Australia and New Zealand Banking Group Ltd v NELDUE Pty Ltd - [2002] WASC 50

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: AUSTRALIA & NEW ZEALAND BANKING GROUP LTD -v- NELDUE PTY LTD & ORS [2002] WASC 50

CORAM: MASTER SANDERSON

HEARD: 11 MARCH 2002

DELIVERED : 20 MARCH 2002

FILE NO/S: CIV 2370 of 2001

BETWEEN: AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)
Plaintiff
AND
NELDUE PTY LTD (ACN 073 205 151)
First Defendant
PAUL RICHARD HIGGINSON
Second Defendant
SANDRA KAYE HIGGINSON
Third Defendant

Catchwords:

Practice and procedure - Application for summary judgment - Turns on own facts

Legislation:

Nil

Result:

Judgment for plaintiff

Category: B

Representation:

Counsel:

Plaintiff:     Ms A J Wookey
First Defendant             :     No appearance
Second Defendant         :     Mr G J Bostock
Third Defendant           :     Mr G J Bostock

Solicitors:

Plaintiff:     Freehills
First Defendant             :     No appearance
Second Defendant         :     Bostock & Ryan
Third Defendant           :     Bostock & Ryan

Case(s) referred to in judgment(s):

Barclay's Bank Plc v O'Brien [1994] 1 AC 180
Siglin v Choules & Ors [2002] WASCA 9
Tranchita v Retravision (WA) Pty Ltd [2001] WASCA 265
Webster v Lampard (1993) 177 CLR 598

Case(s) also cited:

Anglo-Italian Bank v Wells (1878) 38 LT 197
Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332
Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5
Eng Mee Yong v Letchumanan [1980] AC 331
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Johnson v Buttress (1936) 56 CLR 113
Micarone & Ors v Perpetual Trustees Australia Ltd & Ors [1999] SASR 1
Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
Tufton v Sperni (1952) 2 TLR 516

