Solicitors:
Henry Davis York - Plaintiff
T. Barber, Self-Represented - Defendant
File Number(s): 2014/338425
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EX TEMPORE Judgment
HIS HONOUR: The plaintiff, Westpac Banking Corporation (the Bank), sues the defendant, Mr Tony Barber, for an admitted debt of $1,702,552.50 as at 9 October 2015. The total is comprised of:
1. $1,544,450.08, being the balance due, plus interest, borrowed by him from the Bank under a loan agreement entered into on 10 January 2011, and by which Mr Barber borrowed $2.9 million, which money he used to refinance a loan with another borrower, Australia Secured Lending Pty Ltd (Credit Connect), in respect of which loan he was then in default; plus
2. $158,102.42 owing by him on his cheque account.
The amount owing takes into account the proceeds of sale received by the Bank as a result of the sale of the property situated at Bernera Road and Yarrunga Street, Prestons (the Property) mortgaged by Mr Barber to the Bank as security for the loan. The Property was sold and the settlement of that sale took place on 1 August 2014 after the Bank had appointed Mr John Melluish and Mr Ryan Eagle of Ferrier Hodgson to assist the Bank as mortgagee in possession with respect to the sale of the Property.
Mr Barber is a solicitor of this Court. He has been in general practice for some years. His areas of practice include property law, commercial and litigation. None of this is remarkable in its own right. Three things, however, are remarkable, given that he is a lawyer.
The first is the nature of his defence. It is that his agent, Mr Sakhr El Akkary, without Mr Barber's knowledge or participation, passed on to the Bank fraudulent and false information in support of his loan application, which information induced the Bank to lend him the money, with the consequence (he says) that he should not be held liable to pay it back even though he has had the full benefit of it. The most important aspect of this information was Mr Barber's annual income which satisfied the Bank as to his ability to service the loan.
The second remarkable thing is that he now admits (based on documents which recently came to light) that he himself deliberately provided to the Bank information concerning his annual income which he knew to be false (and which, as it happens, strikingly resembles the information he says Mr El Akkary passed onto the Bank without his knowledge or participation).
The third remarkable thing is that until close to the end of the hearing, when he abandoned them, Mr Barber showed no restraint in making claims of dishonesty on the part of the Bank, which it was obvious, and should have been obvious throughout, had no proper foundation. He made these allegations without appreciating the ethical considerations involved in so doing. His initial position was that a bank officer, Mr Paul Norton, was in cahoots with Mr El Akkary and was a party to the fraud on the Bank (and on Mr Barber, for that matter).
In a loan application dated 28 September 2010, purporting to bear his signature (which he says is a forgery) and apparently forwarded to the Bank by Mr El Akkary on 29 September 2010, Mr Barber's gross annual income is stated to be $494,000. This was false. His income was of the order of $30,000 per annum, so he says.
The Bank was provided with copies of printouts, supposedly emanating from the Australian Taxation Office Tax Agent Portal (the Portal), on their face of Mr Barber's account. Mr Barber says that what was provided was doctored. The Bank took from the documents that his tax affairs were in order, although this was not the case, he says, based even on the real information on the Portal.
The Bank was provided with copies of bank statements of an account purportedly operated by Mr Barber with National Australia Bank. Mr Barber says that these too were doctored. They were actually bank account statements of a company associated with Mr El Akkary's family on which the account holder's name had been blanked out and Mr Barber's name inserted. The Bank took from this that there had been no events of dishonour in the conduct of the account of Mr Barber. Mr Barber does not suggest that there had been any act of dishonour in his part in his banking conduct except that he was in default of the Credit Connect loan.
The Bank was also provided with a letter dated 8 December 2010 on the letterhead of a company called Viscona Pty Ltd (Viscona), building services engineers, purportedly signed by its managing director Mr Antoine Farah, saying that a debt of $800,000 between Viscona and Mr Barber had been settled on 29 November 2010 by transfer of an overseas property from Mr Barber to Viscona. There had been an earlier letter showing that Mr Barber had owed this money but that he was not in default. Mr Barber says that the later Viscona letter too was a forged concoction. This did not feature in Mr Barber's final submissions.
Mr Barber's initial loan application was refused by the Bank on about 2 November 2010 for reasons related to the value of the Property. The Bank had obtained a valuation of the Property from Colliers International Australia (Colliers) on 12 November 2010 at $4.8 million. A Bank valuer had assessed the property on an en globo (or undeveloped) basis in respect of which the Bank's loan to value ratio was 35% as opposed to 65% which applied to developed land. The application did not meet this more stringent ratio. However, another bank officer, Mr Chalmers, considered that because the Property was generating rental income, the less stringent ratio should apply.
