Westpac Banking Corporation v Paterson - [2001] FCA 556 - FCA 2001 case summary — Zoe

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Westpac Banking Corporation v Paterson

[2001] FCA 556

Federal Court of Australia|2001-05-14|Before: O'Connor J

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Source facts

Court

Federal Court of Australia

Decision date

2001-05-14

Before

O'Connor J

Source

Original judgment source is linked above.

Judgment (57 paragraphs)

[1]

REASONS FOR JUDGMENT 1 These proceedings arose in response to a Notice of Motion filed in Court by the then Counsel acting for Mrs Jonnie Maclean Stirling Paterson, the second respondent, that these proceedings, in so far as they concerned the interests of Mrs Paterson be adjourned to date to be fixed. On that day an order was made that Federal Court proceedings NG 367 of 1996 in so far as they concerned the interests of Mrs Jonnie Paterson, the second respondent, be adjourned for hearing on 30 October and 1 November 1998. David Colin Paterson 2 On 25 May 1998, the first day of hearing of Federal Court proceedings NG 367 of 1996, Mr David Paterson, the first respondent, failed to appear. Correspondence was tendered to the Court that Mr Paterson would be unable to attend Court due to a medical illness. Mr Paterson was not present at any of the hearing dates set down for his case against the applicant, Westpac Banking Corporation ("Westpac"), and he was not represented for the duration of the proceedings against him. 3 As a consequence judgment was entered for Westpac against Mr Paterson and the cross claim brought by him was dismissed. The Court also made a declaration as between Westpac and Mr Paterson that Westpac was entitled to possession of the premises the subject of the mortgage to the extent of Mr Paterson's interest in those premises

[2]

The Transaction 4 These proceedings originally involved an application by Westpac for the payment of monies and possession of property at North Rocks ("the North Rocks property") in the name of David Colin and Jonnie Maclean Stirling Paterson. Mr David Paterson and Mrs Jonnie Paterson are ex-husband and wife. Westpac claimed that the respondents were in default of a mortgage and loan agreement made as against the North Rocks property and that Westpac was entitled to the relief sought, namely the payment of money and possession of the property. 5 Cross claims were lodged by the respondents on the ground that the mortgage and loan agreement were obtained in circumstances that were unjust and therefore should be set aside as against them. Further cross claims were subsequently filed by the respondents claiming that the mortgages and loan agreements were taken out as a consequence of representations made by a Westpac employee on secondment to AGC (a wholly-owned subsidiary of Westpac).

[3]

History of the Matter 6 On 17 March 1995 Westpac lodged with the Supreme Court of New South Wales a Statement of Claim against David Colin Paterson and Jonnie Maclean Stirling Paterson (Supreme Court Proceedings No 10507 of 1995). 7 In those proceedings Westpac claimed that Mr David Paterson and Mrs Jonnie Paterson were and continued to be in default of a mortgage and loan agreement made in their favour against a property at 22 Barclay Road, North Rocks, New South Wales. 8 On 10 November 1994 Westpac had served on each of Mr David Paterson and Mrs Jonnie Paterson Notices under the Real Property Act 1900 (NSW) in respect of their default under the mortgage and loan agreement. Mr Paterson and Mrs Jonnie Paterson failed to comply with the demands contained in those Notices namely the payment of $6,300.00 within one month of service. 9 On or about 9 February 1995 Westpac pursuant to the mortgage and loan agreement served on each of Mr David Paterson and Mrs Jonnie Paterson a Notice demanding payment of the whole of the monies outstanding under Account No. 72289, namely $183,100.69 within six clear business days after service. Mr David Paterson and Mrs Jonnie Paterson did not comply with these Notices. 10 On or about 10 February 1995, Westpac despatched to each of Mr David Paterson and Mrs Jonnie Paterson a letter seeking delivery up of vacant possession of the North Rocks property. 11 As at the date of lodgment of the Statement of Claim in this matter the total amount owing to Westpac by Mr David Paterson and Mrs Jonnie Paterson was $186,687.18 being the principal plus interest. 12 Westpac sought orders for possession of the North Rocks property owned by Mr David Paterson and Mrs Jonnie Paterson; the payment of $186.687.18 being monies owing to Westpac in default of the mortgage and loan agreement; costs and interest. None of these matters were contested by the parties. Subsequently Westpac withdrew its application for orders of possession of the North Rocks property. 13 On 21 April 1995 however Mr David Paterson and Mrs Jonnie Paterson filed a Defence and Cross Claim in the proceedings claiming: - that Mrs Jonnie Paterson, his former wife, was under a special disability in dealing with Mr Paterson such that there was no reasonable degree of equality between them. It was claimed that the transaction gave no benefit to Mrs Jonnie Paterson and was improvident for her; the transaction did not result in the forwarding of any money to her personally or to any other party for her benefit; the transaction resulted in her putting her only substantial asset, her home, at great risk and she was not able to make a judgment as to her bests interests as she was not in receipt of independent legal advice when she entered into the legal obligations;