MASTER SANDERSON: This is the plaintiff's application for summary judgment brought against the second and third defendants. By its chamber summons the plaintiff seeks judgment in an amount of $156,859.15, together with interest at a specified rate and an order that the second and third defendants deliver up possession of certain property which is their family home. The application is supported by an affidavit of Barry Edward Kirkup, sworn 23 November 2001. By par 3 of that affidavit Mr Kirkup verifies the contents of the plaintiff's statement of claim. In opposition to the application the second and third defendants rely upon an affidavit of the second defendant sworn 15 January 2002. In reply to that affidavit the plaintiff filed a further affidavit of Mr Kirkup ("Kirkup") sworn 8 February 2002. On the morning of the hearing the second and third defendants sought leave to rely on a further affidavit of the second defendant, sworn 8 March 2002. There being no objection, leave to rely on that affidavit was granted. These four affidavits comprise the evidence in relation to the application. Based upon these affidavits, the circumstances which give rise to this action can be summarised in the following way.
Some time prior to February 1996 the second and third defendants became interested in the possibility of acquiring a franchise for an icecream parlour which traded under the name of "Wendy's". This franchise was to be operated out of the Dog Rock Shopping Centre in Albany. Discussions were held with the master franchisee and as a consequence the second and third defendants were provided with a document entitled "A Package of Financial Services for Wendy's Franchisees" ("the package"). This document appears as annexure "A" to the affidavit of the second defendant sworn 15 January 2002. I will refer in more detail to the contents of this document later in these reasons.
Subsequent to the receipt of this document, the second and third defendants approached the plaintiff with a view to the plaintiff providing financial facilities to allow the second and third defendants to acquire and operate the Wendy's franchise. This approach was made some time in the early part of 1996 and by letter dated 15 February 1996, the plaintiff wrote to the second and third defendants offering to provide finance on certain terms and conditions: See annexure "BEK8" to Kirkup's affidavit of 8 February 2002. This letter of offer makes it plain that the principal borrowers were to be the second and third defendants. The security for the loan was to be a bill of sale over the Wendy's store and a second mortgage over the plaintiff's home.
Subsequent to the letter of offer, the second and third defendants established the first defendant. It was the trustee of a discretionary trust. Why this was done and what advice the second and third defendants received which led to the decision to acquire the franchise in the name of a corporate trustee does not emerge from the evidence. However, it is reasonable to infer that the second and third defendants did take some professional advice. The family trust deed which appears as part of annexure "BEK9" to Kirkup's affidavit of 15 January 2002 shows it was drawn by a solicitor: page 17. It is significant that in his affidavits the second defendant makes no mention of any professional advice he received either in relation to the business structure which was to acquire the franchise or otherwise.
With the alteration of the business structure for acquisition of the franchise, the plaintiff required the second and third defendants to enter into a guarantee of the first defendant's obligations with respect to the loan. There is no dispute that the security documents were executed by the second and third defendants but there is a factual dispute as to the circumstances in which they were executed. In his first affidavit the second defendant says that the documents were signed in these circumstances:
"10.Shortly prior to the date the documents which are annexed to Kirkup's affidavit in support of its application in this action ('Kirkup's affidavit') were signed by us, a person from the Albany branch of the Plaintiff telephoned us and requested that we attend their branch to sign loan documentation.
11.We attended the Plaintiff's Albany office and were invited by a Bank officer to sign loan documentation. The documents we signed are those annexed to Kirkup's affidavit.
12.In relation to those documents:
(a)The first time we saw them was when we went to the Plaintiff's Albany office and were asked to sign them, which we did.
(b)To the best of my knowledge, information and belief and recollection, we were not advised by anyone from the Plaintiff to obtain legal advice. Had I been advised to obtain legal advice, neither of us would have signed the documents then and there.
(c)Neither I nor the Third Defendant would have signed the mortgage document in respect of our residence at 55 Allwood Parade, Albany referred to in Kirkup's affidavit if we had known that we were mortgaging our residence for unlimited liability. My understanding was that the mortgage was to secure 15% of the purchase price of the franchise, the 15% being over and above 65% referred to in Annexure A.
(d)I refer to the acknowledgement section of the Guarantee and Indemnity (page 42 of the Kirkup's affidavit) and say that notwithstanding our initials to that page, neither of us read the Guarantee and neither of us had an opportunity to get legal advice from an independent lawyer before signing because we were simply asked by the Plaintiff's officer to initial that page."
Kirkup, in his affidavit of 15 January 2002, disputes that version of events. He says, at par 12:
"12As to paragraphs 10 to 13 of Higginson's Affidavit, on the basis of file notes contained in the Plaintiff's files, I say as follows:
(a)On 23 May 1996, the Second and Third Defendants were given (amongst other things) the Mortgage, Guarantee and Form 148 (Security Documents) and advised to seek legal advice thereon;
(b)On 23 May 1996, the Second and Third Defendants, took the unsigned Security Documents away from the premises of the Plaintiff's Albany Branch; and
(c)On 27 May 1996, the Second and Third Defendants returned to the Plaintiff's Albany Branch with the Security Documents and signed them at that time in the presence of officers of the Plaintiff's Albany Branch."
Kirkup supports his version of events by reference to what he says are contemporaneous diary notes made by officers of the bank. For the sake of completeness I should also mention the second affidavit of the second defendant. In effect, that confirms what was said by the second defendant in his earlier affidavit. He again disputes Kirkup's version of the circumstances in which the security documents were signed.
It is readily apparent from the above that there is a dispute between the parties as to the circumstances in which the documents were signed. It is not a dispute which I am able to resolve on affidavit. As the version of events offered by the second and third defendants is not, in my view, inherently improbable, I am, for the purposes of this application, bound to accept what they say: See Webster v Lampard (1993) 177 CLR 598 per Mason CJ, Deane and Dawson JJ at 604. That being so, it is worth looking again in a little more detail at precisely what the defendants say occurred.
As a consequence of discussions with the master franchisee they were given the Package to which I have referred. Nowhere in the evidence does the second defendant say that either he or the third defendant read the Package but in the circumstances, it is reasonable to assume they did. The Package itself can best be described as promotional material. Under the heading "Overview" to be found on page 1 there appears the following:
"The ANZ, by virtue of its expansive range of products, vast network of branches and by providing direct access to lending decision makers, is ideally placed to provide the banking requirements of Wendy's Franchisees.
This package of financial services is designed to provide comprehensive banking facilities for Wendy's Franchisees. In all cases, offer of loan funds is subject to individual credit assessments by ANZ."
The Package continues in this vein. Under the heading "Dedicated Managers to Handle Your Total Banking Needs", claims are made as to the capacity of managers to assist franchisees. This part of the Package was relied upon by counsel for the second and third defendants and it is proper to quote it in full. It reads as follows:
"ANZ propose to handle the banking requirements of Wendy's Franchisees through a network of Managers who are fully briefed on the Franchisees' business operations. With this knowledge they are fully equipped to provide you with expert financial assistance.
