Aitken v Statewide Secured Investments Limited (No 2)
[2013] NSWSC 1259
•05 September 2013
Supreme Court
New South Wales
Medium Neutral Citation: Aitken v Statewide Secured Investments Limited (No 2) [2013] NSWSC 1259 Hearing dates: 13/08/2013 Decision date: 05 September 2013 Jurisdiction: Common Law Before: Harrison AsJ Decision: The Court orders that:
(1) Leave to the plaintiff to file an amended statement of claim is refused.
(2) These proceedings (including the outstanding notices of motion) are dismissed.
(3) The plaintiff is to pay the first defendant's costs of the proceedings.
Catchwords: Civil - Guarantee - Breach of duty of care - Consideration of Modderno v ANZ Bank [1999] NSWCA 13 - Misrepresentation of terms - Res Judicata and issue estoppel - Solicitor's authority to sign on behalf of the plaintiff - Consideration of Papailia v Romeo [2011] NSWSC 696 Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth)
Contracts Review Act 1980
Federal Court Act 1976 (Cth)
Trade Practices Act 1974 (Cth)Cases Cited: Bank of India v Trans Continental Commodity Merchants Ltd [1983] 2 Lloyd's Rep 298
Blair v Curran [1939] HCA 23; (1939) 62 CLR 464
Mayor of Durham v Fowler (1889) 22 QBD 394
Modderno v ANZ Bank [1999] NSWCA 13
O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71
Papailia v Romeo [2011] NSWSC 696
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Romeo v Papailia [2012] NSWCA 221
Spencer v Commonwealth [2010] HCA 28; 241 CLR 118Texts Cited: Online Encyclopaedic Australian Legal Dictionary, LexisNexis Australia Category: Procedural and other rulings Parties: Raymond Henry Aitken (Plaintiff)
Statewide Secured Investments Limited (First Defendant)
Wollemi Reach Resort Pty Limited formerly Colo Riverside Park Pty Limited (Second Defendant)Representation: Counsel:
RB Katekar (First Defendant)
Solicitors:
RH Aitken (Plaintiff in person)
Ashurst Australia (First Defendant)
File Number(s): 2013/73594
Judgment
HER HONOUR: On 9 July 2013, this matter came before me for hearing. Mr Aitken requested an adjournment. I granted Mr Aitken an ajournment of four weeks in order for him to instruct a solicitor and stood the matter over for hearing on 13 August 2013.
The plaintiff in these proceedings is Raymond Henry Aitken. The first defendant is Statewide Secured Investments Limited ("Statewide"). The second defendant is Wollemi Reach Resort Pty Limited formerly Colo Riverside Park Pty Limited ("Wollemi Reach Resort").
On 9 July 2013, I made the following order:
"The Court declines to make the order sought in Order 1 of the amended statement of claim which reads:
'An Order that the First Defendant be restrained as Mortgagee Exercising Power of Sale from completing the contract for sale of the property dated 14 March 2013 in relation to the property described as being XXXX XXXX XXXX, Colo River, NSW 2756.'" (the "Colo River property")
On 14 March 2013, the Colo River property was sold at auction. A contract for sale entered into between Statewide and Platypus River Investments Pty Limited ("Platypus River") has now been completed. The property sold for $895,500.
It was agreed on the last occasion, that Statewide's amended notice of motion filed 28 June 2013 should be heard first. Statewide seeks orders pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 ("UCPR") that the entirety of the amended statement of claim filed 19 June 2013 be struck out; or in the alternative, an order pursuant to UCPR 13.4 that the amended statement of claim be dismissed.
Mr Aitken submitted that these proceedings should be stood over generally pending the outcome of the public examination in the Victoria Supreme Court of the directors of Statewide, the directors of Banksia Securities and the Cherry Fund. He says that evidence has been given to the effect that the records of Statewide were falsified; false and misleading information was provided to ASIC; false and misleading information was provided to shareholders; and both Statewide and Banksia Securities and the associated Banksia Financial Group of companies were insolvent as at March 2009. It is my view that these examinations do not have any direct bearing on these current proceedings before this Court and the notice of motion seeking summary judgment should be determined.
Mr Aitken relied on his affidavits filed 20 March 2013, 9 July 2013 and 8 August 2013. He was self-represented. He had received some legal advice after I granted him a prior adjournment. He was articulate and had a good understanding of the arguments being made by counsel for Statewide. Statewide relied on the affidavits of Meredith Bennett filed 3 April 2013, 8 April 2013 and 11 June 2013.
