New South Wales Supreme Court CITATION : Bidmonta v McMillan [2010] NSWSC 580 HEARING DATE(S) : 20 May 2010 JUDGMENT DATE : 4 June 2010 JURISDICTION : Common Law Division JUDGMENT OF : Hislop J 1. Set aside the default judgment dated 17 November 2009. 2. Grant leave to the second defendant to file and serve a defence by 4.00pm on 11 June 2010. The defence to be in the form of the document being Annexure I to the second defendant's affidavit sworn 9 March 2010. 3. Grant leave to the second defendant to file and serve a cross claim by 4.00pm on 11 June 2010. The cross claim is to be in the form of the document being Annexure J to the second defendant's affidavit sworn 9 March 2010. DECISION : 4. List the matter for directions before the registrar on 16 June 2010. 5. The second defendant to pay the plaintiff's costs of the notice of motion filed on 5 March 2010. The first defendant's costs of that notice of motion are reserved. 6. The notice of motion filed on 30 April 2010 dismissed. 7. Each party to bear their own costs of the notice of motion filed on 30 April 2010. LEGISLATION CITED : Consumer Credit Code Real Property Act Bidmonta Pty Limited (Plaintiff) Debra Kay McMillan (1st Defendant) David Robert McMillan (2nd Defendant) PARTIES : Bobbette Lee McMillan (3rd Defendant) Commonwealth Bank of Australia (4th Defendant) Perpetual Limited (5th Defendant) Perpetual Trustees Victoria Limited (6th Defendant) FILE NUMBER(S) : SC 2009/292573 M. Hadley (Plaintiff) COUNSEL : E. Picker (1st Defendant) J.E. Armfield (2nd Defendant) Barraket Ronayne (Plaintiff) SOLICITORS : Peter Dawson & Associates (1st Defendant) Gervase Liddy (2nd Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HISLOP J Friday 4 June 2010 2009/292573 BIDMONTA PTY LIMITED v DEBRA KAY McMILLAN & ORS JUDGMENT Introduction 1 There are two notices of motion before the Court. 2 The first notice of motion was filed on 5 March 2010 on behalf of the second defendant. It seeks orders that a judgment dated 17 November 2009 for the plaintiff against the second defendant in the sum of $453,057.36 be set aside, and that leave be granted to the second defendant to file and serve a defence and cross claim in these proceedings. Those orders are opposed by the plaintiff. 3 The second notice of motion was filed on 30 April 2010 on behalf of the plaintiff. It seeks orders that summary judgment be entered against the second defendant in the sum of $127,267 and that the total funds held in an identified controlled money account with Westpac in the sum of $66,742.37 be released to the plaintiff forthwith. These orders are opposed by the second defendant. Background 4 In 2008 the second defendant was experiencing significant financial problems because of losses on the stock market and a downturn in his electrical business. 5 On 9 May 2008 the second defendant caused $127,000 to be borrowed for three months from the plaintiff at 15 percent per month interest reducing to 10 percent per month if promptly paid. The second defendant used his mother's home at Mt Druitt as security for the loan. The second defendant signed the mortgage and related documents, including a declaration of purpose and an authority that the loan moneys be paid to the second defendant (or his company), in his mother's name. The plaintiff's agent, Rebfin Pty Limited, facilitated the loan. 6 The second defendant was unable to repay the loan. He gained an extension of time on 27 August 2008 by signing his name to the mortgage as guarantor. By virtue of cls 101 and 102 of a memorandum incorporated into the mortgage, the second defendant thereby purported to mortgage his estate and title in any real property he owned. At the time the second defendant owned properties at Castle Hill and Ebenezer with his wife. 7 The second defendant's rights and obligations as guarantor were not explained to him. A copy of the memorandum incorporated into the mortgage was not given to him nor were the documents prescribed by the Consumer Credit Code and regulations. 8 Repayment was not made and on 5 February 2009 the plaintiff commenced proceedings against the second defendant and his mother (the first defendant). The statement of claim commencing proceedings sought orders that the plaintiff have possession of the properties at Mt Druitt, Castle Hill and Ebenezer. It also sought an order that the defendants pay the plaintiff the sum of $273,616. 9 Thereafter, between February and November 2009, there were frequent conversations between the second defendant and a director of the plaintiff in respect to the repayment of the loan. The second defendant made unsuccessful efforts to refinance the loan during this period. 10 On 13 March 2009 the second defendant, after consulting with a solicitor on a "no charge for the first consultation" basis, filed a defence drafted by himself to the statement of claim. 11 On 8 May 2009 the defence was struck out as it was bad in form. 12 On 17 November 2009 the plaintiff obtained default judgment against the second defendant for $453,057.36. 13 On 8 December 2009 the second defendant obtained legal advice following receipt of a letter from the plaintiff's solicitors threatening bankruptcy. 14 On 10 February 2010 a notice of motion was filed by the plaintiff seeking leave to amend the original statement of claim to seek specific performance of the alleged mortgages over the properties and to add additional defendants, being the plaintiff's wife and the first mortgagees of each of the subject properties. 15 On 24 February 2010 leave was granted to amend the statement of claim as sought. 16 On 1 March 2010 the Castle Hill property was sold. The first mortgage over it was discharged and the second defendant's share of the proceeds was paid into a Westpac controlled money account. 17 On 5 March 2010 the subject notice of motion was filed on behalf of the second defendant. 