FEDERAL COURT OF AUSTRALIA MORTGAGE – application for the payment of monies and possession of property where respondent in default of mortgage and loan agreement – cross claim to have mortgage set aside on grounds that mortgage taken out as a consequence of representations made by an employee on secondment to a subsidiary of the applicant and/or obtained in circumstances that were unjust pursuant to the Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Cth), s 75B Contracts Review Act 1980 (NSW), ss 7, 9 Jurisdiction of Courts (Cross Vesting) Acts 1987 (NSW) Real Property Act 1900 (NSW) WESTPAC BANKING CORPORATION v GLENN ROBERT JARRETT & ANOR NG 256 of 1996 O'CONNOR J SYDNEY 30 JULY 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 256 of 1996 BETWEEN: WESTPAC BANKING CORPORATION Applicant AND: GLENN ROBERT JARRETT First Respondent DEBORAH ALISON JARRETT Second Respondent AND: GLENN ROBERT JARRETT First CROSS CLAIMANT DEBORAH ALISON JARRETT Second CROSS CLAIMANT WESTPAC BANKING CORPORATION CROSS RESPONDENT JUDGE: O'CONNOR J DATE OF ORDER: 30 JULY 1998 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. An order for possession of the premises known as 8 Bataan Street, Kings Park in the State of New South Wales being the land described in Folio Identifier 324/250071. 2. An order that Westpac have leave to issue a Writ of Possession forthwith. 3. An order that the respondents pay the sum of $158,973.09 to Westpac. 4. Costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 256 of 1996 BETWEEN: WESTPAC BANKING CORPORATION Applicant AND: GLENN ROBERT JARRETT First Respondent DEBORAH ALISON JARRETT Second Respondent AND: GLENN ROBERT JARRETT First CROSS CLAIMANT DEBORAH ALISON JARRETT Second CROSS CLAIMANT WESTPAC BANKING CORPORATION CROSS RESPONDENT JUDGE: O'CONNOR J DATE: 30 july 1998 PLACE: SYDNEY REASONS FOR JUDGMENT This is an application by Westpac Banking Corporation (Westpac) for the payment of monies and possession of property at Kings Park (Kings Park property) in the name of Glenn Robert and Deborah Alison Jarrett (husband and wife). Westpac claim Mr and Mrs Jarrett were in default of a mortgage and loan agreement made in relation to the Kings Park property and that Westpac is entitled to the relief sought. Mr Jarrett is a director of Endormer Pty Limited (In Liquidation) (Endormer). Endormer had a finance facility with the Australian Guarantee Corporation (AGC) which is wholly-owned by Westpac. Initially cross claims were lodged to have the mortgage set aside by the respondents on the grounds that the mortgages and loan agreements were obtained in circumstances that were unjust, relying on the provisions of the Contracts Review Act 1980 (NSW). Further cross claims were filed including claims that the mortgage and loan agreement was taken out as a consequence of representations made by Mr Peter Rodd an employee of Westpac on secondment to AGC. Background Supreme Court proceedings In early 1995 Westpac Banking Corporation (Westpac) lodged with the Supreme Court of New South Wales Statements of Claim against the above respondents (Supreme Court Proceedings No 10873 of 1995 filed 16 February 1995). On 14 November 1994 Westpac had served on Mr and Mrs Jarrett a notice under the Real Property Act 1900 (NSW) in respect of their default under the mortgage and loan agreement. Mr and Mrs Jarrett failed to comply with the demands contained in that notice namely the payment of $9,231.40 within one month of service. On or about 16 January 1995 Westpac served on Mr and Mrs Jarrett a notice demanding payment of the whole of the monies outstanding under Account No. 512125, namely $157.904.42 within six clear working days after service. Mr and Mrs Jarrett did not comply with that notice. On or about the same date, Westpac sent to Mr and Mrs Jarrett a letter seeking delivery up of vacant possession of the Kings Park property. As at the lodging of the Statement of Claim in this matter the total amount owing to Westpac by Mr and Mrs Jarrett was $158,973.09 being the principal plus interest. Defence and Cross Claim On 20 March 1995 Mr and Mrs Jarrett filed a Defence and Cross Claim. They alleged: . there was an antecedent relationship between them as husband and wife and thus Mr Jarrett had ascendancy over Mrs Jarrett in such a manner that her will in this matter was suborned. The cross claimants say that the mortgage was never explained to Mrs Jarrett, she lacked business experience and that she was not able to make a judgment as to her bests interests not being in receipt of independent legal advice; . that Westpac was sufficiently aware of Mrs Jarrett's circumstances as to put it on notice that the will