Supreme Court New South Wales Medium Neutral Citation: Commonwealth Bank of Australia v Sandra Lee Tarrant [2011] NSWSC 1087 Hearing dates: 12 September 2011 Decision date: 20 September 2011 Before: Harrison AsJ Decision: (1) The plaintiff's notice of motion dated 25 March 2011 is dismissed. (2) The defendant is granted leave to file an amended defence that pleads the relief sought under the Contracts Review Act 1980 within 14 days. (3) The matter is listed for a status conference before the Registrar on 11 October 2011 at 9.00am. (4) Costs are reserved. Catchwords: PROCEDURE - civil - summary disposal - strike out defence; application to - no reasonable defence - inappropriate to determine an unconscionability defence under the Contracts Review Act 1980 on application for summary judgment - pleadings - defective pleadings - strike out; application to - leave granted to amend pleading Legislation Cited: Contracts Review Act 1980 Real Property Act 1900 Uniform Civil Procedure Rules 2005 Cases Cited: Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 Garcia v National Australian Bank (1998) 194 CLR 395 Yerkey v Jones (1939) 63 CLR 649 Category: Procedural and other rulings Parties: Commonwealth Bank of Australia - Plaintiff Sandra Lee Tarrant - First Defendant David Charles Hawkins - Second Defendant Representation: A C Casselden - Plaintiff J P Pope - First Defendant Pope & Spinks GADENS Lawyers File Number(s): 2010/302897 Judgment 1HER HONOUR: There are two notices of motion before the Court, both filed 25 March 2011. The first notice of motion was filed by the plaintiff and seeks firstly, judgment for the plaintiff against the first defendant in accordance with the statement of claim pursuant to Rule 13.1 of the Uniform Civil Procedure Rules 2005 ("UCPR"); secondly, in the alternative, judgment for the plaintiff against the first defendant for possession of the land pursuant to UCPR 13.1; thirdly, and alternatively, the first defendant's defence be struck out pursuant to UCPR 14.28; and judgment for the plaintiff against the defendant in accordance with the statement of claim pursuant to UCPR 16.8. 2The first defendant filed the second notice of motion, which seeks an order that leave be granted to file an amended defence in these proceedings. 3The plaintiff is the Commonwealth Bank of Australia ("CBA"). The first defendant is Sandra Lee Tarrant ("Ms Tarrant"). The second defendant is David Charles Hawkins ("Mr Hawkins"). He was Ms Tarrant's husband and he is now bankrupt. CBA relied on the affidavit of Helen Denkha sworn 5 April 2011 and Michael Collins dated 9 September 2011. Ms Tarrant relied on her affidavit sworn 23 March 2011. Background 4On about 20 April 2009, CBA agreed to make available to the first defendant credit in the sum of $1,430,200 ("the Agreement"). On 27 July 2009, in accordance with the terms of the Agreement, CBA made that amount available to the first defendant ("the Settlement"). 5Ms Tarrant is the registered proprietor of the whole of the land in folio identifier x/xxxxxx situate at and known as xx xxxxx xxxx, Newport ("the land"). The first defendant mortgaged the whole of the land to CBA in order to secure the loan. 6Prior to settlement, Ms Tarrant and Mr Hammond owned the land as joint tenants. On 22 December 2006, the first and second defendants mortgaged the whole of the land to Statewide Investments Limited in consideration of an advance in the sum of $1,330,000. By letter dated 24 July 2009, Ms Tarrant's then solicitors wrote to CBA directing that the sum of $1,400,000 be paid to Statewide Secured Investments Limited. On settlement, the land was transferred solely to Ms Tarrant. She is the principal borrower. 7It is not disputed that Ms Tarrant has defaulted under the Agreement and mortgage by failing to make repayments when due and that on 22 March 2010, CBA issued the first defendant with a default notice and notice pursuant to s 57(2)(b) of the Real Property Act 1900. 8As at 9 September 2011, Ms Tarrant was indebted to CBA in the sum of $1,674,304.95. Ms Tarrant has been attempting to sell the property at Newport. Its estimated value is around $1,400,000. There will a shortfall, should a sale occur. 9CBA seeks possession of the Newport property and judgment for the amount owning. Summary judgment 10UCPR 131(1) provides: "13.1 Summary judgment (1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim 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 of the claim, or no defence except as to the amount of any damages claimed, the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires. (2) Without limiting subrule (1), the court may give judgment for the plaintiff for damages to be assessed. (3) In this rule, a reference to damages includes a reference to the value of goods." 11The test to be applied when considering an application for summary judgment is similar to the consideration made in relation to an application for summary dismissal of proceedings generally. In General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ said that a litigant should not be denied access to the appropriate tribunal unless his lack of a cause of action is clearly demonstrated and that "The test to be applied on summary judgment has been variously expressed; as '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'." Various courts have often restated this test. 12As previously stated, CBA alternatively seeks that the defence be struck out and that default judgment be entered. The proposed defence 13Essentially, Ms Tarrant's proposed amended defence raises a Contracts Review Act type defence. The Contracts Review Act 1980 14Section 7 of the Contracts Review Act reads: "(1) Where the court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract; (b) it may make an order declaring the contract void, in whole or in part; (c) it may make an order varying, in whole or in part, any provision of the contract; (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument; or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the court makes an order under subsection (1)(b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19." 