New South Wales Supreme Court CITATION : Commonwealth Bank of Australia v MacDonald [2000] NSWSC 93 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 10047/99 HEARING DATE(S) : 21 February 2000 JUDGMENT DATE : 6 March 2000 Commonwealth Bank of Australia (Plaintiff) PARTIES : Ian Harley Donald MacDonald (First Defendant) Elizabeth Helen MacDonald (Second Defendant) JUDGMENT OF : Master Harrison Mr R Hollo (Plaintiff) COUNSEL : Mr M J Watts (Defendants) Abbott Tout (Plaintiff) SOLICITORS : Searle & Associates (Defendants) CATCHWORDS : Summary judgment - possession LEGISLATION CITED : Supreme Court Rules Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Dey v Victorian Railway Commisioners (1948-49) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 Gibson v Parkes District Hospital (1991-92) 26 NSWLR 9 Moscow Narodney Bank Limited v Mosbert Finance (Aust) Pty Limited & Ors [1976] WAR 109 Wallingford v Mutual Society (1880) 5 AppCas 685 CASES CITED : Bank fur Gemeinwirtschaft v City of London Garages [1971] 1 All ER 541 Garcia v National Australia Bank Limited (1998) CLR 395; (1998) 72 ALJR 1243 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Radin v Commonwealth Bank of Australia (unreported Federal Court of Australia, 23 October 1998) Commonwealth Bank of Australia v MacDonald & Anor (unreported Master Malpass, 7 July 1997) Vadusz v Pioneer Concrete (SA) Pty Limited 1995) 184 CLR 102 Blomley v Ryan (1956) 99 CLR 362 Collier & Anor v Molend Finance Corporation (Victoria) Pty Limited (1989) NSWConVR 58.438 Ishac v David Securities Pty Limaited (No 9) (NSWSC unreported, 6 June 1992) DECISION : See para 29 15 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON MONDAY, 2 MARCH 2000 10047/99 - COMMONWEALTH BANK OF AUSTRALIA IAN HARLEY DONALD MACDONALD & ANOR JUDGMENT (Summary judgment; possession) 1 MASTER: By notice of motion filed 5 August 1999 the plaintiff seeks summary judgment against the second defendant Elizabeth Helen MacDonald for payment of a monetary sum, possession of the whole of the land comprised in Flat 4 of Lot 5 in Deposited Plan 8075 and commonly known as Flat 4, 82-84 Bower Street Manly (the property) pursuant to Part 13 r 2 of the Supreme Court Rules (SCR) and leave to issue a writ of possession. The plaintiff relied on three affidavits of Iain Malcolm Stevens sworn 30 July 1999, 24 November 1999 and 18 February 2000. The second defendant did not rely upon any affidavit evidence. Default judgment has been entered against the first defendant. The first defendant is bankrupt. 2 The amended defence and cross claim were filed 18 February 2000. Leave was granted to the filing of the amended cross claim during the hearing on the basis that the defendant pay the costs thrown away by the amendment. 3 The brief facts of the matter are: (1) On 4 December 1990 the plaintiff gave details of the distribution of the funds of $557,836 which represented funds from settlement of a property. After distribution there was a surplus of $45,572.44 which was held in the defendants joint account (Ex 1). (2) On 4 December 1990 the first defendant executed an equitable charge over Group A (flat 1) shares (the first equitable charge). The first and second defendants executed an equitable charge of Group D (flat 4) shares (the second equitable charge). These charges secured a purported home loan advance to the first and second defendants to assist them to purchase Flats 1 and 4, 82-84 Bower Street Manly. The second defendant also executed a formal application for a home loan. (3) On 5 December 1990 the bank advanced to the first and second defendant a loan of $200,00 expressed to be a home loan advance to assist in the purchase of flats 1 and 4 of the property (the first advance). (4) On 12 December 1990 by letter addressed to Mr and Mrs MacDonald from the plaintiff stated: "We confirm settlement has been effected with your solicitor and the Bank handed over $155,011.90 to Sanwa Australia Finance Limited and $58,816.98 to Stone & Partners in exchange for deeds and documents for the property at 1/82-84 Bower Street Manly." (5) On 6 December 1990 approval of the loan was confirmed by letter to the defendant. (6) In late July 1991 the loan was increased by a further $40,000 by way of a home improvement loan purportedly for the renovation of Flats 1 and 4 of the property. That amount of $40,000 was debited to the home loan account (the second advance). (7) On 15 December 1995 the loan was increased to $350,000. Part of the increase to the loan was to reduce loan facilities of Macdonald Yeldham, a firm of solicitors, of which the first defendant was principal (the third advance). (8) It is not disputed that the defendants have been in default under the home loan account in that they failed to make a principal and interest payment due on 17 September 1996. Since 17 September 1996 the defendants have not made any payments. The law in relation to summary judgment 4 The relevant parts of Pt 13 r 2 (SCR) 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. 