18 The above evidence was drawn from affidavits read on behalf of the second defendant and the plaintiff. None of the deponents were cross examined on their affidavits. I accept that evidence for the purposes of this application only. Determination 19 The second defendant sought relief pursuant to r 36.16 UCPR. Prima facie, in order to obtain relief under that rule the second defendant must establish an arguable defence on the merits and also provide an explanation for delay. 20 Counsel for the second defendant submitted that his client had a good arguable defence to the original statement of claim and has a good arguable defence to the amended statement of claim on the following bases: (i) The mortgage over the Mt Druitt property was void as it was not signed by the first defendant and was not registered under the Real Property Act . There was thus no principal obligation to which the guarantee could attach. (ii) If the Consumer Credit Code applied: (a) the guarantee was unenforceable by reason of a failure of the plaintiff to comply with s 51 of the Code; (b) clauses 101 and 102 of the memorandum incorporated into the mortgage were rendered void by s 40 of the Code; (c) the transaction was unjust and liable to be set aside or varied under ss 70 or 71 of the Code as: (i) a copy of the memorandum containing cls 101 and 102 was not provided or explained to the second defendant; (ii) the rate of interest was penal and was capitalised if unpaid; (iii) the second defendant's financial situation was known to the broker; (iii) The Consumer Credit Code applied to the transaction because the borrower was an individual, a charge was made for the provision of the credit and the credit was provided in the course of the business of the credit provider, and (a) there was a statutory presumption that the funds would be used for personal, domestic or household purposes unless the contrary was established; (b) the funds in fact were used for personal, domestic or household purposes; (c) the declaration of purpose to the contrary was not effective as: (i) it was not signed by the first defendant; and/or (ii) the broker, through whom credit was obtained, knew the purpose of the loan was personal, domestic or household. 21 Counsel for the second defendant submitted that the period of delay, from the filing of the defence on 13 March 2009 to the filing of the plaintiff's motion to amend the statement of claim on 10 February 2010, was short and that the background facts outlined above adequately explained the delay. The second defendant filed his notice of motion shortly after the notice of motion to amend the statement of claim was determined on 24 February 2010. There was no prejudice to the plaintiff in the judgment being set aside. 22 Counsel for the plaintiff did not take issue with any of the second defendant's asserted arguable defences. He said: "I am not arguing each of the issues he has raised because it is not the purpose of this hearing to be a dress rehearsal for a final hearing." He said that: "the better view seems to be that this concern about the defendant's own deception should not necessarily deprive him of his day in court when there are so many issues that he wishes to raise." He submitted that although the delay was not great, no sufficient explanation had been given for it. He did not allege any specific prejudice. 23 It was submitted by counsel for the plaintiff that if the second defendant was to be let in to defend, it should be on the terms sought in the plaintiff's notice of motion. 24 Counsel for the second defendant submitted this would be inappropriate as there were arguable defences to the whole claim which, if the second defendant was successful, would result in a verdict in his favour. Further, such orders were unnecessary as part of the second defendant's funds were held in a controlled moneys account and the plaintiff had placed a caveat on the Ebenezer property. 25 In my opinion, the second defendant has demonstrated an arguable defence on the merits and has sufficiently explained his delay. I accept the second defendant's submissions in regard to the question of conditions and I decline to impose the conditions sought by the plaintiff. In my opinion, it is appropriate to set aside the judgment and allow the second defendant in to defend the proceedings. 26 The second defendant has sought and obtained an indulgence. He should pay the plaintiff's costs of the application. Counsel for the first defendant held a watching brief. The only order sought by counsel for the first defendant at this stage is that her costs be reserved. There was no objection to that order. 27 The plaintiff's application was subsidiary to and made as a consequence of the second defendant's application. No further evidence was adduced in respect of it and it took little of the Court's time. In my opinion, each party should bear their own costs of that application. Orders 28 I make the following orders: 1. Set aside the default judgment dated 17 November 2009. 2. Grant leave to the second defendant to file and serve a defence by 4.00 pm on 11 June 2010. The defence to be in the form of the document being Annexure I to the second defendant's affidavit sworn 9 March 2010. 3. Grant leave to the second defendant to file and serve a cross claim by 4.00 pm on 11 June 2010. The cross claim to be in the form of the document being Annexure J to the second defendant's affidavit sworn 9 March 2010. 4. List the matter for directions before the registrar on 16 June 2010. 5. The second defendant to pay the plaintiff's costs of the notice of motion filed on 5 March 2010. The first defendant's costs of that notice of motion are reserved. 6. The notice of motion filed on 30 April 2010 dismissed. 7. Each party to bear their own costs of the notice of motion filed on 30 April 2010. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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