Westpac v Bagshaw & Anor

Westpac v Bagshaw & Anor - [2000] NSWSC 650 - NSWSC 2000 case summary — Zoe

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7 JULY 2000 11751/94 - WESTPAC BANKING CORPORATION v Leith Gordon BAGSHAW & ANOR JUDGMENT 1 HIS HONOUR: The plaintiff is Westpac Banking Corporation ("Westpac") which, in 1982, by the Bank of New South Wales (Change of Name) Act, 1982, changed its name from Bank of New South Wales. Westpac sues under a mortgage over 16 Woodridge Place, Baulkham Hills, the matrimonial home of the defendants, Leith Gordon Bagshaw and his wife, Judith Hampton Bagshaw. Prior to the institution of proceedings, Mr Bagshaw was declared bankrupt. Mr Bagshaw has played little part in the proceedings, not only because his interest in the land and his monetary obligations to Westpac have become the responsibility of the trustee in bankruptcy, but also because Mr Bagshaw has failed to purge his contempt by complying with orders made by Justice Dowd. On 11 April 2000, Justice Dowd ordered that, if Mr Bagshaw failed to comply by 19 April 2000, which he did, he was not permitted to rely upon his defence or cross-claim at the hearing of these proceedings. The trustee in bankruptcy was given notice of the proceedings but did not wish to be involved. 2 The matter has thus proceeded on Westpac's claim for possession of the property and for monetary orders against Mrs Bagshaw. Mr Bagshaw submitted, in substance, that Westpac could not proceed with its claim for possession against him as it could not establish that he owed money to Westpac. Mr Bagshaw submitted that that issue would only be established when and if Westpac lodged a claim and the trustee in bankruptcy admitted the claim. In my opinion, however, Westpac is not precluded from pursuing its claim for possession. Westpac must show that there has been a default; but its claim is not a monetary claim. 3 At the hearing, Mr S A Gregory of counsel appeared for Westpac and Mr G Stevens of counsel appeared for Mrs Bagshaw. Mr Bagshaw was called to give some short evidence and, being an occupier of the land, he was invited to make any submission he wished to make in his capacity as an occupier who had been given notice in accordance with Pt 7 r 8 of the Supreme Court Rules. Mr Bagshaw chose to address only on the issue of the impact of the bankruptcy. 4 Most of the hearing was taken up with the points raised in Mrs Bagshaw's amended defence and cross-claim. In her defence, Mrs Bagshaw, inter alia, alleged that she executed the subject mortgage only after Mr Bagshaw had represented to her that the purpose of the mortgage was to secure a borrowing of $30,000 and that that borrowing would be repaid to Westpac within three months. The defence also alleged that the mortgage was signed by Mrs Bagshaw in the presence of Mr Bagshaw alone and not in the presence of an officer of Westpac; that Mrs Bagshaw had not been shown a copy of Memorandum No. R404835 filed in the office of the Registrar General to which the mortgage referred; that Westpac procured Mr Bagshaw to act as its agent in obtaining Mrs Bagshaw's signature; that Westpac did not disclose to Mrs Bagshaw that Westpac would use the mortgage as security for moneys due by Mr Bagshaw or that it would hold Mrs Bagshaw liable to repay moneys lent to Mr Bagshaw; that prior to signing the mortgage Mrs Bagshaw obtained no independent legal advice and was not advised to do so; that Mrs Bagshaw had been given no opportunity to negotiate the terms of the mortgage; that the language of the mortgage was incomprehensible to her; and that the provisions of the mortgage were not adequately explained. A further defence taken was that Westpac failed to notify Mrs Bagshaw that Westpac was lending moneys to Mr Bagshaw that would be repayable pursuant to the mortgage. On these facts, Mrs Bagshaw sought an order that the mortgage be set aside and/or varied under s 87 of the Trade Practices Act, 1974 (Cth) or under the Contracts Review Act, 1980 or under the equitable principle of unconscionability. The cross-claim substantially repeated the same points. The cross-claim also sought a declaration that Mrs Bagshaw had a 62.5% interest in the subject property and that Mr Bagshaw's interest was only 37.5%. However, this claim was not pursued at the trial. Indeed, it could not have been pursued without the joinder of the trustee in bankruptcy. 5 The substance of Mrs Bagshaw's case was put in her affidavit of 18 May 1995 in these terms:

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Partnership 7 Despite the implied allegation in Mrs Bagshaw's pleading that she was not in partnership with her husband and despite Mr Stevens' submission that that was so, it is clear that Mrs Bagshaw was a partner with her husband in the business of Bagshaw Development Hire and in associated business activities from 1975 onwards. No written partnership agreement has been produced although partnership tax returns referred to "terms allowed under the partnership agreement". However, the application for registration of the business name, Bagshaw Development Hire, was signed by both Mr and Mrs Bagshaw, each of whom was described as a person to be registered as carrying on business under that name. From the commencement of the business in 1975, annual tax returns showed Mr and Mrs Bagshaw as partners in the business. The principal bank account kept with Westpac, account No. 13-0146, was maintained in the name of "Bagshaw Development Hire" of which the particulars were "Mr & Mrs L G Bagshaw 16 Woodbridge Pl Baulkham Hills". The earliest statements of account are not in evidence but there are statements from the end of 1979, when the account had a modest credit of $373.62, to 31 July 1989, when the account had a debit of $887,819.59 and for some years thereafter. As Mrs Bagshaw attended to much of the secretarial work that was involved in the business, I have no doubt that she was well aware that the main account of the business was in the joint names of herself and Mr Bagshaw. Indeed, Mrs Bagshaw, herself, regularly drew cheques on the account. She did not give evidence that she was not aware of the existence of or the significance of the account. 8 Mrs Bagshaw did not deny in evidence that she subsequently claimed and received one-half of the proceeds of a sale of plant and the business which took place after Mr Bagshaw's bankruptcy. 9 The letters which were sent to Westpac were usually signed by Mr Bagshaw but most were typed by Mrs Bagshaw. Mrs Bagshaw must have been aware generally of the activities of the business. Letters from Westpac, confirming the approval of loans or setting out the terms upon which loans were to be granted and so on, were always addressed to Mr and Mrs L G Bagshaw and were sent to their home. 10 Over the years, the business developed from earthmoving and property development to include a cold store, transport and farming. A letter of 22 September 1988, which was typed by Mrs Bagshaw on the letterhead of Bagshaw Development Hire, listed the assets of the business. Mentioned were earth moving and other machinery and plant worth $723,000, a warehouse in Mildura, a warehouse in Wyong, land in Wyong, land in Western Australia, a villa at Terrigal, flats at 33 Railway Street Baulkham Hills, the matrimonial home and a Gold Coast unit, the total value of which was put at $1,117,000. Listed also was the Glen Lee Cold Store valued at $63,500 and C.R.M. Transport valued at $214,300. Farm No.1 at Kersbrook, South Australia, was valued at $811,000 and farm No.2 at "One Tree" Tea Tree Gully, South Australia, was valued at $1,434,144. The total value of the assets was said to be $4,255,644. 11 So far as Westpac was concerned, all the activities which led to the growth of these assets were activities of Mr and Mrs Bagshaw. That was how the matter was represented to Westpac and how Westpac dealt with them. 12 As not all relevant documentation is before the Court, it is difficult to be certain as to the name or names in which all the assets were acquired. However, there are in evidence, in addition to the mortgage of the subject property, a mortgage dated 13 May 1981, over a property at Warnervale and a mortgage of 5 August 1988 over a property at Castle Hill, both of which were executed by Mr and Mrs Bagshaw as mortgagors and debtors. Some other mortgages were in the name of Mr Bagshaw alone as mortgagor but were signed by Mrs Bagshaw as debtor. Flats in Railway Street Baulkham Hills were purchased in the names of Mr and Mrs Bagshaw. The unit at Terrigal was transferred to Mr and Mrs Bagshaw. A property at Mount Hutton, Lake Macquarie was put in the name of Mrs Bagshaw alone. A property in Mildura, Victoria was acquired in the names of both Mr and Mrs Bagshaw. 13 Mrs Bagshaw put the case that she had nothing to do with the business. In her affidavit of 20 November 1996, Mrs Bagshaw deposed:

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"1. Colyton has given us between $500,000/$600,000 profit and we thank you for releasing the $40,000 on IDB that L.G. and J.H. Bagshaw could put up as a bond to Penrith Council. 2. Mr McInnes, we have taken your advice and taken out $1m worth of Keyman Insurance. 3. We have taken heed of pulling back and cleared Carlingford from Mr Max Shean and I.E.L. We have traded off our $525,000 for a 90 block sub-division in Maryland? in the Newcastle district which it cost $1.1m to purchase with $1.2m development costs including interest and has a $1.4m profit. Furthermore there were 33 blocks sold without advertising and we would also point out the D A is at Newcastle Council ready for stamping. Therefore we have sold $1,350,000 in land before turning the first sod, and this will be finalised in construction by September/October 1989 weather permitting. This will conclude the Scott family Trust Fund and pay them out in full, and this is now being tied up with Hardings, Solicitors, and the gentleman to contact is Mr Colin Skelton. 4. Since last speaking to Mr McInnes, Lamb Street and Glendenning Road, Plumpton property has been advertised on two weekends only and had seven enquiries with five having contracts prepared for signatures on the 65 villas. In this heavy interest market it is totally incredible to say the least. After paying back the financiers there is approximately $300,000 in profits to be paid into our account at your Branch. 5. We have since sold C.R.M. Transport, the profit from that bought 10 acres at Irimple, an outer suburb of Mildura. I have since put in a D A for approval of approximately 30/35 blocks of industrial land and the projected profit would be $L,050,000 with a development cost of $250,000/$300,000. This land is free and unencumbered and we would like Westpac to release the Adelaide Gully Farm property and 16 Woodridge Place, Baulkham Hills and take a short term mortgage over this property as it has a bigger equity to give the bank more confidence. 6. We also have made moves to purchase more land including property at Rutherford in the Maitland area comprising about 55 blocks, with adjoining blocks selling for average of $30,000/$35,000 each. This sub-division has D. A. approval and we will be sitting on it until such time as the Merewether project is completed, therefore at an average price as above there is $1.6m after deduction of all costs, so gentlemen I feel that we, L.G. and J.H. and Devebo Pty Ltd, our new registered company in the Hunter Valley, has more than proven under the direction of L.G. Bagshaw we have gotten over our growing pains and Westpac should listen before condemning a 25 year established customer." 15 The substance of the matter is that Mrs Bagshaw carried on business in partnership with her husband and it was represented to Westpac by both Mr and Mrs Bagshaw that she was a partner in the business. No doubt, Mr Bagshaw was the person who was most active in the business, but Mrs Bagshaw nevertheless played her own part doing secretarial work, looking after the records, answering the telephone and so on. Under cross-examination, Mrs Bagshaw agreed that she and her husband were "the principals of a business in the eighties" and that she was "entitled to a share of the profits from the business".

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The Context of the Mortgage 16 Contrary to Mrs Bagshaw's evidence, the loan for which the subject mortgage of 4 December 1981 was security was not a short-term loan of $30,000. The records of Westpac show that $30,000 had been advanced to Mr and Mrs Bagshaw in May 1981 to enable them to purchase 15 acres of vacant land at Warnervale. Westpac's records show that the purchase price was anticipated to be $45,000 and that there would be legal and stamp duty of $1,500 making a total of $46,500. The records noted that Mr and Mrs Bagshaw had $16,500 available to them leaving a balance of $30,000 to be funded. The application for that advance was granted. Two mortgages were taken. One was a mortgage over a block of land which Mr Bagshaw owned at Safety Bay, Western Australia and the other was over the Warnervale land. Mr and Mrs Bagshaw signed a letter acknowledging the terms of the advance which included the term that the loan was to be repaid by instalments of $690 per month, the first such instalment to be payable on 27 June 1981. The mortgage over the Warnervale land was signed by both Mr and Mrs Bagshaw as mortgagors and debtors. 17 The subject mortgage was required by Westpac when finance of $95,000 was sought for the purchase of a 1977 caterpillar/scraper 6/138. Westpac agreed to make the advance on the security of the two existing mortgages and a mortgage over the matrimonial home at 16 Woodridge Place, Baulkham Hills. A letter dated 1 December 1981, setting out the terms of the offer, was sent by Westpac to Mr and Mrs Bagshaw at their home. That letter noted that the security would be that held over the land in Western Australia, the land at Warnervale and the matrimonial home at Baulkham Hills. The repayments required were $25,000 on 31 January 1982, $50,000 on 30 September 1982 and $20,000 on 31 May 1983. A copy of that letter, signed by Mr Bagshaw, is in evidence. It is Westpac's copy of the letter. Presumably, Mr Bagshaw signed it in the offices of Westpac. There is no copy of that letter in evidence with Mrs Bagshaw's signature, but there is no reason to think that she did not receive it. Both Mr and Mrs Bagshaw signed an authorisation for Westpac to inspect the property. 18 A more formal letter setting out the terms of the arrangement was signed by both Mr and Mrs Bagshaw. I need not again set out the terms of the loan, save to mention that the amount to be advanced was altered in handwriting from $95,000 to $93,000, as the amount required had reduced. The mortgage of 4 December 1981 was signed by both Mr and Mrs Bagshaw as mortgagors. They also signed as covenantors and debtors. 19 Clearly, the mortgage was not a mortgage securing a loan of $30,000 to be repaid within three months. I reject Mrs Bagshaw's evidence that she was told by Mr Bagshaw that that was the case and I reject the inference from her evidence that she considered the mortgage was of that nature. The mortgage was given in relation to an advance of $93,000 to be repaid over a period of about eighteen months.