5 In a recent decision Air Services Australia v Zarb (NSWSC 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 in Zarb. 6 In General Steel Barwick CJ, who heard the application alone 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." 7 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." 8 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."' 9 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." 10 In Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at pp 373-374 Master Allen (as he then was) said: "…It is not by any means rare in the history of the development of the common law that a high appellate court, in enunciating a novel development in the law, albeit one avowedly based on a miscellany of old cases, has chosen to use general words of imprecise limits in meaning to facilitate the arrival, in later cases, of the final form of the development without the need to overrule what earlier had been stated. That being so I am of opinion that a court at first instance should be particularly astute not to risk stifling that development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie. The risk of injustice to the plaintiff, which summary termination of his claim would entail, is real. One cannot predict, with firm assurance, what the future holds as the final formulation of the new development." 11 This passage was quoted with approval by Justice Badgery-Parker in Gibson v Parkes District Hospital (1991-92) 26 NSWLR p 9 at 35. 12 Further, in relation to the appropriate tests for summary judgment the plaintiff's counsel referred to Moscow Narodney Bank Limited v Mosbert Finance (Aust) Pty Limited & Ors [1976] WAR 109 which is a decision of Brinson J of the Supreme Court of Western Australia in relation to Order 14 r 3(1). This order is different from Part 13 r 2 SCR. Brinson J referred to a statement by Lord Blackburn in Wallingford v Mutual Society (1880) 5 AppCas 685 where he said that "it is not enough to swear I say I owe the man nothing. Obviously that is not enough." The plaintiff's counsel referred to Bank für Gemeinwirtschaft v City of London Garages [1971] 1 All ER 541 where the English Court of Appeal on an application for summary judgment considered whether there was a triable issue (per Cairns LJ at 546). It concerned an action by the holder of a bill of exchange where the defendant alleged fraud. The defendant was not entitled to defend it. The plaintiff established by clear and unchallenged evidence that the bill was taken in good faith for value. This case is authority for propositions already stated above. 13 By defence, the defendant says that she had no knowledge of the amounts advanced by the bank and denied that amounts were advanced to her (para 4). In relation to the second equitable charge that at the time of signing this document, the second defendant alleges that the first defendant procured her signature and that she did not receive legal advice nor was she informed by the plaintiff as to the financial position of the first defendant's legal practice nor did she obtain legal advice and as a consequence was under a special disability (paras 14 and 15). The second defendant alleges that the moneys from these advances went to fund the working capital needs of the first defendant's practice and for other purposes not for the benefit of the second defendant (Cross claim para 20) and the plaintiff's actions in obtaining the second defendant's signature on the second equitable charge constituted unconscionable conduct. The relief sought is a declaration that the second defendant is not indebted or liable to the plaintiff pursuant to the second equitable charge and an order that the plaintiff deliver to the second defendant the Group D shares and a declaration that the Group D shares are not mortgaged or otherwise encumbered pursuant to the second equitable charge (cross claim para 23). 