[10]

Adjournment Applications 18 On 1 May 1998 a Notice of Motion was lodged by the respondents' solicitors to have the hearing dates in the Endormer and Westpac proceedings which were jointed proceedings vacated on the basis that the Mr David Paterson and Mrs Jonnie Paterson required "more time" to finalise their evidence. An order was made adjourning the commencement of the hearing of the proceedings until 6 May 1998. 19 On 6 May 1998 Mr Glenn Jarrett purporting to represent Mr David Paterson and Mrs Jonnie Paterson as well as himself advised the Court that their legal representation had been withdrawn and sought a further adjournment of the hearing until such time as new lawyers could be retained and fully briefed on the proceedings. Orders were made further adjourning the proceedings to 11 May 1998. 20 On 11 May 1998, Mr David Paterson and Mrs Jonnie Paterson filed further Notices of Motion in these proceedings seeking another adjournment of the fixed hearing dates again based on their lack of success in retaining legal representation. Mr David Paterson and Mrs Jonnie Paterson were represented by counsel in relation to this adjournment application. On 12 May 1998, orders were made that the Westpac proceedings be adjourned to 25 May 1998 for hearing. The Court advised counsel for Mr David Paterson and Mrs Jonnie Paterson that should they be unsuccessful in obtaining legal representation by that date they would be required to attend court in person to take carriage of the matter. 21 On 25 May 1998, Mr Paterson did not appear and counsel appeared on behalf of Mrs Jonnie Paterson. The Westpac proceedings in relation to Mr David Paterson were then concluded and the proceedings in respect of Mrs Jonnie Paterson were adjourned to 30 November 1998 for hearing. 22 At the conclusion of two days of hearing on 1 December 1998 the Court made orders that the parties provide written submissions. The Court subsequently sought clarification on matters raised in the written submissions and relisted this matter for further submissions on 26 February 1999. 23 On 26 February 1999 Counsel for Mrs Jonnie Paterson filed a Notice of Motion seeking orders that Mrs Jonnie Paterson be allowed to re-open her case to tender further evidence and that these proceedings be adjourned until the delivery of a judgment of a Full Court of this Court in a related matter (ie. Jarrett v Westpac Banking Corporation - NG 829 of 1998). 24 The Court granted the application. 25 The Full Court judgment was delivered on 16 April 1999 and these proceedings were relisted for hearing on 14 May 1999. At that hearing Mrs Jonnie Paterson's motion was dismissed and the Court subsequently heard the parties on their written submissions in the substantive proceedings.