An ANZ Manager's job is to strengthen the personal relationship that exists between customers and their bank, on a more informed and professional level.
The special training that these people receive gives them a wide view of banking and business needs. They have the discretion to approve business loans and their focus is entirely on the customer.
The role of the Manager is to understand you and your business, offering competitive and relevant products, backed up by a superior level of personal service, for both your business and personal financial well‑being."
The Package then goes on to set out lending facilities with various types of loans being offered and details fees and interest rates. As I have said, any fair reading of the document would lead to a conclusion that it is promotional material. However, it must be acknowledged that the Package does promote managers at the ANZ as being expert in the field of lending to franchisees and prepared to assist each borrower on a personal level. Neither the second nor the third defendants state the extent to which, if at all, they were influenced by the material contained in the Package.
After the second and third defendants applied for a loan and the offer was made to them, they took advice and decided the borrowings should be undertaken by the first defendant. There is no suggestion that in reaching this decision they relied in any way upon what they were told by the plaintiff. In other words, at this stage at least, they were not placing reliance on the plaintiff in making their business decisions. Having determined to proceed by way of a discretionary trust and corporate trustee, they were required to sign personal guarantees with the borrowings of the first defendant. During the course of her submissions counsel for the plaintiff submitted that in the circumstances it is proper to treat the second and third defendants as principal borrowers rather than as mere guarantors of a third party liability. The logic of that submission is obvious. The second and third defendants and their family are the beneficiaries of the trust. The money that was borrowed was used to acquire the franchise which was operated by the first and second defendants. It was they who were to be the primary beneficiaries of any profit earned by the franchise. In other words, the money borrowed, although channelled through a corporate trustee, was in reality for the benefit of the second and third defendants. I accept counsel for the plaintiff's submission on this point. Counsel for the second and third defendants did not seek to argue otherwise.
Relying upon the second defendant's version of events, the second and third defendants attended the plaintiff's Albany office, they were shown the security documents which they had not seen before and were asked to sign them. In his first affidavit the second defendant does not say whether or not, when he and the third defendant attended the plaintiff's office, they read the documents. In his second affidavit he says "… nor did we or either of us advise that we had carefully read them, or read them at all, or that we could sign the documents without reservation." It seems implicit in this statement that the second and third defendants had not read the documents. Had they done so, they could not possibly have assumed that the mortgage was to secure only 15 per cent of the purchase price of the franchise as the second defendant says in par 12(c) of his first affidavit.
It is important in the context of this case to remember what, on the second and third defendant's version of events, was not said when the security documents were signed. The second and third defendants say they were not advised to seek independent legal advice. They do not say that they discussed the documents at all with Kirkup either to enquire as to the contents of the documents or the extent of their liability thereunder. They certainly do not suggest that Kirkup or anyone else associated with the plaintiff offered any advice whatever as to the contents of the documentation and the way in which the security would operate. Nor do the second and third defendants suggest they place any reliance on the skill and expertise on the plaintiff's officers in deciding to sign the documents. They do not suggest that they had the package and the claims made therein in mind when the documents were signed.
The defence that the second and third defendant seeks to raise to the plaintiff's claim is to say that in equity, given the circumstances in which the security documentation was signed, it would be inequitable or unconscionable to allow the security to be enforced. In his submissions counsel for the second and third defendants placed reliance upon what was said by Lord Browne‑Wilkinson in Barclay's Bank Plc v O'Brien [1994] 1 AC 180. Dealing with undue influence his Lordship said (at 189 ‑ 190):
"Undue influence
A person who has been induced to enter into a transaction by the undue influence of another ('the wrongdoer') is entitled to set that transaction aside as against the wrongdoer. Such undue influence is either actual or presumed. In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953, the Court of Appeal helpfully adopted the following classification.
Class 1: Actual undue influence
In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned.
Class 2: Presumed undue influence
In these cases the complainant only has to show, in the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In Class 2 cases therefore there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways, viz.,
Class 2(A)
Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law raise the presumption that undue influence has been exercised.
Class 2(B)
Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned."
It was submitted on behalf of the second and third defendants that they fell within Class 2(B). It was said that in the circumstances of this case the two defendants reposed trust and confidence in the bank and its officers. This trust was engendered, it was submitted, by the terms of the Package. It was further submitted that the evidence did not, and could not, on a summary judgment application, disprove the undue influence and therefore it was arguable that the transaction should be set aside.
The difficulty with this submission is that nowhere in the evidence do the second and third defendants actually say that they reposed trust and confidence in the bank or its officers. Moreover, it is difficult to see what could have led them to do so. The Package is simply promotional material. The bank staff simply presented the second and third defendants with the security documents. There was no evidence that the second and third defendants were pressured to sign the documents, or that they were denied the opportunity to read the documents. It seems to be suggested that the second and third defendants reposed trust and confidence in the bank's officers to the extent that a wholly unlikely state of affairs - namely that only 15 per cent of the amount lent would be secured against the defendant's property - was the effect of the security documents. Even the most cursory reading of the documents would have indicated that was not the case. In my view, taking the most favourable view of the evidence, there is nothing to suggest, let alone establish, the de facto existence of a relationship under which the second and third defendants would repose trust and confidence in the plaintiff.
Counsel for the defendants also drew my attention to the decision of the Full Court of this Court in Siglin v Choules & Ors [2002] WASCA 9. The facts of the case can be summarised in this way. The appellant was an elderly woman who mortgaged the unit in which she lived to secure the sum of $400,000. The loan was arranged through a finance broker and the respondents provided the funds. The appellant's son was the main beneficiary of the loan. The appellant signed a mortgage in her capacity as a guarantor. At the time she signed the mortgage she received no explanation as to its terms or what it meant in relation to her property. She did not seek independent legal advice because she trusted her son completely. It never entered her contemplation that as a consequence of signing the mortgage she could lose her home. The appellant said that had she obtained independent and appropriate legal advice prior to the execution of the mortgage, she would have sought further information from her son. She said that if the true facts had been known to her she would not have signed the mortgage.