15Section 9(1) of the Contracts Review Act states that in determining whether a contract is unjust in the circumstances when the contract is made, the court is to take into account the public interest and the consequences and results from compliance or non-compliance with the contract. The court should have regard to whether or not and when independent legal or other expert advice was obtained by the party seeking relief under the Act, the extent to which the provisions of the contract and their legal and practical effect were explained and whether any undue influence, unfair pressure or unfair tactics were exerted or used against the party by another person appearing or purporting to act for another party to the contract. The court may decide at a trial to set aside the mortgage in whole or in part. 16Ms Tarrant is 51 years of age and the mother of two boys, Jay, aged 21 and, Digby, aged 9. She is employed as a registered nurse and works in the operating theatres. She grew up in Avalon with her parents and three sisters and attained her HSC. In January 1977, she commenced her nursing training. 17In 1996, while still working as a registered nurse, Ms Tarrant completed a diploma of counselling. She also attained a Graduate Diploma in Adolescent Health and Welfare. Around 1999 she worked as an adolescent counsellor in addition to her nursing work. 18She says that prior to meeting her present husband, Mr Hawkins, Ms Tarrant always struggled on a nurse's wage but managed to pay her bills and had a good credit rating. In 1996 she met David Hawkins. In January 2001 they married. Her evidence is that she is an experienced nurse and she has no knowledge of the business world. 19Ms Tarrant says that throughout her relationship with David he has been involved in various building projects in or relatively near Sydney. As part of these projects David has asked her to be the registered proprietor of certain land or land with him or with his joint venturers. Ms Tarrant says that she has taken on this role but she has not been involved in any of the decision making processes involved in these building developments or the financial arrangements associated with such building work. 20Ms Tarrant has always relied on David Hawkins to do all business negotiations and make all decisions in relation to business and legal matters. David has told her that he had attained a law degree and he has been in control of all the drafting of documents in her legal matters and selected all lawyers who have represented her and he controlled the instructions given to them. It was not until the last several months that she has been assisted by a lawyer without David's influence or involvement and absence. 21In essence, Ms Tarrant is saying that Mr Hawkins made all the arrangements for the loans. She says that Mr Hawkins has been the sole person that she has relied on for advice and prior to signing the CBA, documents Ms Tarrant did not have any legal advice about the loan or mortgage documents prepared by CBA. She understood all communications with CBA were undertaken through her husband's solicitor, who received all instructions from Mr Hawkins not her. 22The proposed amended defence relevantly pleads. "1. The First Defendant denies the claim by the Plaintiff herein and says in response that the mortgage and loan documentation upon which the Plaintiff relies is void or voidable as it was entered into by the First Defendant in circumstances where she is entitled to equitable relief as pleaded herein. 2. The documentation upon which the Plaintiff relies was signed without the First Defendant having adequate understanding of the effect of the documents and the nature of the transaction. 3. At the time of execution of the documents the First Defendant says she was under the undue influence of her husband David Charles Hawkins who is the Second Defendant in these proceedings (hereinafter referred to as 'the husband'). 4. The First Defendant says that the Plaintiff knew or ought to have known that the First Defendant was subject to the undue influence of her husband. 5. Knowledge of this undue influence arose or should have arisen in the Plaintiff as a consequence of the Plaintiff dealing only with the husband and having no direct contact with the First Defendant. 6. Knowledge of the undue influence over the First Defendant arose or should have arisen in the Plaintiff because the First Defendant had the same solicitor as the First Defendant [sic], the husband and otherwise received no independent legal advice. 7. Knowledge of the undue influence of the husband over the First Defendant in the Plaintiff arose or should have arisen as the husband negotiated simultaneously with the Plaintiff for other loans and mortgages from the Plaintiff to the husband. 8. The First Defendant proceeded on the mistaken belief induced by the husband that she should enter into the transaction with the Plaintiff from which the Plaintiff relies in these proceedings as further finance would be available to discharge all obligations owed to the Plaintiff and the Plaintiff knew or should have been aware of this belief in the First Defendant. 9. The First Defendant says that she received no explanation or in the alternative no adequate explanation of the documents upon which the Plaintiff relies. 10. In the alternative the First Defendant says that she received no independent legal advice or in the alternative independent legal advice of the documents upon which the Plaintiff relies. 