By 16 December 2010, the Bank had been informed that the Viscona loan had been settled. Mr Norton recommended approval of a loan of $2.9 million. There is an internal memorandum prepared by Mr Norton in December 2010 recommending reconsideration of the application which shows that the Bank took into account in approving the loan that Mr Barber was a practising solicitor whose fee income was $595,000, whose expenses were $101 (meaning $101,000) and whose Net Profit was $494,000. The loan was substantial. The monthly interest payments were about $20,000. Mr Barber would have needed gross income in the order of the amount represented to the Bank to service it. The Bank placed significant importance on his income.
On 20 December 2010, the Bank approved the loan. On 3 January 2011, Mr Norton advised Mr Barber of this. On 10 January 2011, he visited Mr Barber at his home and went through the loan and security documents, which he then witnessed Mr Barber execute.
Settlement of the refinance and initial draw down took place on 31 January 2011 by way of a temporary overdraft facility in the amount of $2,638,851.23 and formal draw down took place on 15 February 2011.
Mr Barber accepted that if I found that the false information as to his income emanated from him, that was the end of his case. He also accepted that if the Bank did not know that the information upon which it relied was false, that too was the end of his case. His case fails for both reasons. Firstly, I am satisfied that the false information as to his earnings emanated from Mr Barber. Secondly, he no longer asserts that the Bank had any inkling that it was false, or participated in dishonest behaviour.
It was apparently a requirement of the Bank that Mr Barber take out life insurance to cover the amount of the loan. To this end, he met with Mr Dean Fuchs, an Executive Business Financial Planner with the Bank. On 7 January 2011, Mr Fuchs provided Mr Barber with a documented Statement of Advice which contained a section entitled "Cash Flow Source" and showed Mr Barber's net income as $494,000 derived from income of $595,000 inclusive of rental income of $120,000 and after expenses of $101,000. The Statement of Advice contained a section entitled "Your Acceptance of the Advice" in which Mr Barber authorised the planner to implement the advice. Under Mr Barber's signature, he acknowledged that the Statement of Advice was an accurate reflection of their discussions and that it contained information that accurately summarised his current situation.
On 12 January 2011, Mr Barber signed an application form to the Bank for the issue of an insurance policy. It contained a declaration that the statements made and the information contained in it were true and correct. It stated that his current annual income after deducting business expenses but before tax was $495,000. It provided detail in accordance with the information in the Statement of Advice from Mr Fuchs (except that the expenses are $100,000 less). Mr Barber accepted that when this information was provided it was, to his knowledge, false. The figure he signed for is almost exactly the same figure in the loan application for which he says Mr El Akkary was solely responsible.
It beggars belief, and I reject Mr Barber's evidence to the contrary as being deliberately false, that he played no part in providing the gross annual income figure in the original loan application, when he provided effectively the same information to Mr Fuchs and certified it under his signature to obtain insurance. On his own admission, he is dishonest.
Added to this, Mr Norton, who I considered to be an entirely truthful witness, gave evidence that in around October 2010 he attended a meeting with Mr Barber and Mr El Akkary at Mr Barber's house. Mr Barber's office is at the back of the house. He says that they discussed Mr Barber's initial loan application which was for $3.4 million, comprising $2.3 million to refinance, $300,000 to finance the cost of seeking development approval for the property, and $800,000 owed to Viscona.
Mr Norton says, and I accept, that they discussed in detail the loan and the loan application and they discussed Mr Barber's income stream including the nature of his legal practice. He says that Mr Barber advised him that his annual business income was approximately $465,000.
I note that in the application for insurance the section which shows Mr Barber's income contains two columns. Both are headed "Year Ended 30/06/10". One shows total net income of $495,000 and the other $465,000. Mr Barber accepted (as is clearly the case) that the $465,000 figure relates to the year ended 30 June 2009. This is the same figure which, according to Mr Norton, Mr Barber gave him.
Mr Norton gave evidence that the Portal information was used only to confirm that there were no tax arrears or penalties and that the National Australia Bank Account material was used only to confirm that there had been no "dishonour". Also, by the time the loan was approved there was information that the loan from Viscona had been repaid.