[15]

the suggestion from Edwin Jarrett that Westpac should refinance the home loans is recorded in the bank's diary note dated 3 June 1993 and the accuracy of that note has not been challenged. 30 The home loans were refinanced. In the case of the Patersons, this was documented as a home loan from Westpac to David and Tracey Paterson, secured by a mortgage from David and Jonnie Paterson over the North Rocks property. 31 This transaction, so far as Jonnie Paterson was concerned was a "third party" one. What was additionally unusual about the transaction (identified by the bank officers Borg and Joseph) was that they were surprised that an ex-wife would be on such good terms with her ex-husband as to provide a third party security for him. Westpac submits that this did not mean that the transaction itself was suspect because it contained nothing more, and was no more financially disadvantageous, than any other third party security. Neither did the transaction have, on its face, anything to do with AGC (a wholly owned subsidiary of Westpac) which was regarded by the officers as "just another financier". 32 Westpac, however, concedes in submissions that the home loan transaction was seen as a prerequisite to Westpac granting an overdraft to Endormer Pty Ltd - a business having no connection to Jonnie Paterson. However Westpac explans that that was because the overdraft was to be guaranteed by Edwin Jarrett and he would not give that guarantee until the properties had been refinanced with Westpac. Westpac submits that the home loan transaction and the overdraft were linked only in the sense that the home loan transaction was occasioned by the overdraft; the home loan transaction remained a "perfectly valid stand-alone transaction". 33 At the time of the home loan transaction, the North Rocks property was encumbered by a mortgage in favour of Barclays Bank. The mortgage secured a liability of approximately $175,000 from David and Jonnie Paterson to Barclays. The interest (and all other outgoings on the property) were being paid by David Paterson alone. This arrangement had been created pursuant to Family Law proceedings. 34 The liability to Barclays dated back to 1991, when additional funds had been borrowed on the security of the property. Prior to the Barclays transaction, the liability secured on the property had been about $10,000 to $15,000. The Barclays transaction had increased that liability substantially; the additional funds borrowed had, according to the evidence of David Paterson, been invested in Endormer Pty Ltd. Jonnie Paterson had received independent legal advice before entering into this transaction with Barclays, warning her that if the business "went bad" she would lose her share in the property. The evidence before the Court contained a solicitor file note to that effect. 35 Westpac submits that in these circumstances, the assumptions underlying the respondents' case that Westpac and AGC were acting in concert and that any interest Jonnie Paterson had in the transaction was through Endormer (her ex-husband's business), creating a duty to explain the ramifications of Endormer's financial arrangements with AGC at the time of executing the loan documents with Westpac are all misconceived.

[30]

Does the Court Have Jurisdiction to Determine These Claims? 44 In its reasons for decision on the appeal from Westpac Banking Corporation v Paterson [1999] FCA 1254, the Full Court in Westpac Banking Corporation v Paterson [1999] FCA 1609 at paragraph 17 raised a possible qualification to Federal Court's jurisdiction to determine these proceedings when they said: "The possible qualification arises from the decision of the High Court in Smith v Smith (1986) 161 CLR 217. It may follow from that case that the accrued jurisdiction of the Federal Court does not extend to a claim under the Contracts Review Act, since the relevant powers are conferred by that Act on 'the Court', (see s 7(1)), an expression that is defined to mean the Supreme Court of New South Wales, the District Court of New South Wales or a Local Court (s 4(1)). See also The Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572 (Beaumont J). Since the significance of Smith v Smith was not addressed in argument, we merely draw attention to the case." 45 In the light of this, Westpac submits that this Court does not have jurisdiction to entertain claims for relief under the Contracts Review Act made by the respondent in her cross-claim because the Contracts Review Act confers power on particular courts, namely, the State Supreme Court, the District Court and the Local Court (s 4), to make orders varying or discharging obligations under existing contracts. 46 The jurisdiction under the Contracts Review Act Westpac says is indistinguishable from the jurisdiction conferred on the Industrial Court of New South Wales which was considered in Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572. Rochester applied the High Court decision in Smith v Smith (1986) 161 CLR 217. 47 The judgments of Mason, Brennan, Deane JJ in Smith v Smith support the proposition that the conferral of State power in question on a particular State court prevents a claim to the exercise of that power from falling within the accrued Federal jurisdiction, irrespective of any factual overlap between the State and Federal claims (at 251). Westpac therefore says it is immaterial whether there is a factual overlap or linkage between the Federal claims and the Contracts Review Act claim and any claim under the Contracts Review Act cannot be determined by this Court. However, what remains of the proceedings can and should be determined. 48 The respondent submits that the Full Court's comments at paragraph 17 of Westpac Banking Corporation v Paterson are not binding on this Court and on the filing of the Amended Cross-Claim the Federal Court assumed jurisdiction over "the litigious or justiciable controversy between parties of which the federal claim or cause of action forms part" (see Re Wakim; Ex parte McNally (1999) 163 ALR 270 at 294 citing Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261 at 290, per Mason, Brennan and Deane JJ. 49 The respondent further submits that the Contracts Review Act issues are so related to Westpac's claim for possession that the determination of these issues is essential to the determination of Westpac's claims and in addition Westpac is estopped from raising this jurisdictional bar "at this late stage" because it "unexplainedly failed to raise" the issues before the Full Court. 50 The respondent argued that it would be impractical for the Court to make an order when it would remain open for the Supreme Court to make a contradictory order if an application were made under the Contracts Review Act. 51 In such circumstances the respondent argued that the court should make no order even if there were power to do so. Westpac however, pointing out the delay in the resolution of the claims, urged the Court if discretion to do so were available to deal with the claims not dependent on the Contracts Review Act. 52 It is not necessary for the Court in this case to consider the power of this Court to entertain claims in the accrued jurisdiction arising under the Contracts Review Act because of the conclusions reached in relation to the issue of unconscionable conduct on the part of Westpac. However, I do not consider there is a bar to the determination of issues which do not arise under that Act, either because of their relation to the Contracts Review Act claim or by estoppel. As a discretionary matter, I agree with the submission made by Westpac that finalisation of this matter is desirable.