11. The First Defendant says that she acted only as the nominee of the husband in business transactions controlled by the husband including the owning or part owning certain properties and that she was not likely to directly benefit from her dealings with the Plaintiff as all funds being advanced by the Plaintiff were controlled by the husband. 12. The First Defendant says that she was not acting independently and voluntarily in this matter as her will was overborne by the pressure and influence brought upon her decision making capacity by the husband. 13. The First Defendant says that the contract should not be enforced for the following reasons: (a) The First Defendant did not understand the purport and effect of the transactions. (b) The First Defendant acted as the nominee of the husband and the loan undertaken with Plaintiff was purely for the benefit of the business of the husband. (c) The Plaintiff understood at all relevant times that the First Defendant was the wife of the Second First Defendant and that he had dominion over all matters of business being conducted between the Plaintiff and the First and Second First Defendants [sic]. (d) The Plaintiff relied upon the husband and/or the husband's solicitor to fully and accurately explain the purport and effect of the transaction for the First Defendant. (e) The lender did not take steps to explain the transaction to the First Defendant or to ensure that a legal practitioner independent of the husband explained it to her. (f) The Plaintiff knew or should have known that the First Defendant had no capacity to repay the loan but relied instead upon representations made by the husband. 14. The moneys paid by the First Defendant at the direction of the husband's solicitor were used to pay out business dealings of which the husband had dominion and control." 23Counsel for CBA submitted that as Ms Tarrant is the principal borrower the considerations outlined in Garcia v National Australian Bank (1998) 194 CLR 395 do not apply. 24In Garcia the High Court reinstated the principle in Yerkey v Jones (1939) 63 CLR 649. Yerkey , as explained by the High Court in Garcia (at [31]), 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." 25While in Garcia , Mrs Garcia was a guarantor, the Contracts Review Act applies to both borrowers and guarantors. 26Alternatively, CBA submitted that as there are no allegations of fraud or fraudulent statements against it. Nor are there any allegations that it had knowledge of the role of Mr Hawkins and in these circumstances it should be entitled to possession and payment of the monetary sum. Failing that, the CBA submitted that possession should be granted and the dispute over the monetary sum could go to trial. 27The difficulty with Ms Tarrant's defence of undue influence is that there is no evidence to establish that CBA had any knowledge of her arrangements. Ms Tarrant signed the mortgage and loan documentation and she signed an 'acknowledgment by borrower' contained in the Guarantor's Servicing Acknowledgements dated 4 May 2009 to the effect that the guarantor [Mr Hawkins] would be required to assist by contributing to instalments or repayments under any loan contract or to repay the loan; without the guarantor's continued assistance would be unable to repay the loan; and the amount of repayments which would be required to make may increase due to unforeseen circumstances, including illness or unemployment of the guarantor, other changes in the guarantor's financial circumstances or increased in interest rates; and the bank had recommended that independent legal and financial advice be obtained. 28Documents were recently supplied by CBA to the solicitor for Ms Tarrant. It may be that there will be evidence forthcoming from Mr Hawkins concerning the knowledge that CBA had in relation to his involvement the loan transaction and the mortgage. 29Although it is trite law, I remind myself that the Contracts Review Act is a remedial piece of legislation which should be interpreted liberally, free from the fetters imposed by analogous legal and equitable doctrines: see Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 277. Similar statements have been made in Garcia v National Australia Bank Limited . 30I adhere to the comments of Rogers CJ in Commercial Banking Co of Sydney Ltd v Pollard (1983) 1 NSWLR 74 at 80 where his Honour stated that it is generally inappropriate to determine such a defence under the Contracts Review Act 1980 on an application for summary judgment. It is my view that Ms Tarrant's case is weak but I cannot say that it is hopeless and it should be permitted to proceed to trial. 31The proposed amended defence at [15] pleads that, "... the First Defendant seeks relief under the Contracts Review Act ". While I will not strike out the pleadings under rule 14.28, the solicitor acting for Ms Tarrant accepts that the relief she seeks under the Contracts Review Act needs to be properly pleaded and I grant leave to further amend the defence. 32The plaintiff's notice of motion dated 23 March 2011 is dismissed. The defendant is granted leave to file an amended defence that pleads the relief sought under the Contracts Review Act within 14 days. 33Costs of the motions are reserved. The Court orders that: (1) The plaintiff's notice of motion dated 25 March 2011 is dismissed. (2) The defendant is granted leave to file an amended defence that pleads the relief sought under the Contracts Review Act 1980 within 14 days. (3) The matter is listed for a status conference before the Registrar on 11 October 2011 at 9.00am. (4) Costs are reserved. ********** 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. Decision last updated: 21 September 2011