The plaintiff seeks judgment for possession of land at 3 Dales Road, Silverdale. The claim is said to be based on a loan agreement and a second mortgage entered into by the defendants on 17 June 2019.
The first and second defendants were respectively husband and wife, and the registered proprietors of the land. The third defendant, Perpetual Corporate Trust Limited, is the first registered mortgagee. Although no orders are sought against the third defendant, it has filed an ordinary appearance in the proceedings.
Orders for substituted service on the first defendant were made by Campbell J on 8 September 2021: Chung Wah Wong v Ivan Novakovic [2021] NSWSC 1130. Despite service having been effected on the first defendant pursuant to those orders, he has not appeared in the proceedings.
The second defendant has appeared and filed a defence and a cross-claim on 11 June 2021.
The cross-claim is brought against both the plaintiff and against the first defendant. The claim against the first defendant seeks an indemnity if the second defendant is found to be liable under the loan agreement and mortgage.
For reasons that are not clear, the second defendant did not seek substituted service against the first defendant when the matter was before Campbell J. I subsequently gave leave for a notice of motion to be filed by the second defendant seeking substituted service. I indicated that I would deal with that notice of motion in chambers. On 15 October 2021 I refused the application for substituted service on the basis that there was no prospect of the proceedings coming to the attention of the first defendant by the methods of service put forward.
On 3 September 2021 Campbell J granted leave to the plaintiff to file a notice of motion to strike out various paragraphs of the defence and the cross-claim. That notice of motion was duly filed on 8 September 2021, and it is that motion with which this judgment is concerned.
In substance, the basis for the notice of motion is an assertion by the plaintiff that in her defence and cross-claim the second defendant is approbating and reprobating in a way that is not permitted.
The statement of claim alleges that on 17 June 2019 the plaintiff as the lender, and the first and second defendants (subsequent references to "the defendants" herein are references to the first and second defendants) as borrowers, debtors and mortgagors, entered into an agreement whereby the plaintiff would lend the defendants the sum of $395,000 secured by a second mortgage over their property (paragraph 8). The statement of claim then pleaded a number of terms of the loan agreement and mortgage including a requirement to pay interest by equal monthly instalments, and the requirement to repay the principal sum due under the loan by 1 July 2020 (paragraph 10).
The statement of claim pleaded that the principal sum of $395,000 was advanced to the defendants on 17 June 2019 (paragraph 11); that on 24 July 2019 the plaintiffs received a part repayment of the principal in the sum of $116,498.35 from the defendants (paragraph 12); that the defendants were required to pay interest on or by 1 August 2019 (paragraph 13); that the defendants failed to pay interest on or by 1 August 2019 (paragraph 14); that the defendants failed to pay interest due by 1 September 2019 and thereafter for every succeeding month (paragraph 15); that the failure to pay interest by 1 August and thereafter constituted breaches of the agreement and mortgage (paragraph 16); that on 7 April 2021 a notice of demand and notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) was served on the defendants demanding the payment of the outstanding amount of principal and interest totalling $363,335.13 (paragraph 17); that the defendants failed to pay the outstanding amount in breach of the loan agreement and mortgage (paragraph 18); and that in the circumstances the plaintiff was entitled to possession of the land (paragraph 19).
All of these paragraphs of the statement of claim were denied, except for paragraphs 12 and 17 which were not admitted.
In the cross-claim, the second defendant seeks declarations that the loan agreement and mortgage are void and unenforceable, and that the plaintiff is not entitled to possession of the land. Paragraphs 3 and 4 of the cross-claim plead as follows:
3. On or about 17 June 2019, the First Cross Defendant purported to execute an agreement with the Cross Claimant whereby the First Cross Defendant purportedly lent to the Cross Claimant an amount of $395,000 ("the purported Agreement").
4. On or about 17 June 2019, the First Cross Defendant purported to execute a second mortgage agreement with the Cross Claimant purporting to secure and encumber the Cross Claimant's interest in the Silverdale Property, ("the purported Mortgage Agreement").
Paragraph 5 then pleads that the "purported Agreement and the purported Mortgage Agreement" were unjust contracts for the purposes of the Contracts Review Act 1980 (NSW). Particulars are then set out which allege an inability on the part of the second defendant to negotiate the terms and to read the agreements before she signed them. The particulars assert that she was not given independent legal advice, that the agreements were not explained to her, and unfair pressure was put upon her to sign them.
Paragraph 7 then pleads that the "two purported agreements" are void as far as the second defendant is concerned.