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That same Memorandum had also been referred to in the Warnervale mortgage of 13 May 1981. 21 It may be that no person expressly explained to Mrs Bagshaw that the mortgage was an all moneys mortgage, for no evidence has been given that that was said. It may be that Mrs Bagshaw did not spend time reading and understanding the provisions of Memorandum No. R404835. However, I do not accept, if it is to be inferred from Mrs Bagshaw's evidence, that she executed the mortgage in the positive belief that the mortgage was expressed to be a mortgage for a specific loan and that she would not have entered into the mortgage had she been aware that it was an all moneys mortgage. There is no letter of complaint from Mrs Bagshaw to Westpac stating that she was misled as to the nature of the mortgage. Moreover, she was aware of the pattern that was being followed by Westpac. In the letter of 1 December 1981 and in the acknowledgment signed 4 December 1981, the prior mortgages were specified as securities for the $93,000 loan. That pattern was followed by Westpac when later advances were made. The expression "securities if any already held by the Bank for other accommodation" was commonly used. In October 1982, Mr and Mrs Bagshaw sought a loan of $65,000 to enable them to purchase a property, 33 Railway Street, Baulkham Hills. A letter setting out the terms of the loan, which was signed by Mr and Mrs Bagshaw, said that approval had been given on the condition, inter alia, that "Security to be that already held by the Bank". It does not appear that any mortgage was taken over the Railway Street property itself, Westpac being content to rely upon its existing securities. 22 Westpac's records show that, on 7 August 1985, Mr Bagshaw sought funds of $366,000 for the purchase of a back hoe, property at Mildura, the cold store, the property at Canyon Street and a villa at Terrigal. It was noted that the security offered would be the Mildura property, the Canyon Street property, the Terrigal property, the Warnervale land, the Railway Street property, the land held in Western Australia and the matrimonial home at Woodbridge Place. A proposal to this effect, dated 30 July 1985, was typed out on the letterhead of Bagshaw Development Hire by Mrs Bagshaw. I assume that that matter went ahead because the Mildura property, the Canyon Street property, the villa at Terrigal and the cold store in Mildura were acquired. 23 I need not deal with all the transactions that occurred. Indeed, the material before the Court appears to be only an incomplete selection of the material that ought to be available. However, the practice was for Westpac, when it gave approval for a loan, to nominate what was to be the security for the loan that had been approved. 24 In August 1988, Mr Bagshaw asked Westpac to release the home at 16 Woodbridge Place as security and to substitute a second mortgage over a farm in South Australia. This was rejected as the equity was not sufficient. On 4 August 1988, this note was recorded:

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The Execution of the Mortgage 30 Mrs Bagshaw gave evidence that she signed the subject mortgage at her home on the kitchen table and in the presence only of her husband. She said that she received no advice from Westpac as to the nature of the document she was signing. I have already mentioned the letter from Westpac of 1 December 1981, confirming its approval to a fully drawn advance of $95,000 to assist in the purchase of a 1977 caterpillar/scraper and of the fact that that letter specified the terms of the advance. I have also mentioned the more formal letter setting out the conditions of the advance which was signed by Mrs Bagshaw on 4 December 1981 and the letter of authorisation to inspect which was signed by her. 31 The mortgage purports to have been signed by Mr and Mrs Bagshaw in the presence of Mr S Bartolillo, an officer of Westpac. Mr Bartolillo has given evidence that, although he cannot recall the specific instance, he has never signed a mortgage or other document as a witness when that document was not signed in front of him. I accept Mr Bartolillo's evidence on this matter. He gave credible evidence which accorded with the documents. I also accept his evidence that, although other documents could be signed otherwise than in the presence of an officer of Westpac, for example, when a solicitor for the mortgagor or mortgagors was involved, mortgages were always executed in the presence of one of the officers of Westpac. Mr Bartolillo gave evidence that it was his practice to explain the nature of the mortgage by saying that the mortgage was to secure the money which Westpac was lending and that, if the money was not repaid as agreed, Westpac would take proceedings and would sell the house. Mr Bartolillo said, in addition, that it was his practice to provide to the parties signing a mortgage a copy of the Memorandum that was incorporated into that mortgage. 32 I accept Mr Bartolillo's evidence on these issues and I reject Mrs Bagshaw's evidence that she signed the mortgage otherwise than in the presence of Mr Bartolillo. Indeed, Mrs Bagshaw, in her re-examination, considerably weakened her evidence. In re-examination, she simply said that she could not recall any occasion on which Mr Bartolillo was present when she signed a mortgage and that she could not recall where she signed either the mortgage executed in May 1981 or the mortgage executed in December 1981. 33 I am satisfied that Mrs Bagshaw understood the general nature of the document she was signing on 4 December 1981 and that she understood the general nature of a mortgage. I am also satisfied, on the balance of probabilities, that Mr Bartolillo provided her with a copy of Memorandum No. R404835, for that was his customary practice. 34 It was put to Mr Bartolillo that Mrs Bagshaw had not been personally known to him. Mr Bartolillo gave evidence that he could not recall Mrs Bagshaw, notwithstanding that his signature as witness appeared on both mortgages of May 1981 and December 1981. I do not see any legal significance in this issue. It is not in dispute that Mrs Bagshaw executed the mortgage.

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