Summary judgment
UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious, or if no reasonable cause of action is disclosed, or if the proceedings are an abuse of the process of the court.
UCPR 14.28(1) provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court.
UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1).
In O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71 the Court of Appeal applied the High Court decision of Spencer v Commonwealth [2010] HCA 28; 241 CLR 118. In Spencer the High Court was concerned with s 31A(2) of the Federal Court Act 1976 (Cth) but the following principles are of general application:
(a) On a summary judgment application, the real issue is whether there is an underlying cause of action or defence, not simply whether one is pleaded (at [23]).
(b) The critical question can be expressed as whether there is more than a "fanciful" prospect of success (at [25]) per French CJ and Gummow J) or whether the outcome is so certain that it would be an abuse of the process of the court to allow the action to go forward (at [54] in the judgment of the plurality). Demonstration of the outcome of the litigation is required, not an assessment of the prospect of its success.
(c) Powers to summarily terminate proceedings must be exercised with exceptional caution (at [55]; see also French CJ and Gummow J at [24]).
The current amended statement of claim (filed 19 June 2013)
As explained earlier, the Colo River property has been sold. It follows that the portions of the amended statement of claim (ASC) that refer to the order seeking to restrain the sale of the Colo River property are now otiose and should be struck out. Paragraphs [37] to [44] of the ASC are struck out. Statewide is not insolvent. Nor is there any legal right for the plaintiff to seek that Statewide, a defendant to these proceeding, to provide security for costs. Paragraphs [45] to [54] of the ASC relate to these issues so they are struck out.
In the balance of the ASC, the plaintiff seeks the following orders:
(1) An order that mortgage ACXXXXX G between the Statewide as mortgagee and Wollemi Reach Resort as mortgagor relating to the property described as XXXX XXXX XXXX, Colo River, NSW 2756 be set aside;
(2) An order that the guarantee give by Mr Aitken in support of mortgage ACXXXXX G be set aside;
Statewide's primary submission is that as there were consent orders entered into in earlier proceedings 2009/2949326 Statewide Secured Investments Pty Limited v Wollemi Reach Resort Pty Limited relating to the loan, loan variation, mortgage and the guarantees, Mr Aitken's claim is res judicata. I shall deal with this issue later in this judgment.
So far as the mortgage (as particularised above) is concerned, Statewide submitted that as Mr Aitken is not a party to the mortgage, he has no standing to seek an order that the mortgage be set aside. No submissions were made by Mr Aitken to the contrary. It is my view that as Mr Aitken is not a party to the mortgage, he cannot have it set aside. Paragraph [1] above in the ASC is struck out.
Mr Aitken seeks in order (2) to set aside the guarantee on two bases, first a breach of duty of care and second, misrepresentation.
The pleadings in paragraphs [4] to [36] of the ASC underpin Mr Aitken's claim in relation to the guarantees. While many of those paragraphs allege breaches of the loan agreement between Wollemi and Statewide (not Mr Aitken) they provide some factual basis for his claims that are said to arise in relation to the guarantees. I shall briefly refer to some of these documents that are referred to in the ASC in order that the pleading can be readily understood. I have also briefly outlined the submissions made by Statewide in relation to paragraphs of the ASC.
Paragraph [10] refers to the acceptance signed by Mr Aitken on 14 November 2006, plus the letter of offer dated 1 November 2006 and the 11 December 2006 letter.
Letter of offer dated 11 December 2006
Paragraphs [6] and [7] relate to an offer made by letter dated 1 November 2006 which was updated by a letter dated 11 December 2006.