In her affidavit of 4 August 2021, the second defendant detailed the circumstances in which she was asked by her husband to go to his lawyer's office to sign documents. In that affidavit she said this:
27. John [John Ay-Yeung, the first defendant's lawyer] then put a pile of documents in front of me and said words to the following substance and effect, "This is a document between you and Benny [the plaintiff]. Sign where the sticky notes are." I remember looking at Ivan and said to him words to the words to the following substance and effect:
"What is this?"
Ivan said to me: "Don't worry, just sign."
Benny then also said: "Don't worry, everything is fine."
28. As far as I can remember, I kept handing the pen to and from Ivan as we were signing the documents. I remember Garry [another of the plaintiff's lawyers], John and Benny were all present when we signed the document.
29. Neither Benny, John nor Garry signed the document after us. After Ivan and I signed, I remember John picked up the documents.
…
31. Prior to signing the agreement, no one explained the agreement to me nor was I given an opportunity to read it or ask questions. …
On 1 July 2021 the plaintiff's solicitors served a Notice to Admit Facts on the second defendant's solicitor. Paragraph 9 required the second defendant to admit:
That the mortgage described in G of the Schedule bears the signatures of Ivan Novakovic and Susan Novakovic where their respective names are printed on page 7 and on the first 2 cover pages.
In answer to that paragraph, the second defendant admitted that her signature appeared on the document.
Questions 11-18 required the second defendant to admit the authenticity of the following documents:
11. The registered mortgage AQ746340 described as item A in the Schedule.
12. The acknowledgement of legal advice described as item B in the Schedule.
13. The declaration of purpose described as item C in the Schedule.
14. The Statutory Declaration described as item D in the Schedule.
15. The declaration of independent legal advice described as item E in the Schedule.
16. The letter and s.57(2)(B) Notice described as item F in the Schedule.
17. The unregistered RP Mortgage described as item G in the Schedule.
18. The Memorandum Q860000 described as item H in the Schedule.
Schedule of Documents
A. Registered mortgage AQ746340 between the plaintiff as mortgagee and the 1st and 2nd defendants as mortgagor;
B. Acknowledgement of legal advice dated 17 June 2019.
C. Declaration of purpose dated 17 June 2019.
D. Statutory declaration of the 1st and 2nd defendants made 17 June 2019.
E. Declarations by borrowers of independent legal advice made 17 June 2019.
F. Letter of Penhall & Co Lawyers to Ivan Novakovic and Susan Novakovic and enclosed s.57(2){B) Notice dated 7 April 2021,
G. RP Mortgage between the plaintiff as mortgagee and the 1st and 2nd defendants as mortgagor dated 17 June 2019 (prior to registration).
H. Memorandum Q860000.
The second defendant's response was to say that she does not admit the authenticity of each of the documents.
The plaintiff submits that the denial of the mortgage and the agreement, and the refusal to admit the authenticity of the documents including the mortgage, when taken with the admissions of actually signing the documents, lead to the conclusion that the second defendant is relying on a plea of non est factum. However, the plaintiff submits, there is no such plea in the defence. Moreover, the plaintiff submits, the second defendant cannot in the first instance deny that she is a party to the contract but then ask for it to be declared void or set aside under the Contracts Review Act.
The plaintiff submits that the pleading is embarrassing unless the second defendant acknowledges that the defence she relies on in denying the mortgage and the authenticity of the documents is one of non est factum. An alternative view is that a denial, and a refusal to admit the authenticity of the documents, might be an allegation of forgery, but no such plea to that effect is made.
The High Court explained the doctrine of non est factum in Petelin v Cullen (1975) 132 CLR 355 at 359-361:
"The principle which underlies the extension of the plea to cases in which a defendant has actually signed the instrument on which he is sued has not proved easy of precise formulation. The problem is that the principle must accommodate two policy considerations which pull in opposite directions: first, the injustice of holding a person to a bargain to which he has not brought a consenting mind; and, secondly, the necessity of holding a person who signs a document to that document, more particularly so as to protect innocent persons who rely on that signature when there is no reason to doubt its validity. The importance which the law assigns to the act of signing and to the protection of innocent persons who rely upon a signature is readily discerned in the statement that the plea is one 'which must necessarily be kept within narrow limits' (Muskham Finance Ltd. v. Howard) [[1963] 1 QB 904 at 912] and in the qualifications attaching to the defence which are designed to achieve this objective.