[43]

(ii) if she misunderstands the nature or effect of the transaction. In such a situation, it is not necessary for the lender to have specific notice of the misunderstanding; it is enough that the misunderstanding exists in fact and the lender knows that the surety is a married woman. This is because "the lender is taken to have understood that, as a wife, the surety may repose trust and confidence in her husband and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife". 66 The majority emphasised that, so far from being inconsistent with the general principle applied in Amadio, the principles applicable to married women were a particular application of those principles. 67 Garcia therefore extends the principles applied in Amadio in the following way. In the usual case, it is necessary to fix the lender with notice of the misrepresentation or unconscionable transaction affecting the surety. Without such specific notice, no relief will be granted. But where the surety is a married woman, no such specific notice is necessary it is enough that the lender knows that the surety is a married woman and the lender does not explain the transaction or ensure that it is independently explained to her. 68 Westpac argues that this case does not fall within the Garcia particular circumstances. Jonnie Paterson was not a "wife" nor was she a volunteer. 69 Westpac submits that the respondent's submissions present the case for this ex-wife as if it fell within the usual run of cases in this regard where a creditor's financial position is improved and the surety's worsened. But the true position was quite different. At the time she dealt with Westpac, Jonnie Paterson was already under obligations as a surety, to Barclays. Those obligations were already secured on her share of the property. All Westpac did was to refinance the obligations. In substance, there was no change in Jonnie Paterson's financial position and no additional encumbrance of her share of the property. Although as a result of the home loan transaction, Jonnie Paterson came under a contingent liability to Westpac to repay the loan to David and Tracey Paterson; in return she received the benefit of the discharge of an equivalent contingent liability to Barclays Bank. It follows Westpac argues that, unusually for this type of case, Jonnie Paterson was not a volunteer.