of Mrs Jarrett was suborned by Mr Jarrett. They claim that Westpac was aware that Mr Jarrett had a strong motive to procure the execution of the mortgage in furtherance of his business activities and that Westpac should have been aware that Mr Jarrett would have some influence over his wife as she had limited business experience and was in an advanced stage of pregnancy. Further, neither Mr nor Mrs Jarrett had independent legal advice; . that at or around the time of execution of the mortgage and loan agreement Mrs Jarrett was under a special disability (an advanced stage of pregnancy) in dealing with Mr Jarrett such that there was no reasonable degree of equality between them; and . that Westpac is liable for the undue influence of Mr Jarrett. Amended Cross Claim On 19 December 1995 Mr and Mrs Jarrett filed an Amended Cross Claim. In this Amended Cross Claim Mr and Mrs Jarrett sought to include related claims against the Australian Guarantee Corporation Limited (a wholly owned subsidiary of Westpac) in Federal Court proceedings No. NG 3244 of 1995. Transfer of Supreme Court proceedings to Federal Court By a Notice of Motion filed on 19 December 1995 Mr and Mrs Jarrett moved to transfer Supreme Court proceedings Nos 10507 of 1995 to this Court. On 22 March 1996, Dunford J of the Supreme Court of New South Wales ordered these proceedings to be transferred to this Court pursuant to the Jurisdiction of Courts (Cross Vesting) Acts 1987 (NSW). Federal Court proceedings The matters currently before the Federal Court are as follows: . Endormer Pty Ltd (In Liquidation)(Receiver & Manager Appointed) & Ors v Australian Guarantee Corporation Ltd & Anor - NG 3244 of 1995 Mr Jarrett and Mr Paterson are directors and shareholders of Endormer Pty Ltd (Endormer). Endormer claims that the Australian Guarantee Corporation (AGC) were, inter alia, negligent and breached the Corporations Law and the Trade Practices Act 1974 (Cth) in respect of representations made by AGC representatives in relation to the application, provision and conduct of a finance accommodation to be provided by AGC to Endormer's car retail business. AGC lodged a cross claim based on conversion of cars sold by Endormer. . Westpac Banking Corporation v Glenn Robert Jarrett & Anor - NG 256 of 1996 (these proceedings) On 16 August 1996 the cross claimants lodged a Further Amended Cross Claim which included AGC-related claims in support of their defence to the action taken by Westpac. The cross claimants allege in this claim: (a) that from about February 1993 Westpac through its servant or agent Peter Rodd represented that in order for Endormer to satisfy AGC's security requirements and for finance restrictions to be relaxed Mr Jarrett and Mr Paterson his partner must refinance with Westpac and that were it not for the representations made by Peter Rodd they would not have increased their exposure to Westpac or Westpac's group by executing the mortgage over their properties; and (b) that the mortgage was unjust and unconscionable in the circumstances in which it was obtained by Westpac within the meaning of ss 7 and 9 of the Contracts Review Act. (The cross claimants repeated their original cross claims on this issue). Adjournment Applications On 1 May 1998 a Notice of Motion was lodged by the solicitors for Mr and Mrs Jarrett to have the hearing dates in these proceedings and related matters vacated because they required more time to finalise their evidence. An order was made adjourning the hearing of all proceedings until 6 May 1998. On that day Mr Jarrett purporting to appear on behalf of himself and Mrs Jarrett, advised that their lawyer was no longer acting for them and sought a further adjournment of the hearing until such time as new lawyers could be retained and briefed on the proceedings. Orders were made adjourning the proceedings to 11 May 1998. On 11 May 1998, Mr and Mrs Jarrett filed further Notices of Motion seeking an adjournment of the hearing dates (again based on their lack of success in obtaining legal representation). However they were represented by counsel in relation to this adjournment application. On 12 May 1998, orders were made that these proceedings be adjourned to 25 May 1998 for hearing. Claims and Evidence Westpac tendered without objection a "Pleadings book" which set out the Statement of Claim relating to the mortgages and loan agreements in question, Defences and Cross Claims lodged by the parties and a separate folder containing a bundle of documents. These documents included various communications between the Jarretts, Mr Paterson (Mr Jarrett's partner), Mr Jarrett's father and Westpac with respect to the circumstances