The letter dated 11 December 2006 reads:
| “Borrower (In the Mortgage called “the Mortgagor”) | Colo Riverside Park Pty Ltd ACN 062 422 075 |
| Address | Ground Floor, 4/6 Bligh Street Sydney |
| Lender: (In the Mortgage called “the Mortgagee”) | STATEWIDE SECURED INVESTMENTS LTD A.C.N. 004 682 517 (the Lender) |
Guarantors: | Raymond Aitken and Abrolane Pty ltd in its own right as Trustee for Ray Aitken Family Trusts |
Loan amount: | $3,550,000.00 subject to this sum not exceeding 65% of the value of the security as determined by a valuer nominated by the Lender for the initial advance with the final loan to valuation ratio not to exceed 40% |
| The loan amount shall be advanced as per special conditions 6 | |
Term: | At the expiration of thirty days written notice given by the Lender |
Security: | a. First mortgage over lot 1 on DPXXXXX X being the caravan park at number XXXX XXXX XXXX, Colo |
| b. Debenture charge over Colo Riverside Park Pty Ltd and Abrolane | |
| c. Security over the liquor licences No. 2XXXXX X and #XXXXX X and any other licences held as well as any proposed licences effecting the security property. | |
| d. Any other security deemed required by the Lender, valuer or the lender’s legal practitioner. | |
| e. Funds held by the lender for interest payments. | |
Interest: | The acceptable higher interest rate is presently 11.95%. This rate may be varied at any time during the term of the loan by the Lender giving written notice (in accordance with out current rate and fee policy). |
| A lower rate being the interest rate less 3% will apply in the event of compliance with the payment terms and mortgage covenants. | |
Instalments | $26,990.00 per month based on a interest only basis and due on the 15th day of each month commencing the 15th day of the following month after final draw down of loan. The figure of $26,990.00 is derived using the lower rate of interest. The figure increases if the higher rate of interest is applicable. (for further particulars see clause 8a). |
| …” |
Paragraph [6] of the letter of offer reads:
"Loan shall be fully drawn as follows:
(a) $1,500,000 to enable settlement of the refinance and all costs associated with the refinance including stamp duty, registration fees and all costs associated with establishing this mortgage subject to that sum not exceeding 65% of valuation of the property 'as is'.
(b) An amount of $1,470,000 to be refunded by way of drawdowns for the construction and development of the property. Advances will be made by progress payments, the first progress payment must be drawn within 60 days and fully drawn within 180 days of this letter. Progress payments will only be advanced from the lenders valuers report and/or where applicable a quantity surveyors report, the cost of which you must bear.
(c) An amount of $315,000 to be held in a Statewide Secured Investments Limited call account to pay monthly interest on this loan for 12 months.
(d) Council contributions and balance of funds to be paid for project management and professional fees.
If the loan is not accepted and drawn down in accordance within the time limits this loan shall laps."
I note that clause 8(c) of that letter contained a requirement that Mr Aitken obtain independent legal advice although at [10] of ASC he pleads that he was advised that he did not require independent legal or financial advice. On 3 January 2007, the guarantee between Statewide and Mr Aitken was signed. Underneath the signature appeared the printed name "Raymond Henry Aitken". This signature had been witnessed.
On 17 January 2008, the loan was varied in that a further advance of $300,000 was made. The security taken was:
"a. Existing registered first mortgage number ACXXXXX XG from application over certificate of title folio identifier 1/XXXXX .
b. Existing fixed and floating charges over Colo Riverside Park Pty Ltd and Abrolane Pty Ltd.
c. Guarantee and indemnity from Raymond Henry Aitken and Abrolane Pty Ltd in its own right as Trustee for the Ray Aitken family Trust.
d. Existing security over liquor licenses numbers XXXXX X and XXXXX X."
This guarantee was also signed and below appeared the words "Raymond Henry Aitken" in print. By the time of the variation of the loan was given Colo Riverside Park Pty Ltd had changed its name to Wollemi Reach Resort Pty Ltd, named as second defendant in his ASC.
I shall briefly deal with the balance of the pleading in the ASC and include Statewide's submissions in relation to those paragraphs. Paragraphs [15] and [16] pleads that Mr Aitken has no recollection of signing the mortgage (in his capacity as Director/Secretary of Colo Riverside Park Pty Limited) and the guarantees. Statewide submitted that these allegations are irrelevant as Mr Aitken does not deny that he signed them.
Mr Aitken pleads (also at [10]) that he was advised that he did not require legal or financial advice, and that he was not required to sign and return the acceptance personally, but that only the execution of the Second Defendant and a related entity Abrolane Pty Ltd was required. He has provided some particulars of this alleged representation. Mr Aitken has particularized the person that allegedly made these representations was a named employee of Statewide. While I accept that the actual particulars of the representations have not been given, these particulars can be provided if leave is granted to file a further amended statement of claim (FASC).
Paragraph [13] refers to the loan agreement and states that the withheld sum was $365,000 and was expressly for "Council contributions and balance of funds to be paid for project management and professional fees". Statewide say that the actual amount withheld was $265,000.
Paragraph [17] pleads that the obligation [by Statewide] was to complete construction by 15 December 2007. Statewide says it was the lender, Wollemi was the developer and the obligation to complete construction was Wollemi's not Statewide's.