Mr El Akkary (who was called by Mr Barber under subpoena) gave evidence that all the information provided to the Bank emanated from Mr Barber himself. He denied any involvement in providing information known to be false, fraudulent or forged. He denied that Mr Norton had any involvement with respect to the provision of information which now appears to be inaccurate. Mr El Akkary was not an impressive witness but nothing put to him remotely establishes that if he acted to concoct information to assist Mr Barber, he did it on a frolic of his own.
Mr Barber was at the time under significant financial pressure. He was in default of his loan from Credit Connect. On 26 July 2010, Credit Connect had commenced proceedings in this Court claiming possession of the Property. That loan fell due on 13 January 2010. By July 2010, Mr Barber had interest arrears of $137,783.56.
Mr Barber is not an unsophisticated man. He was undoubtedly aware that the Bank needed information which would establish his ability to meet interest payments under the loan. Revealing his true annual income would have been the death knell of his application, one might have thought. He was also undoubtedly aware that the existence of the Viscona loan may have adversely affected his prospects of the Bank lending him the money.
It is not necessary to make a positive finding that he doctored the Portal information, the National Australia Bank accounts, or brought into existence the Viscona letter. I am, however, far from satisfied that he did not do those things. I am satisfied that the Bank played no part in them. Either way, he borrowed the money and directly received the benefit of it by repaying an undisputed debt to Credit Connect. Mr Barber has failed to establish any defence to the Bank's claim.
Mr Barber brings a cross-claim alleging breach by the Bank its obligations to him in the exercise of the power of sale as mortgagee of the Property. A mortgagee has a duty to act in good faith without wilfully or recklessly sacrificing the interests of the mortgagor. The sale in disregard of the interests of the mortgagor, not caring whether a proper price is obtained, omitting to take obvious precautions to ensure a fair price, or being absolutely careless whether a fair price is obtained or not, is reckless and discloses a lack of good faith. The principal remedy which a mortgagor has, where a mortgagee breaches these duties, is an equitable set off against the debt owed to the mortgagee of the amount of the undervalue. If the mortgagee is entitled to have a further credit brought into account on taking of the mortgagee accounts, the mortgagor is entitled to get the benefit of the credit by relying on equitable set off against the mortgagee's demand.
I observe that (although it is not directly relevant here) that the ambit of the duties of a mortgagee in possession in the exercise of a power of sale of property of a corporation is affected, and to some extent enlarged, by s 420A(1) of the Corporations Act 2001 (Cth), which provides:
(1) In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a) if, when it is sold, it has a market value - not less than that market value; or
(b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
The insuperable difficulty facing Mr Barber's cross-claim is that there is no admissible evidence which establishes the market value at the date that the Property was sold or the sale was settled. Mr Barber sought to rely on a Registrar-General's Notice of Valuation, the admission of which was objected to by the Bank, and which objection I upheld. The document is a hearsay document and does not establish in any admissible form the market value of the Property as at the date of the sale.
Mr Barber also sought to rely on documents which indicate that Colliers received an offer from an undisclosed purchaser for the Property in May 2013 for an amount of $5.75 million. This does not establish market value. The identity of the offeror is not established. The ability of the offeror to meet such an offer is not established. The so-called offer, which is reflected in some email material, included a due diligence period for 30 days. By letter dated 21 May 2013, Mr Melluish, as agent for the bank in possession, asked Mr Barber for further information to enable them to consider the so‑called offer. That information was never forthcoming.
The consequence is that Mr Barber has failed to establish that the price of $2.7 million received by the bank did not reflect market value. This means that Mr Barber's cross-claim must fail. It is accordingly not necessary to determine whether or not the Bank breached any obligations to Mr Barber in the exercise of the power of sale. The result is that the Bank is entitled to a verdict against Mr Barber in the amount claimed.
The Bank seeks indemnity costs. It is entitled to them contractually by reason of the loan conditions, which are in evidence. More than that, Mr Barber does not contest the plaintiff's entitlement to indemnity costs. Even if Mr Barber did contest, in my opinion, this is an appropriate case for the award of indemnity costs given the unfounded allegations of dishonesty which Mr Barber made against the Bank and which the Bank had to meet.
In these circumstances, I make the orders which are in the Short Minutes of Order which I have initialled, dated today's date, and placed with the papers.
I propose to refer the papers to the Law Society.
The exhibits are to be retained for a period of 28 days and thereafter they may be returned.
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Decision last updated: 29 October 2015