New South Wales Supreme Court CITATION : St George Bank Limited v Rankin & Ors [1999] NSWSC 974 CURRENT JURISDICTION : Common Law FILE NUMBER(S) : 10617/97 HEARING DATE(S) : 21 September 1999 JUDGMENT DATE : 24 September 1999 St George Bank Limited (Plaintiff) PARTIES : Dorothy Lillian Rankin (First Defendant) Denise Margaret Shields (Second Defendant) JUDGMENT OF : Master Harrison Mr S T White (Plaintiff) COUNSEL : Mr NA Confos (Second Defendant) David Landa Stewart (Plaintiff) SOLICITORS : Mr S Naris Steven Naris & Co (Second Defendant) CATCHWORDS : Summary judgment ACTS CITED : Real Property Act 1900 (NSW) Air Services Australia v Zarb (unreported 26 August 1998) Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62 CASES CITED : General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 NRMA v A W Edwards Pty Limited (NSWCA unreported 11 November 1994) DECISION : See para 25 10 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON FRIDAY, 24 SEPTEMBER 1999 10617/97 - ST GEORGE BANK LIMITED v DOROTHY LILLIAN RANKIN & ORS JUDGMENT (Summary judgment) 1 MASTER: The plaintiff by notice of motion filed 13 November 1997 seeks an order for summary judgment pursuant to Part 13 r 2 of the Supreme Court Rules against the second defendant. The plaintiff relied on the affidavits of Joseph Cutcliffe Weston sworn 12 November 1997, Alan Laubhan sworn 21 September 1999 and Peter William Cornelius of 6 August 1999. The defendant relied on two affidavits of Denise Margaret Shields sworn 27 November 1997 and 10 August 1999. 2 By statement of claim filed 28 February 1997 the plaintiff alleges that on 22 January 1990 Gary Clarke, the second defendant and the first defendant became the registered proprietors of a property situated at 3/100 Park Beach Road Coffs Harbour (the property). On 28 April 1992 Gary Clarke and the first and second defendants (the mortgagors) granted a mortgage to the plaintiff in respect of the property to secure a loan from the plaintiff to Gary Clarke and the second defendant in the sum of $80,000. On 28 April 1992 the plaintiff advanced to Gary Clarke and the second defendant the sum of $80,000. On 10 August 1993 the second defendant transferred her interest in the property to Gary Clarke. Gary Clarke died on 24 May 1995. 3 On 21 November 1995 the mortgagors were in arrears of monthly payments in respect of the mortgage. On or about 22 November 1995 the plaintiff served notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) on the executor of Gary Clarke's estate and on the first defendant. The plaintiff alleges that the mortgagors are in default of the mortgage and the plaintiff is thereby entitled to recover. The plaintiff is not seeking an order for possession against the second defendant but alleges that it is entitled to payment of a monetary sum 4 By amended defence filed 23 August 1999 the second defendant alleges firstly, that the plaintiff is estopped from claiming the mortgage debt from her because following the transfer of her interest to Gary Clarke the plaintiff did not forward to her any loan statements, correspondence, notices or demands and because without her consent the plaintiff varied the loan by fixing the interest rate at 11% for the first 5 years and then reverting to the current variable rate. The second defendant also pleads that the mortgage debt due to the plaintiff should be paid firstly from the proceedings of the sale of the property; secondly from the first defendant and thirdly from the second defendant and that it was a term mortgage and it would be perfect as against all co-borrowers, which terms had been breached by the plaintiff and the plaintiff owed to the second defendant a duty to ensure that the security was perfect as against all co-borrowers and this duty was breached by the plaintiff. 5 On 22 January 1990 Gary Clarke, Denise Clarke and Dorothy Rankin (the mortgagors) became registered proprietors of the property. At that time Gary Clarke and the second defendant were husband and wife. Mrs Rankin is Mr Clarke's mother. On about 6 February 1992 Gary Clarke and the second defendant made application to the plaintiff for a loan in the sum of $80,000. From the evidence, it is unclear which loan approval schedule was approved. There were two, namely one dated 20 February 1992 and the other dated 28 February 1992. Both applications for finance between the plaintiff and Gary Clarke and the second defendant set out certain common terms and conditions. They were that the amount approved was in the sum of $80,000, security was to be by way of a registered third party mortgage and the interest rate could be varied at any time at the plaintiff's discretion. In the loan approval schedule dated 20 February 1992, the monthly repayments were stipulated to be of $1,049 principal and interest at a variable interest rate, interest rate at 13.5% reducing to 12.5% for prompt payment. In the loan approval schedule dated 28 February the monthly repayments were stipulated to be $1,137 principal and interest rate at a variable interest rate of 15.25% reducing to 14.25% for prompt payment. 6 On about 28 April 1992 the mortgagors executed a mortgage in favour of the plaintiff in respect of the property. The mortgage provided that the provisions of memorandum X647856 were deemed incorporated in the mortgage and that the mortgagors would observe such provisions (the memorandum). The memorandum provided relevantly that the mortgagors would on demand pay to the plaintiff all moneys which Gary Clarke and the second defendant were liable to pay to the plaintiff. The mortgagors would on demand by the plaintiff pay all costs (including legal costs as between solicitor and client) expenses and other amounts incurred or paid by the plaintiff in respect of the mortgage. The mortgagors shall at the option of the plaintiff be immediately in default if there was default in the performance of any term covenant, agreement or condition contained in or implied by the mortgage or any collateral security. The advance of $80,000 was made by the plaintiff to Gary Clarke and the second defendant on 27 April 1992. On about 10 August 1993 the second defendant transferred her interest in the property to Gary Clarke pursuant to an order of the Family Court of Australia. The plaintiff was provided with a copy of the terms of settlement (Ex 1). It is alleged that there has been default in that payments due under the mortgage have not been made since November 1995. 