Paragraph [18] sets out various alleged matters which appear to follow from the fact that interest was capitalised for 12 months. Mr Aitken says that these amounted to a term, representation and warranty. Statewide submitted that there is nothing in the loan agreement that states, or might imply, any of the things alleged. Statewide also denies that they were made. However, further particulars are given about these representations at [19].
The guarantees
Paragraphs [19] to [28] and [32] of the ASC refer to the guarantees. Mr Aitken pleads:
"19 The Plaintiff relied upon the First Defendant's representations, warranties and assurances so that it was an agreed term of the loan by the First Defendant to the Second Defendant for whom the Plaintiff had provided a guarantee that:-
(a) no interest payments would have to be made by the Second Defendant during the term of the loan;
(b) that all interest had been calculated by the First Defendant for the term of the construction period and prepaid at drawdown;
(c) that the building contract and construction timetable were acceptable to the First Defendant;
(d) that the First Defendant's was an experienced construction loan financier and manager.
20 The Plaintiff relied on the representations, warranties and assurances given by the First Defendant that the moneys secured under the Loan Agreement would be spent by the First Defendant for the agreed and approved purpose.
21 When construction and development commenced the Plaintiff relied on the representations made by the First Defendant that the First Defendant held in its own account sufficient funds:-
(a) To cover the full costs of construction and development in terms of the Loan Agreement;
(b) To cover all interest payments to be made by the Second Defendant Plaintiff for the 12 month period of construction and development as agreed.
22 As at 17 March 2007 the First Defendant was the sole custodian of the moneys for construction and interest due under the Loan Agreement.
23 The Plaintiff says that he would not have contemplated giving a guarantee or support for the substantial borrowing had he not been given the assurances, representations and warranties as pleaded above.
24 The Plaintiff says that he would not have entered any agreement with the First Defendant or Second Defendant had he not been assured by the First Defendant, its employees, contractors, finance broker and lawyer that the First Defendant was an experienced construction financier, and that it would have all expenditures certified by a valuer and quantity surveyor.
25 Between 22 December 2006 and 1 December 2007 the First Defendant managed the prepaid interest account in the name of the Second Defendant within its own banking structure.
26 During the period referred to in paragraph (25) above the First Defendant deducted from this account the regular monthly interest payments and paid those moneys to itself without reference to the Plaintiff.
27 During the period referred to in paragraph (25) above the First Defendant managed the construction funds account in the name of the Second Defendant and deducted from this account the regular construction drawdown payments and paid those moneys to the builder and other claimants associated with the building works without reference to the Plaintiff.
28 The Defendant made the payments referred to in paragraphs (26) and (27) in the absence of:-
(a) Proper or any reports from the Quantity Surveyor retained by the First Defendant;
(b) Any updated valuation as required by the terms of the Loan Agreement;
(c) Referral to the Plaintiff.
...
32 The Plaintiff says that had the First Defendant properly managed the drawdown funds in accordance with the Loan Agreement then:-
(a) the construction and development work would have been completed in 12 months as agreed;
(b) interest would have been pre-paid for the loan period so that the loan to the Second Defendant would not be default;
(c) the construction and development would have been completed and the premises would have been open to trade as commercial premises and earning income."
Paragraphs [32] to [35] make allegations of improper management of the drawdown funds by Statewide. In oral submissions, Mr Aitken explained that the quantity surveyor was located in Victoria and had never attended the development site at Colo River. Nor, according to Mr Aitken did the quantity surveyor properly check that the construction work had actually been carried out. Mr Aitken says some of the work was done properly, some work was done but not done properly and some of the work was not done at all. Further, he says that even when the work was done satisfactorily it was not done on time. He says that the work should have been completed in a 5 month period although a 12 month provision was made for the work to be completed. The work was not completed within the 12 month time period.
(i) Breach of duty of care
Mr Aitken pleads at [27] and [28] ASC that it was Statewide's responsibility to properly manage the drawdown of funds after receipt of proper reports from the quantity surveyor retained by it. So far as this proposition is concerned, Statewide submitted that there is no authority that any such duty of care exists. There is authority to the contrary. In this regard, counsel for Statewide referred to Modderno v ANZ Bank [1999] NSWCA 13.
