Endormer proceedings is to be read with it. This relieves me of the necessity of setting out in this judgment the history of the commercial dealings between Australian Guarantee Corporation ("AGC"), on the one hand, and Endormer Pty Limited (In Liquidation) ("Endormer") and those associated with it, on the other hand, which constitute the mosaic of facts of which the particular mortgage transaction in issue here forms a part.

[2]

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.

[3]

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.

[4]

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.

[9]

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.

Westpac Banking Corporation v Jarrett

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