The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence. All this is made clear by the recent decision of the House of Lords in Saunders v. Anglia Building Society (Gallie v. Lee [[1971] AC 1004 at 1019]).
…
It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it. The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed. It is otherwise when the defence is asserted against the other party to the transaction who is aware of the circumstances in which it came to be executed and who knows (because the document was signed on his representation) or has reason to suspect that it was executed under some misapprehension as to its character. In such a case the law must give effect to the policy which requires that a person should not be held to a bargain to which he has not brought a consenting mind for there is no conflicting or countervailing consideration to be accommodated -- no innocent person has placed reliance on the signature without reason to doubt its validity.
In Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited (2009) 75 NSWLR 42; [2009] NSWCA 186 the Court of Appeal, having considered that passage from Petelin v Cullen said at [38]:
In our view, it is clear from the terms of these reasons of the High Court that the central question in the operation of the plea concerns the true consent of the signer to the act of signature. That is clear from the Court's expression of the first policy consideration (at 359): "the injustice of holding a person to a bargain to which he has not brought a consenting mind." It is reinforced by the identification of the class of persons who can avail themselves of the defence. The Court said (at 359-360) that the class includes "those who through no fault of their own are unable to have any understanding of the purport of a particular document." It is in that context that the Court referred (at 360 and 361) to the person showing that he (or she) signed in the belief that the document was radically different from which it in fact was. If a person, who has capacity to form a belief that a document has a certain character, but is radically wrong in that belief, can qualify for the defence it makes no coherent logical sense for the law to deny the same defence (reflecting the policy consideration to which the High Court referred) to someone without any capacity for forming any relevant belief. We do not read the words of the Court in Petelin v Cullen as removing from the operation of the defence circumstances which fall within its clear informing policy and which are even more clearly demonstrative of a lack of consent than the narrow confines articulated for someone capable of forming a relevant belief.
It is clear from the second defendant's own evidence that this is not a case where a plea of non est factum is available. Mr Morahan of counsel for the second defendant accepts that reliance is not placed on that principle. Rather, he relies by analogy on Small v Gray [2004] NSWSC 97 to submit that the second defendant can deny the agreement but seek, in the alternative, that it be set aside under the Contracts Review Act.
In Small v Gray a mortgage was purportedly given by a husband and wife who were joint tenants. The wife only intended to be bound if her husband signed the mortgage. In fact, the husband's signature was a forgery, unbeknownst to the wife or the mortgagees. The mortgage was registered.
Although the wife said that she only intended to be bound by the mortgage if her husband "approved the transaction" (which included signing the mortgage), her only defence to the claim was unjustness and unconscionability under the Contracts Review Act and the general law (see Small v Gray at [6]). It was the plaintiffs who wished to argue that there was no contract with the wife on the basis that the husband had not signed it (see at [66]). That was to prevent the wife being able to call in aid the provisions of the Contracts Review Act. The plaintiffs wished simply to rely on its rights as a registered mortgagee because they were unaware of the forgery of the husband's signature (see at [1]).
Small v Gray is of no assistance to the second defendant where, as here and in Small v Gray, the relevant mortgagor signed the mortgage and the mortgage was registered. Although the wife in Small v Gray did not intend to be bound until her husband also signed the mortgage, the effect of registration was to give the mortgage the effect of a deed: s 36(11) Real Property Act; Small v Gray at [79]-[80]. In that way, it was open to the wife to rely on the Contracts Review Act to obtain relief from the liability she incurred by signing the mortgage and its being registered. In the present case, the second defendant admits to signing the documents including the mortgage. Small v Gray is no authority for a right to put forward inconsistent defences in the way the second defendant seeks.
However, in Permanent Trustee Company Limited v Frazis [1999] NSWSC 319 the defendants had not signed the mortgage at all. Their signatures were forged. Dunford J said, when considering defences put forward by defendants who were seeking to set aside a default judgment:
[17] Thirdly, the defendants seek to rely on the provisions of the Contracts Review Act 1980 and they allege that the contract was unfair both in the manner in which it was made and its terms: cf AGC (Advances) Limited v West (1986) 5 NSWLR 590 at 620; but the applicant's complaint in this case is not that a contract they entered into with the plaintiff was unjust, their case is that they never entered into such a contract at all; and I fail to see how parties who deny that they entered into a contract can at the same time argue that such contract was unjust. The Contracts Review Act 1980 is an Act designed to review unfair contracts, not an Act to set aside relationships or obligations constituted by forged documents. The applicants' present predicament is not due to them having entered into a contract which was "unjust" within the meaning of that Act, but to the operation of the relevant provisions of the Real Property Act 1900 and in particular to the force and effect which that Act gives, on registration, to forged instruments. I am not aware of, and was not referred to, any case where relief has been granted under the Contracts Review Act 1980 to set aside a contract where the documents evidencing such alleged contract have been forged.