The facts in Modderno are that Mr and Mrs Modderno (the Moddernos) mortgaged their home to the Bank to finance a home loan for their son and his wife to be used by them to construct a home on the mortgaged land. The money was not spent on the construction of the house, and the borrowers were unable to repay the loan. The property and another property of the Moddernos and their son, which was mortgaged to the Bank with an all moneys clause, were sold to repay the Bank. The Moddernos claimed that a letter approving the loan sent by the Bank to the son and his wife was incorporated in the guarantee, and that the failure of the Bank to verify the progress claims was a breach of contract by the Bank which discharged the guarantors. Alternatively they claimed that the failure of the Bank to verify the progress payments breached a duty of care and discharged their liability. This claim in relation to the failure of the Bank to verify the progress claims is similar one to that raised by Mr Aitken in these current proceedings.
In Modderno, the Moddernos characterised the duty of care owed by the bank as a duty not to act in a way that was prejudicial to their interests. The Court of Appeal in dismissing the appeal held (per Handley JA with Stein JA and Fitzgerald AJA agreeing) that:
"merely irregular conduct on the part of the creditor, even if prejudicial to the interests of the surety, does not discharge the surety, there can in my judgment be no doubt. Here ... the criticized 'irregularity' consisted of a failure on the part of the creditor ... to conform strictly to procedures devised to protect himself against possible repudiation of liability by the debtor, irrespective of the interests of any surety."
Modderno is authority for the proposition that establishes that there is no duty of care owed by Statewide to Mr Aitken arising out of the alleged failure on Statewide's part to properly verify progress payments. This part of the pleading as currently framed is hopeless and should be struck out.
However this does not cover the entirety of Mr Aitken's claim of breach of duty of care by Statewide to him as guarantor. Mr Aitken alleges that Statewide owed him a duty of care to ensure that the funds were sufficient to complete construction and development and pay interest during the time for construction [paragraph 20]. In Modderno, the Court of Appeal referred to and adopted the passage from Bank of India v Trans Continental Commodity Merchants Ltd [1983] 2 Lloyd's Rep 298 where Robert Goff LJ stated:
"... there is no general principle that 'irregular' conduct on the part of the creditor, even if prejudicial to the interests of the surety, discharges the surety, though there are particular circumstances in which the surety may be discharged, of which the instances specified by the learned Judge provide certainly the most significant, and possible the only, examples. I say that simply because I do not wish to be thought to be shutting the door upon any further development of the law in this field by rigidly confining the circumstances in which a surety may be discharged to the specified instances, though I am unaware at present of any others."
The examples, in Bank of India where it was said that a surety can be discharged are in circumstances where there is a willful act or neglect. Although in Mayor of Durham v Fowler (1889) 22 QBD 394, it was held that not even "great negligence" by a creditor in acquiescing in slovenly accounting could avoid the surety's obligations. While the door is not closed on the circumstances in which a lender owes a duty to a guarantor, it is not clear whether such a duty extends so far as ensuring that the funds were enough to complete construction and development and pay interest during the time for construction even in the circumstances where the lender represented to the guarantor it was an experienced construction loan financier and manager. I cannot say this case is hopeless so if I were to grant leave to file a FASC, I would permit this claim to be repleaded.
(ii) Misrepresentation claims
Paragraph 19 refers to the alleged representations, warranties and assurances. These allegations appear in paragraph [17], paragraphs [20], [21], [23] and [24] plead that Mr Aitken relied on those alleged representations, warranties and assurances.
Statewide submitted that Mr Aitken does not articulate whether he says that those alleged "representations, warranties and assurances" were misleading; articulate how they are alleged to have been misleading because they subsequently turned out not to have been accurate (assuming that to be the case) would not necessarily render them misleading at the time they were made; plead any loss nor does he claim any damages in the "Relief Claimed" section; and does not identify any basis for relief such as under particular provisions of the Trade Practices Act 1974 (Cth).
While I agree the pleading is deficient as outlined above, its does not follow that these deficiencies cannot be overcome by way of amendments should leave be granted to file a FASC.
Mr Aitken also stated in this Court that he intended, if allowed, to expand his case and make claims in relation to the guarantee to include claims under ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth), and ss 7 and 9 of the Contracts Review Act 1980.
Duress
Finally, Mr Aitken pleads that before these consent orders were made he was prevailed upon by the director of Statewide, John Neale, who came to Sydney from Melbourne and that he was told to agree to what was proposed or Mr Neale would ensure that he (the plaintiff) was bankrupted. Mr Aitken says that the lawyer for Statewide Secured Investments, Michael Paul Carroll, told him to agree to what was proposed by Statewide and that threats were made by the lawyer as to the consequences or not agreeing to the proposed terms. He further pleads that he was threatened by persons unknown who came to his office and threatened physical harm if he did not agree to the proposal that would resolve the matter together with claims by unpaid creditors of the buildings works [59]. Consequently Mr Aitken pleads that his execution of the consent orders was not voluntary, or informed, and that his execution was procured under duress.