7 On about 21 November 1995 notice pursuant to s 57(2)(b) of the Real Property Act (NSW) as forwarded to the executor of the estate of Gary Clarke and the first defendant. No statements or notices were forwarded to the second defendant by the plaintiff. 8 The relevant parts of Part 13 r 2 says: "2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff - (a) there is evidence of the facts on which the claim or part is based; and (b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed, the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires. 9 In a recent decision in Air Services Australia v Zarb (unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49)78 CLR 62, General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted. 10 In General Steel Barwick CJ, who heard the application alone, referred to Dixon J's passage quoted above at p 130. He then stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 11 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 12 In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 13 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 14 The second defendant referred to a passage of Kirby P in NRMA v A W Edwards Pty Limited (NSWCA unreported 11 November 1994). 15 In the affidavit of Alan Laubhan sworn 21 September 1999, he deposes that the second defendant is indebted to the plaintiff in the sum of $115,660.92 as at 28 August 1999. He attached a loan schedule to his affidavit in which he calculates the arrears. It is difficult to establish how this amount of arrears is calculated. There are two different approval schedules, which refer to different rates of interest and different repayment amounts which could provide the basis for this calculation. The loan arrangements in the schedule, are at odds with the loan agreement pleaded in the statement of claim. The statement of claim pleads at paragraph (12) that the loan was for a period of 12 years, 7 months with the first 5 years fixed at an interest rate of 11.0% per annum and then reverting to the then current variable rate, presently 8.25% per annum. Mr Laubhan also swore an affidavit to the statement of claim stating that the allegations in the statement of claim are true. There are at least two different bases for the calculation of the amount due and owing under the mortgage. Either the statement of claim needs to be amended or the amount owing in the affidavit needs to be recalculated. 16 As it is unclear how those arrears have been calculated and there are different bases for that calculation and no explanation as to which one is the correct one, summary judgment should not be entered. 17 In relation to paragraphs (8) to (11) of the amended defence the second defendant submitted that when the plaintiff consented to sign the transfer of the property from the second defendant to the first defendant and the second defendant's former husband, Mr Clarke, the second defendant became a surety not a principal debtor and the plaintiff has acted to her detriment. It was, of course, the second defendant who sought the consent of the defendant to the transfer of the property to her husband and his mother. 18 In support of the second defendant's proposition she referred to a passage from Law of Mortgage by Fisher & Lightwood Butterworths 1995 which says at paragraph 14.17: "…When the mortgagor's interest is assigned with the consent of the mortgagee, or, as it is sometimes said, the land is transferred subject to the mortgage, the original mortgagor will continue to be liable on his covenants so that he is in effect a surety: see for example Grove v Public Trustee [1931] NZLR 1071; Dennis v Martin [1932] VLR 361 and McDonald v Gardiner [1933] VLR 129…" 19 I have read Grove, Dennis and McDonald and they do not assist the second defendant's proposition. 20 The second defendant referred to another passage from The Modern Contract of Guarantee by Drs Phillips and O'Donovan, the Law Book Co Ltd 1992 which states: "Even if there is no variation of the terms of the main contract by agreement between creditor and principal the guarantee may be given upon a condition that a specific security be obtained, perfected, protected, maintained or preserved by the creditor. The term may be implied from the circumstances, and oral evidence is admissible to prove the condition if it amounts to a condition precedent to the operation of the guarantee. If such a condition can be shown to exist any failure in the performance of the condition will operate to release the guarantor from all liability because the creditor has not performed his part of the bargain. As in the case of a consensual variation, it is irrelevant that the security which is impaired or lost by the breach of condition has a substantially lower value than the amount guaranteed." 21 It is my view that the argument that when the plaintiff signed the consent to the transfer the second defendant became surety is hopeless. Likewise the argument that the second defendant owed a duty of care to ensure that the security held by it would not be impaired and would be maintained and preserved is also hopeless. I have read the authorities cited. These passages and authorities do not provide support for those propositions in circumstances where the second defendant was instrumental in obtaining the plaintiff's consent to the transfer. 22 As the pleadings raised in paragraphs (8) to (11) in the amended defence are hopeless they should be struck out. The issue of whether or not the second defendant is estopped from making the amendment in paragraph (4) of the amended defence is unnecessary to decide because it relates to the plaintiff's entitlement to possession against the second defendant. The plaintiff is not seeking possession of the property from the second defendant. 23 Costs are discretionary. As the plaintiff sought summary judgment for a monetary amount and there is conflict between the affidavit and the pleading as to the terms of the mortgage which gives rise to different amounts of arrears, it should pay the second defendant's costs. 24 The orders I make are: (1) Paragraphs (8) to (11) of the amended defence are struck out. (2) The plaintiff is to pay the second defendant's costs. ********** Last Modified: 09/27/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.