(emphasis added)
The present case is really the obverse of Frazis. The second defendant admits to signing the mortgage, but by denying paragraphs 8 and 10 of the statement of claim and refusing to admit the authenticity of it, she is seeking to present an inconsistent case, contrary to what is said in Frazis.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, the Court said, having made reference to what was said in Petelin v Cullen:
[47] The importance which, for a very long time, the common law has assigned to the act of signing is not limited to contractual documents. Wilton v Farnworth was not a contract case. The passage from the judgment of Latham CJ quoted above is preceded by a general statement that, where a man signs a document knowing that it is a legal document relating to an interest in property, he is in general bound by the act of signature. Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief.
Mr Morahan accepted that the case, in substance, concerned the Contracts Review Act because of the circumstances in which the second defendant came to sign the documents. That is the case pleaded in the cross-claim, subject to one matter dealt with below. Where the second defendant admits to signing the documents, she cannot deny the existence or the authenticity of those documents in the absence of a plea of non est factum.
Nor is this a case where rule 14.18 of the Uniform Civil Procedure Rules 2005 (NSW) applies to permit the pleading of an alternative ground. That rule provides:
14.18 Pleadings to be consistent as to allegations of fact(cf SCR Part 15, rule 17; DCR Part 9, rule 12)
(1) A party must not in any pleading make an allegation of fact, or raise any ground or claim, inconsistent with any of his or her previous pleadings.
(2) Subrule (1) does not affect the right of a party to make allegations of fact, or raise grounds or claims, in the alternative.
This is not a case where the second defendant says that she does not know, or is not sure, if she signed the documents. In such a case she would be permitted to plead a defence under the Contracts Review Act in the event that it was found that she had signed the documents.
Paragraphs 8, 9 and 12 of the defence should be struck out.
Different considerations arise for the remaining paragraphs of the defence sought to be struck out. Paragraphs 11, 12, 14, 15, 16 and 17 of the statement of claim all allege factual matters. If, as seems likely, the second defendant does not know whether or not those matters are true (because it was the first defendant who was responsible for matters concerned with the mortgage), the pleading should be one of non-admissions, as has been done in relation to the allegations in paragraphs 12 and 17 of the statement of claim. Unless a positive case is being put forward by the second defendant (for example, to assert that interest had been paid), denials of those matters are inappropriate.
For those reasons, paragraphs 10, 13, 14 and 15 of the defence should be struck out.
The cross-claim contains a similar problem in paragraphs 3 and 4 to that discussed earlier in relation to inconsistent defences. Those paragraphs (set out above at [12]) plead only that the first defendant "purported" to execute the documents "to secure and encumber the Cross-Claimant's interest" in the land. That pleading rather suggests that the first defendant either had the power and authority to bind the second defendant by his execution, or did so anyway, perhaps by forging the second defendant's signature. That cannot be correct because, by her own admission the second defendant executed the documents. She may not have understood what she was committing herself to, but it was by her execution that her interest was secured and encumbered.
For similar reasons given in relation to the defence, paragraphs 3 and 4 of the cross-claim require amendment to plead that the second defendant executed the documents.
The second defendant's responses to the notice to admit facts (not to admit that the identified documents are authentic) are inappropriate when she admits to signing them. Unnecessary costs incurred by the plaintiff in proving matters which are not really in contention are likely to be borne by the second defendant, regardless of the outcome of the proceedings. Those acting for the second defendant should, in the preparation for the hearing, be focusing on the real issues in dispute between the parties, in accordance with their obligations and the second defendant's obligations pursuant to s 56(3) and (4) of the Civil Procedure Act 2005 (NSW).
Accordingly, I make the following orders:
1. Paragraphs 8, 9, 10, 12, 13, 14 and 15 of the defence of the second defendant filed 11 June 2021 are struck out
2. Paragraphs 3 and 4 of the cross-claim filed 11 June 2021 are struck out.
3. Leave to the second defendant to re-plead. Any amended defence and cross-claim are to be filed and served by 18 November 2021.
4. The second defendant is to pay the plaintiff's costs of the notice of motion filed 8 September 2021.
[2]
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Decision last updated: 04 November 2021