Duress generally is defined as "Conduct by which one person applies pressure or undue persuasion on another, to induce that other to do something or refrain from doing something. Duress may take the form of constraint by injury, confinement or threats" (the online Encyclopaedic Australian Legal Dictionary, LexisNexis Australia).
However, during the hearing Mr Aitken admitted that even though these actions took place, he did not acquiesce and sign the consent orders. As Mr Aitken was not induced to sign the documents, he cannot establish duress either in contract or tort. The claim for duress is hopeless. Paragraph 59 of the ASC is struck out.
At the conclusion of this hearing, Mr Aitken assured this Court that if he were granted leave to file a FASC he would seek legal assistance in drafting the amended pleading. However, whether or not I exercise my discretion to grant Mr Aitken leave to file a FASC in relation to the guarantee depends upon whether his claim is res judicata or subject to issue estoppel.
Res judicata and issue estoppel
The principles of res judicata or issue estoppel apply where there is an attempt to re-litigate issues that have previously been determined in proceedings. Alternatively, an attempt to litigate issues which could and should have been litigated in previous proceedings will give rise to the Anshun estoppel: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
Dixon J's analysis of these two principles in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 remains a guiding precedent. His Honour says at 531-532:
"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order."
Therefore, it is clear that the re-litigation of the same cause of action in fresh proceedings and which is likely to involve the same issues, gives rise to res judicata and issue estoppel.
Consent orders made in the prior proceedings
As previously stated, Statewide submitted that Mr Aitken cannot bring these current proceedings as they are the subject of res judicata. In proceedings 2009/294926, Statewide Secured Investments was the plaintiff, Wollemi Reach Resort was the first defendant, Abrolane Pty Ltd was the second defendant and Raymond Henry Aitkin was the third defendant.
In these earlier proceedings 2009/294926, paragraphs [4] to [8] and [13] and [14] of the ASC was as follows:
"4. By written Agreement dated 11 December 2006, between the Plaintiff and First Defendant ("the Agreement"), the Plaintiff agreed to lend to the First Defendant the principal sum of $3,550,000.00.
5. The Agreement dated 11 December 2006 stated that the Second and Third Defendants were to be Guarantors of the Loan Facility to the First Defendant.
6. The amount of $3,550,000.00 was lent to the First Defendant ('the Loan") and was drawdown on 22 December 2006 ("the drawdown").
7. By Mortgage dated 03 January 2007 and Registered No ACXXXXX XG ("Mortgage"), the First Defendant mortgaged the Land to the Plaintiff to secure repayments of all moneys secured and due by the First Defendant to the Plaintiff pursuant to the Agreement. [I interpose here. The land is the Colo River property.]
8. By Deed of Guarantee and Indemnity made on or about 03 January 2007 and the Second and Third Defendant irrevocable and unconditionally guaranteed to the Plaintiff due and punctual performance of all the obligations and undertaking of the First Defendant to the Plaintiff pursuant to the Agreement and that they would pay all monies due by the First Defendant to the Plaintiff on Demand ("the Guarantees").
...
13. By written Agreement dated 17 January 2008 the Plaintiff agreed to vary the Loan Facility and lend to the First Defendant an additional principal sum of $3000,000.00 secured by way of Variation of Mortgage dated 26 February 2008 and Registered No. ADXXXXX XK ("the Variation Agreement"). The $300,000.00 increased in the principal sum was lent by the Plaintiff and fully drawn down by 27 February 2009.
14. By Variation of Deed of Guarantee and Indemnity made on or about 26 February 2008 the Second and Third Defendants irrevocable and unconditionally guaranteed to the Plaintiff by way of Variation the due and punctual performance of all the obligations and undertaking of the First Defendant to the Plaintiff pursuant to the Variation Agreement and that they would pay all monies due by the First Defendant to the Plaintiff on Demand."
In the ASC it was pleaded that a notice of default, and notice of demand and other formal notices were served. Hence these earlier proceedings involve the same mortgage over the same property, the same loan agreements and the same guarantees between the parties, except that Abrolane Pty Ltd is not a party to the current proceedings.