Scott J (with whom Wallwork J agreed) in the course of his reasons referred to the Full Court decision of Tranchita v Retravision (WA) Pty Ltd [2001] WASCA 265. In that case the Court discussed undue influence and unconscionable dealings in the context of a personal guarantee. His Honour went on to conclude that in the circumstances of this case it could not possibly be said that the respondents had themselves exerted undue influence over the appellant. Rather, it was the appellant's son who exercised the undue influence and it was his behaviour which was unconscionable. His Honour went on (at par 43 to par 46):
"43In this case the appellant contends that undue influence was exercised over her, and her will was overborne as a result of the representations made to her by her son. As a result, she maintains that the mortgage was executed without her having full knowledge of its terms or the effect that it may have had upon her property. In such a case Owen J said at [52]:
'The question therefore is not whether the appellant understood the relevant transaction but "whether (s)he executed it as the result the free exercise of her independent will" Adenan v Buise [1984] WAR 61 per Burt CJ and Kennedy J at 68. The party on whom the burden falls must be able to point to features of the relationship that make the exercise of undue influence likely: Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573.'
44Owen J went on to draw a distinction between unconscionable conduct which he said is directed towards the conduct of the stronger party and undue influence which focuses upon the position and quality of consent of the weaker party. If that distinction applies in this case then the focus must be upon the absence of consent by the appellant to the terms of the mortgage.
45Owen J went on to say at [64]:
'Although it is impossible to describe definitively all the situations in which disadvantage will result in the court's intervention, there are three general categories of disadvantage relevant to unconscionable conduct. They are physical incapability, intellectual or emotional deficiencies, lack of endowments (such as education). As Fullagar J in Blomley v Ryan (1956) 99 CLR at 405 set out:
"The circumstances adversely effecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of"
His Honour concluded that in the circumstances of the assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other'.
46In relation to the need for independent advice Owen J said at [67]:
'The lack of independent advice alone does not render the conduct of the respondent unconscionable. This is especially so when viewed in the context of the appellant's previous business experience and relative intricacy of the business structure in which the appellant was involved. These factors also make it difficult to conclude that the appellant suffered from a deficiency of understanding sufficient to result in a disability."
His Honour concluded that in the circumstances of the case the appellant had done enough to raise an arguable defence. His Honour appears to have been particularly concerned about the advice, or lack of it, provided by the respondent's solicitor when the appellant signed the mortgage. After all, she was elderly and of limited means which would not have allowed her to repay the borrowing without selling her home. The appeal was allowed.
The differences between the facts in Siglin and the facts in this case are stark. There is no question of an elderly individual providing a guarantee for a family member. This was a case where the defendants determined themselves to enter into a business venture. True it is that they wound up as guarantors of the first defendant's borrowing but that was no more than a convenient business arrangement developed to suit their needs. In truth, this money was being borrowed by the second and third defendants. On that basis alone, the Siglin decision can be put to one side. It is of no relevance on the facts of this case.
In my view, on the evidence viewed as a whole, the second and third defendants have failed to show any arguable defence to this claim. There should be judgment in the plaintiff's favour. I will hear the parties as to the precise form of orders and as to costs.