14 In short, the second defendant argues that she is entitled to relief under the principles decided by the High Court in Garcia v National Australia Bank Limited (1998) CLR 395; (1998) 72 ALJR 1243 and Commercial Bank of Australia v Amadio (1983) 151 CLR 447 15 In Garcia the High Court reinstated the principle in Yerkey v Jones (1939) 63 CLR 649. Yerkey as explained by the High Court in Garcia, established that it will be unconscionable for a bank to enforce a mortgage against a surety if: "(a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary, in the sense that the surety obtained no gain from the contract, the performance of which was guaranteed; (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her." 16 These principles have been applied by Lindgren J in Radin v Commonwealth Bank of Australia (unreported Federal Court of Australia, 23 October 1998). The plaintiff referred to a passage on p 208 of that judgment. This is not to the point as on that page Lindgren J stated that Judith Radin's (the wife of a solicitor) case was not argued as a Yerkey case. In any event, each case depends on its own facts, once they are known. Radin was a trial and not an application for summary judgment. 17 The plaintiff submitted that the principles quoted above cannot assist the second defendant because the second defendant is not a surety insofar as the home loan and home improvement loan (the first and second advances) are concerned. The second defendant borrowed moneys jointly with the first defendant for the purchase and improvement of their property and gave as security for that loan her Group D shares entitling her to occupation of flat 4 of the property. She is a principal debtor. According to the plaintiff the second defendant is not a volunteer in respect of the transaction. She obtained a benefit from the first and second advances. 18 The plaintiff applied to set aside default judgment in other proceedings involving the second defendant. In Commonwealth Bank of Australia v MacDonald & Anor, (unreported Master Malpass, 7 July 1997) a different equitable charge was pleaded namely that created by deed made on 26 October 1990 (the first equitable charge). In both cases namely the matter before Master Malpass and this matter, the equitable charge created by deed are in the form of an "all money" security. At p 6 of his judgment Master Malpass stated: "The second defendant does not dispute her liability in respect of the home loan advance., Accordingly she does not seek to be relieved on any liability to repay the amount owing in respect of the advance." 19 The reference to the home loan advance is to the first advance in these proceedings. This finding does not accord with the second defendant's defence in these proceedings. The evidence of the second defendant recorded in the transcript of proceedings (pp 45-46 - Ex C) before Master Malpass is as follows: "Q. When you executed that document and obtained a housing loan, you understood you were mortgaging your shares? A. For a housing loan? Q. Yes? A. Yes. Q. You understood that you and your husband owned shares in a company, but it gave you rights to a property at Manly? A. Yes … Q. You understand, don't you, if you mortgage your house for a loan and you are in default the Bank would be able to take the shares from you, you understand that in effect? A. In effect I understand it." 20 The second defendant also said that she was in the habit of reading letters from the bank. In cross examination, she answered that in 1990 she would not have recognised a share contract form as it had never been explained to her but acknowledged that it was her signature on the document. She also gave evidence that she did not always read document before she signed them because her husband over the years gave her a lot of documents to sign and because he was a solicitor, she signed them thinking that he knew what he was doing and it was in her best interest (t 47.45). She did not recall her husband telling her that he needed to increase the amount of the loans nor that he had increased the home loan. The second defendant admitted that she would have signed documents if they were for renovations. 21 Master Malpass declined to set aside the default judgment. Mrs MacDonald appealed. Between the time Master Malpass gave judgment and the appeal was heard, the High Court decided Garcia. Sperling J, on appeal, quoted to the following passage from Dixon J in Yerkey which the High Court reaffirmed as being part of the law of this State. The passage is as follows: "if a married woman's consent to become a surety for her husband's debts is procured by the husband and without understanding its effect in essential respects she executed an instrument of suretyship which the creditor accepts without dealing directly with her personally, she has a prima-facie right to have it set aside." 22 Sperling J drew a distinction between the appellant having a reasonable understanding of a particular kind of transaction (as the Master found) and her understanding, in essential respects, of the effect of the particular instrument relied upon. Sperling J held that the Master did not make a finding which would determine whether Mrs MacDonald had an arguable defence under Yerkey and remitted the application to Master Malpass for redetermination. The redetermination has not taken place. 