On 13 October 2009 the first and third defendants filed a defence as self-represented litigants. That defence consisted of responding to the allegations made in the ASC by not admitting them. On 15 March 2010, Mr Pope had filed an amended defence on behalf of the defendants. Included in that defence were the same non-admissions but the following paragraphs were added:
"19. The Defendant jointly and severally allege that the Plaintiff knew or had constructive knowledge that the Defendants were unable to meet their obligations to repay the advance made by the Plaintiff or the interest claimed bv the Plaintiff and withheld that information from the Defendants in a false and deceptive manner.
20. The Plaintiff engaged in predatory lending practices in a manner which is contrary to public policy.
21. The Plaintiff will allege that the Defendant's terms and conditions in relation to penalty interest and penalties on discharge of mortgage were harsh and oppressive.
22. The Defendant will allege that at the time of execution of the documents he did not fully comprehend the full import of the documents in relation to there being no capacity to extend the loan as had been represented to him.
23. The Defendant pleads that the Plaintiff has been participist in asserting its rights in a manner which was interfered unreasonably with the Defendant's capacity to refinance the property in a manner which is contrary to assurances upon which the Defendant relied."
The person who swore the affidavit verifying the defence was named as Mr Aitken. A signature appears. This signature was witnessed by James Pope solicitor.
On 6 August 2010, in 2009/294926 the consent orders were filed in court. The solicitor for the plaintiff mentioned it for the defendants. The terms of the consent orders were:
"1. Judgment in favour of the plaintiff against the first, second and third defendants jointly and severally in the sum of $4,000,000 inclusive of costs.
2. Judgment in favour of the plaintiff against the first defendant for possession of the land comprised in Certificate of Title Folio Identifier: Lot X/DPXXXXX X created under the Real Property Act 1900, and known as XXX XXXXX XXXX, Lower Portland in the State of New South Wales 2756.
3. Leave to issue a writ of possession in relation to the land comprised in Certificate of Title Folio Identifier: Lot X/DPXXXXX X created under the Real Property Act 1900, and known as XXX XXXXX XXXX, Lower Portland in the State of New South Wales 2756.
4. The issue of a writ for the possession of the land comprised in Certificate of Title Folio Identifier: Lot X/DPXXXXX X created under the Real Property Act 1900, and known as XXX XXXXX XXXX, Lower Portland in the State of New South Wales 2756."
These consent orders were signed by James Pope solicitor on behalf of each defendant, including Mr Aitken as the third defendant.
On 6 August 2010, Studdert J made the following orders by consent:
"1. ...
2. The Plaintiff has leave to file Judgment in its favour against the First Defendant, Second Defendant and Third Defendant jointly and severally in the sum of $4,000,000.00 inclusive of costs on 12 August 2010.
3. The Plaintiff has leave to file Judgment in favour of the plaintiff against the First Defendant for possession of the land comprised in Certificate of Title Folio Identifier: Lot X/DPXXXXX created under the Real Property Act, 1900, and known as XXX XXXXX XXXX, Lower Portland in the state of New South Wales 2756 on 12 August 2010.
4. Leave to issue a writ of possession in relation to the land comprised in Certificate of Title Folio Identifier: Lot X/DPXXXXX created under the Real Property Act, 1900, and known as XXXX XXXXX XXXX, Lower Portland in the state of New South Wales 2756 on 12 August 2010.
5. The issue of a writ for the possession of the land comprised in Certificate of Title Folio Identifier: Lot 1/DPXXXXX created under the Real Property Act, 1900, and known as XXXX XXXXX XXXX, Lower Portland in the state of New South Wales 2756 on 12 August 2010."
These properties are known as the "Colo River property".
These orders were entered on 6 August 2010. Hence, there is a judgment that Mr Aitken pay to Statewide the sum of $4,000,000. (It would appear he may now owe a lesser amount as the property owned by Wollemi has been sold for $895,000).
The amended defence raised issues that Statewide engaged in misleading or deceptive conduct, acted contrary to public policy, the terms of the mortgage were oppressive and that the defendant (not clear which ones did or did not comprehend the documents) Statewide acted unreasonably when the defendant's capacity to refinance. These matters trammel similar issues raised in the current ASC and it is my view that the current proceedings are res judicata and subject to issue estoppel.