surrounding the signing of the mortgage and loan agreement with Westpac including documents: . showing that the desire to refinance the residential property was one that came from the customers, and not, as the Jarretts contend, something that was required by Westpac or AGC; . showing that it was Mr Ed Jarrett, Mr Jarrett's father, who agreed to give security for the Endormer account the business account, and thereafter the directors, who included Mr Jarrett, transferred their first mortgages to Westpac. The second mortgage would be with AGC and Westpac would then have a third mortgage to secure the Endormer liability. (No claim is made under the Endormer loan and it is not relevant for the purposes of this litigation); . internal memoranda and correspondence in relation to the decision to refinance with Westpac, the offering of the loans, approval of the loans and the signing up of the loans; . details of the actual documents supporting the claims by Westpac - the loan agreement and mortgage; . Westpac's policy and procedure in relation to mortgages and other documents of surety and its secondment policy; . demand for payment of outstanding monies under the mortgages or payment of the interest on the loan. Mr and Mrs Jarrett tendered the following documents: . affidavits of Mr Jarrett sworn 29 September 1995 and 1 February 1996; . an affidavit of Mrs Jarrett sworn 29 September 1995; . affidavits of Mr Paterson sworn 6 October 1995 and 1 February 1996; gave oral evidence and were cross-examined. In reply Ms Grace Joseph, Mr Joseph Borg, Mr Peter Rodd and Mr Terry Scroope gave oral evidence and affidavits were tendered concerning their recollection of events leading up to and including the signing up of the mortgages and loan agreements by Mr and Mrs Jarrett, Mr and Mrs Paterson and Mrs Jonnie Paterson and evidence about Westpac's secondment policy. Submissions - Westpac Westpac submitted that, subject to the cross claim, it would otherwise be entitled to both judgment ordering the payment of monies owing under the agreement plus interest and possession of the Kings Park property. In relation to the cross claim relying on provisions of the Contracts Review Act and the Trade Practices Act Westpac submits that it was Mr Jarrett and his partner Mr Paterson who approached Westpac Parramatta for refinancing of their home loan at the suggestion of Mr Ed Jarrett who was at that time asked to give a guarantee for Endormer and to give security over his property for Endormer and was an existing customer of Westpac Parramatta. It was submitted by Westpac that it was his concerns which led Ed Jarrett to arrange that the other directors - ie Mr Jarrett and Mr Paterson - be placed in a situation that their assets would be available before recourse to his guarantee and that this could best be done by transferring the existing mortgage over the Kings Park property with Advance Bank to Westpac. The applicant submits that these transactions were an ordinary re-financing of a home loan; an appointment was made in the ordinary course for Mr Jarrett and later Mrs Jarrett to come in and sign up. Ms Joseph gave evidence (supported by contemporaneous file notes) that she told them of the risks involved of a fixed loan versus a floating loan. From the bank's point of view the Jarrett's were presumed to be familiar with the implications of borrowing money on a home loan and giving a mortgage because they already had an existing home loan. Westpac submitted that Mr Peter Rodd had no role in the transactions which would support the cross claims as pleaded. In relation to each particular cross claim Westpac submitted that even though Mr Rodd was, for some purposes, an employee of Westpac during his time at AGC this is not enough to make his acts, while there, the acts of Westpac. The question of whether a person's acts are the acts of one corporate body or another is a matter must be determined by reference to the acts themselves with reference to legal indicia and surrounding circumstances. On the evidence there was no day to day involvement by Westpac in what Mr Rodd was doing in his employment. The purpose of his secondment to AGC was not to seek business for Westpac but rather, by working for AGC, to bring to AGC the "corporate culture" of Westpac. Further, Mr Rodd could not and did not arrange for Mr Borg to lend money to the Jarretts. Mr Borg when he came to assess the Jarrett loan and to make this loan applied criteria that were independent of the fact that Endormer, Mr Jarrett's company, was also an AGC customer. The fact that it was known to the Jarretts that he was on secondment from Westpac does not, of itself, displace