23 Although Garcia involved the wife giving a guarantee in respect of a husband's business loans, unconscionable conduct is not limited to guarantees. In Amadio, which involved parents giving a mortgage and guarantee in respect of their son's business, Mason J at p 641 stated that it goes without saying that it is impossible to describe definitively all the situations in which relief will be granted on the grounds of unconscionable conduct and gave as examples those discussed in Blomley v Ryan (1956) 99 CLR 362 at pp 405-415. So unconscionable conduct is a general principle not limited to guarantees. 24 In relation to the four principles discussed in Garcia, there is evidence to suggest that Mrs MacDonald understood that she mortgaged her house for a loan and if she was in default the bank would be able to take the shares. From the preceding questions in the transcript this appears to be her understanding at the time of entering into the housing loan although her evidence in the proceedings before Master Malpass is that she was not disputing the home loan and if the advice was for home improvements she would have signed the documents. In relation to (b) her allegation appears to be that she did not benefit from the home loan. The lender can be taken to have understood that the second defendant was a wife of the first defendant and may repose trust and confidence in her husband in matters of business and the lender did not take steps to explain it to her (c). In relation to (d) there is no evidence before the court as to the state of the bank's knowledge at the time the transactions were entered into. There is no other evidence of the plaintiff's understanding of the instrument's effect in essential respects. 25 The second defendant referred to Vadusz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102 as being authority for the proposition that the court in cases seeking equitable relief should not enter judgment on that part of the claim which is hopeless. I do not read Vadusz as support for this proposition. It is my view that the second defendant's case in regard to the third advance is not hopeless and should be permitted to go to trial. The bank's documents show that a large portion of that advance was paid into the first defendant's solicitors practice. So should the second defendant's defence in relation to the first and second advances be permitted to go to trial? It is my view that as equitable relief is being sought the facts and circumstances surrounding all three advances should be examined. Further, as Sperling J pointed out, it has to be determined in this case, as in the one before Master Malpass that Mrs MacDonald had to have an understanding in essential respects of the effect of a particular instrument relied upon. These facts and circumstances are more properly determined at trial. 26 I turn to consider some discretionary matters. As there is little delay in obtaining a hearing date and much court time has been devoted to two applications by the bank, namely the hearings before Master Malpass, Sperling J and this court and there is currently a redetermination application outstanding, the utility of the plaintiff's applications are debatable. It would be a more efficient use of the parties' and the court's time if the matters proceeded to hearing in an expeditious manner and this would allow all the matters in dispute to be properly determined. The redetermination would involve canvassing some of the facts that will be determined at trial. 27 The plaintiff also submitted that as the second defendant has not offered terms the statement of claim should be dismissed. It referred to Collier & Anor v Molend Finance Corporation (Victoria) Pty Limited (1989) NSWConVR 58.438 where Meagher JA stated that it would be a rare circumstance when a court in the exercise of its duty to make a just order, would deprive an innocent party of the benefit of its contract, particularly when the party seeking to set aside does not offer terms. Whether or not the second defendant is prepared to offer terms is a matter to be canvassed at the hearing, not in an application for summary judgment. Similarly Young J in Ishac v David Securities Pty Limited (No 9) (NSWSC unreported, 6 June 1992) dealt with the issue of the defendant failing to offer to do equity at the trial. 28 For the above reasons I dismiss the motion. Costs are discretionary. Costs should follow the event. The plaintiff is to pay the second defendant's costs. 29 The orders I make are: (1) The plaintiff's notice of motion filed 5 August 1999 is dismissed. (2) The plaintiff is to pay the second defendant's costs. ********** Last Modified: 09/25/2000 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.