In order to overcome this res judicata and issue estoppel problem, Mr Aitken pleads (ASC [55] - [60]) that he understands that consent orders were made in proceedings 2009/294926 Statewide Secured Investments v Wollemi Reach Resort (the earlier proceedings). He says that the effect of the consent orders was to give Statewide the power to sell the property. He pleads that he does not recall signing any consent orders. This is factually correct as Mr Pope, as his solicitor signed the consent orders on his behalf.
Mr Aitken then pleads that he had had an extensive medical history since 2005 culminating in his hospitalisation on several occasions. There is medical evidence in support (certificate dated 28 June 2013) that relevantly states:
"Mr Raymond Aitken has had a minor stroke and has cerebrovascular disease, A mini-mental state examination demonstrated deficits in his cognitive ability. He was oriented to time, person and place and was able to complete several tasks but there were significant short comings. His recall was poor, his constructional ability impaired and he displayed some other mild deficits. His current mental state and cognitive ability is such that his ability to perform normal business decision making is very likely to be impaired."
The certificate refers to three periods of hospitalisation but none of these admissions occurred around the time the consent orders were signed.
Counsel for Statewide submitted that Mr Pope as Mr Aitken's solicitor had ostensible authority to sign the consent orders and referred to Romeo v Papailia [2012] NSWCA 221. On the basis of this authority, counsel for Statewide submits that this pleading in the ASC is insufficient to overcome the res judicata and issue estoppel problems.
Consideration of Romeo v Papailia
In Papailia v Romeo [2011] NSWSC 696, the brief facts are that on 1 October 2010, judgment was entered against Mr and Mrs Romeo in consequence of orders made by a Registrar of the Supreme Court on 15 September 2010. The Registrar's orders were based on short minutes of consent orders signed by a solicitor on behalf of both the Romeos and by Mr Papailia's representative.
Ultimately only Mr Romeo applied to set aside the consent judgment pursuant to either:
Uniform Civil Procedure Rules ("UCPR"), r 36.15 (which permits the court to set aside a judgment or order if the judgment was given or the order was made, "irregularly, illegally or against good faith");
UCPR, r 36.16(2)(b) (which permits the court to set aside a judgment given or made in the absence of a party); and
the inherent jurisdiction of the court.
On 6 July 2011 after hearing contested evidence, Sackar J dismissed the motion seeking to set aside the consent orders on the basis that Mr Romeo had authorised Mr Carbone, a solicitor, to sign the short minutes on his behalf and that, in any event, Mr Romeo had no arguable defence to the substantial claim made by Papailia.
The Court of Appeal in Romeo v Papailia & Ors [2012] NSWCA 221 dismissed the appeal against this decision. Romeo v Papailia establishes the proposition that a solicitor has ostensible authority to sign consent orders on behalf of his client and the Judge was correct in deciding that the solicitor had ostensible authority to sign the consent orders on behalf of Mr Romeo.
However, unlike Romeo v Papailia, the factual findings underpinning whether Mr Pope, the solicitor, had ostensible authority to sign the consent order on behalf of Mr Aitken have not been tested. However, critically in the ASC, Mr Aitken does not allege that Mr Pope did not have authority to sign the consent orders on his behalf. To plead a solicitor signed consent orders without authority of his client is a very serious allegation.
I have already adjourned the hearing of this motion on a prior occasion on the basis that Mr Aitken was to seek legal advice before proceeding with the hearing of this motion. He informed this Court at the hearing that he did obtain legal advice after the adjournment was given. However, he made no attempts to redraft his ASC prior to the date the motion was set down for hearing.
Further, as counsel for Statewide pointed out, that as the judgment has merged, Mr Aitken had needed to have applied and succeeded in having the judgment set aside earlier. He has not made such an application.
It is my view that these proceedings are the subject of res judicata and issue estoppel. They cannot be maintained. Mr Aitken has already had the opportunity to amend his statement of claim once and has also been granted a further adjournment of this strike out motion so he could obtain legal advice. While he obtained legal advice he has not attempted to redraft a FASC to overcome the problems that he had been previously alerted to in Statewide's submissions. In the exercise of my discretion, I am not persuaded to grant Mr Aitken further opportunity to replead his ASC. The result is that these proceedings are dismissed. It follows that the outstanding notices of motion are also dismissed.
Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the first defendant's costs as agreed or assessed.
The Court orders that:
(1) Leave to the plaintiff to file an amended statement of claim is refused.
(2) These proceedings (including the outstanding notices of motion) are dismissed.
(3) The plaintiff is to pay the first defendant's costs of the proceedings.
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Decision last updated: 05 September 2013
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