[46]

(b) although the officers of Westpac relied upon David Paterson to set up the meeting with Jonnie Paterson, they gave her a full explanation of the transaction before she signed: contrast Amadio, where the bank officer approached the sureties in their home and made no attempt to explain the nature of the transaction: see Deane J. at 476. 73 The evidence Westpac says supports a conclusion that Jonnie Paterson understood the nature of the transaction she was undertaking and the risks associated with it. She had not been deterred by the independent advice she received at the time of the Barclays transaction. She also received independent advice in connection with some documents she signed to secure David Paterson's liabilities to AGC in March 1994. The evidence suggests that she made the decision to enter into the transaction with Westpac with a clear appreciation of the risks she was undertaking. 74 It must follow, Westpac submits, that the evidence in this case falls far short of demonstrating that, in relation to the transaction with Westpac, Jonnie Paterson's ability to make a judgment as to her own best interests was seriously impaired. 75 Second, the Court should not find that Westpac took any unconscientious advantage of Jonnie Paterson's position. 76 If Jonnie Paterson was labouring under any disability as a result of her lack of education and experience or desire to go home to her daughter, there is no evidence that the Westpac officers were aware of it. The supposed disabilities were not even put to the Westpac officers in cross- examination. 77 There was no unseemly haste or "corner cutting" by the Westpac officers. They both gave evidence that because of the surprising nature of the transaction, they took special care to explain it. That evidence was not challenged. 78 It is true that the explanation did not include aspects of the relationship between Endormer and AGC, such as details of the floor plan agreement. But of course the Westpac officers would not have known about those details, and would have been under no obligation to explain them to Jonnie Paterson even if they had known about them, because it was submitted they were irrelevant to the liabilities she assumed under the home loan transaction. 79 As part of the explanation, the Westpac officers recommended to Jonnie Paterson that she obtain independent legal advice. She declined the recommendation, saying that she had already obtained such advice in connection with the Barclays transaction. The Westpac officers had no reason to second-guess that decision. 80 It follows that there is no basis for a claim of unconscionable conduct, based on Amadio principles. 81 This result is not affected by the principle in Yerkey v Jones (1939) 63 CLR 649, as restated in Garcia, for the following reasons.

[50]

FINDINGS 85 The Court finds that the bank's officers Mr Borg and Ms Joseph were aware that Jonnie and David Paterson were ex-spouses. They remarked that at the time of the mortgage transaction they thought this arrangement unusual. The bank made contact with David Paterson to arrange an appointment with Jonnie Paterson for the documents to be signed; David Paterson brought Jonnie Paterson to the appointment and remained in the room with her during the signing. The bank made no independent contact with Jonnie Paterson. They did not provide her with a copy of the relevant documents before the appointed meeting to sign them. 86 The Court finds that the bank, on notice of the existence of an ambiguous and unusual relationship between the surety and beneficiary of the transaction, failed to assess the independence of the surety and to ensure to a reasonable degree that the surety was acting independently. There was no commercial reason for the bank to avoid this issue and it was unreasonable to do so. 87 The Court accepts Jonnie Paterson's evidence that she was not aware of the consequences of the transaction and finds that it is inaccurate to characterise the signing meeting as simply a mortgage transaction because such a characterisation ignores the context in which the transaction was taking place; the refinancing of the home loan was part of a larger commercial scheme. The Court finds that Jonnie Paterson was unable to assess the business risks inherent in her signing as she was not informed as to the reasons for the refinancing transaction. The Court finds that she misunderstood the nature of the transaction, in particular the risks involved. 88 Once the bank realised that the transaction was unusual (and it is conceded that this is so), they were, in the Court's view bound to ensure that Jonnie Paterson was dealt with at arms length from her ex-husband. The refinancing was of no benefit to the respondent. She did in fact, misunderstand the transaction by not being aware of its context or consequences. The bank was aware of her relationship with David Paterson and they were aware that they had no independent dealings with her. 89 She was in the Court's view in a worse situation than if she had been still married to David Paterson. She demonstrated her "trust and confidence" in him by allowing him to deal with the bank in all respects in relation to the transaction. The bank even permitted him to be in the room while the officers gave an explanation of the documents and process. At no stage, and I so find, did the bank ever deal with Jonnie Paterson independently. They could not, in such circumstances, be said to discharge their obligation to ensure that she was a free and informed agent. This failure establishes the basis for a finding that Westpac's conduct in relation to Jonnie Paterson was unconscionable and the transaction upon which this application to the Court is made should be set aside ab initio by reason of that conduct. I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor.

Westpac Banking Corporation v Paterson

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