the ordinary assumption that Mr Rodd was acting for AGC. Therefore no claim of undue influence against Westpac can succeed. In relation to the claim that Westpac, through Mr Rodd, participated in breach of s 75B of the Trade Practices Act by AGC, the applicant submits that there is no evidence that AGC contravened the Trade Practices Act and however if it did, there is no evidence that Mr Rodd was involved in the alleged contraventions. The applicant submits that the misleading and deceptive conduct complained of under this claim (ie representations made by AGC officers in respect of Endormer) all occurred before Mr Rodd had any involvement with the Endormer account. Further, the evidence does not established that Mr Rodd either acted with AGC employees or knew that what they were saying was wrong, because they had made these alleged representations prior to his secondment to AGC. The applicant also submits that none of the representations alleged to have been made in the Jarretts' cross claim were in fact misleading or deceptive and that the real complaint of the Jarretts is that Mr Rodd, in exercising his functions as an officer of AGC, made business practice harder for Endormer. Further Mr Rodd has not interfered with any contractual relationship between the Jarretts and AGC because the Jarretts had no contract between themselves and AGC. If Mr Rodd has done anything to interfere with Endormer's relationships with AGC that would be a claim that Endormer would have against Mr Rodd, not the Jarretts in person. Nor is there evidence to show that any illegitimate pressure was applied by Mr Rodd to insist that the Jarretts take this mortgage out with Westpac. Rather, the applicant submits it was Mr Jarrett's father who had recommended taking out a mortgage with Westpac Parramatta to Mr Jarrett, there being nothing to link that recommendation to Mr Rodd. In relation to the cross claim based on the Contracts Review Act s 7(ie that the court should find that the contract or a provision in the contract is unjust in the circumstances relating to the contract at the time it was made), the applicant submits that this was a standard home loan mortgage transaction and was not unjust because there was, in this case, a pre-existing mortgage to another bank. Mr and Mrs Jarrett had therefore borrowed money before, signed mortgage documents before and knew what was involved. In relation to their claim that Mrs Jarrett was influenced into entering the mortgage with Westpac by Mr Jarrett Westpac submits that Mrs Jarrett must demonstrate that the bank had knowledge of the circumstances which gave rise to the undue influence and there is no evidence of this. Mrs Jarrett did not indicate that she was operating under this disability to the bank by words or actions. Further, although Mrs Jarrett was pregnant at the time of the signing of the documents, the applicant submits that the Bank is not liable merely because a pregnant woman comes in to sign mortgage documents nor can the Bank assume that if a pregnant woman comes in she is not in control of her faculties and is not in a position to make appropriate assessments of documents. If this was the case this would need to be communicated to the bank officer for the claim to succeed. There is no evidence that this was done in this case. Submissions - Jarretts Mr Jarrett submitted that Westpac through its agent, Mr Peter Rodd restricted Endormer's trading in an unreasonable way and, on 23 April 1993, told him and Mr Paterson his partner that they would be advised to arrange an overdraft and refinance their existing home loans with Westpac. Mr Jarrett gave evidence that he believed as a result of this that he had to refinance with Westpac to save Endormer. However, Mr Jarrett did concede that, rather than accept an offer of assistance from Mr Rodd to be put in touch with a branch of Westpac which he said was offered, he opted to seek his father's assistance and advice in refinancing with Westpac Parramatta. Mr Jarrett referred to a document annexed to Mr Borg's affidavit to support his submission that it was a requirement made of him by Mr Rodd to transfer his home loan and establish an overdraft with Westpac and that his father did not influence him to transfer his home loan to Westpac. Mr Ed Jarrett was not however called to give evidence in this matter. Mrs Jarrett submitted that at the time of signing the mortgage documentation she was very close to the birth of her second child and suffering from contractions and that, as a result, she did not have much recollection of what was or was not said to her by the Westpac officers. However, Mrs Jarrett conceded that she could not point to anything that showed that Westpac was aware of any special disability or difficulty that she was experiencing apart from the fact of pregnancy; there was no evidence that she said anything to Ms Joseph about discomfort or difficulty at the time of signing the documents. Decision As the respondents to this claim make no challenge as to the form and substance of the loan documents, the only contested issues in this case arise from the cross claims made by the respondents. These claims canvassed above in the summary of submissions, amount to two allegations: (a) That Mr Peter Rodd, as the agent of Westpac, acted in a number of ways to the detriment of the Jarretts including requiring the transfer of the home loan. All of these allegations depend on the cross claimants demonstrating that Mr Rodd, in his dealings with the Jarretts was acting on behalf of Westpac. The following facts are not disputed - Mr Rodd was an employee of Westpac who had been seconded to AGC for a period and who had dealings with the business affairs of Endormer Pty Limited - a company directed by Mr Jarrett and his partner Mr Paterson. There is in evidence two documents one, seconding Mr Rodd to AGC and the other describing Westpac's secondment policy. Neither document was challenged by the cross claimants. Mr Jarrett gave evidence that he regarded Mr Rodd as a "Westpac man" and it is not contested that his role, on secondment was to change the "credit culture" of AGC. Further, Mr Rodd had little experience in motor vehicle financing before being seconded to AGC. I am, however, satisfied and find that while seconded to AGC he worked at all times in the interest of and on behalf of AGC, not Westpac. The consequence is that the cross claims which depend on Mr Rodd acting as an agent of Westpac to induce the cross claimants to transfer their home loan fail. (b) That both Mr Jarrett and Mrs Jarrett are entitled to relief under the Contracts Review Act because of the circumstances in which the agreement to refinance was obtained and because of the circumstances in which Mrs Jarrett signed the relevant documents. I accept Mr Jarrett's evidence that he was under pressure from Mr Rodd in relation to his business affairs and in particular the performance of his contractual obligations to AGC. However, I do not accept that the circumstances of the refinancing of his home loan with Westpac Parramatta were affected by those matters. In my view, the transactions conducted at Westpac Parramatta were a direct result of the intervention of Mr Ed Jarrett, Mr Jarrett's father and were arranged to suit Mr Ed Jarrett's convenience as the guarantor of a facility to Endormer Pty Limited. As stated before, Mr Ed Jarrett was not called to give contrary evidence and I accept the contemporaneous file notes prepared by the bank officers at the time of the negotiations. Further, in the course of negotiating the home loan with Westpac Parramatta's officers, Mr Jarrett secured a rate lower than that originally offered. In my view this confirms that this was a business arrangement for the benefit of both parties, without being affected by unequal bargaining power, coercion or undue influence. I accept in relation to Mrs Jarrett's claims that the fact of her advanced state of pregnancy and her general health could have made her vulnerable in relation to the signing of the housing loan documents. However she gave evidence that she knew what she was doing, agreed with her husband to do so and did not communicate, at any time, to Ms Joseph or Mr Borg the officers of Westpac Parramatta any health difficulties she was experiencing. She was not in these transactions a third party which might attract an obligation to provide an opportunity to obtain independent legal advice and, I consider understood the nature of the transaction, this being a refinancing of the cross claimants' home loan. The claims for relief under the Contracts Review Act and the Trade Practices Act are not made out on behalf of either of the cross claimants. I make the following orders: 1. An order for possession of the premises known as 8 Bataan Street, Kings Park in the State of New South Wales being the land described in Folio Identifier 324/250071. 2. An order that Westpac have leave to issue a Writ of Possession forthwith. 3. An order that the respondents pay the sum of $158,973.09 to Westpac. 4. Costs. I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor Associate: Dated: 30 July 1998 Counsel for the Applicant: Self-Represented Counsel for the Respondent: T G R Parker Solicitor for the Respondent: Allen Allen & Hemsley Date of Hearing: 25–29 May 1998 Date of Judgment: 30 July 1998