Bagshaw v RTS Super Pty Ltd
[2019] WASCA 85
•13 JUNE 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: BAGSHAW -v- RTS SUPER PTY LTD [2019] WASCA 85
CORAM: MURPHY JA
MITCHELL JA
HEARD: 11 JUNE 2019
DELIVERED : 11 JUNE 2019
PUBLISHED : 13 JUNE 2019
FILE NO/S: CACV 44 of 2019
BETWEEN: HILLAND STANFORD BAGSHAW
First Appellant
JENNIFER MARGARET BAGSHAW
Second Appellant
AND
RTS SUPER PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: ACTING MASTER WHITBY
Citation: RTS SUPER PTY LTD -v- BAGSHAW [2019] WASC 81
File Number : CIV 2358 of 2018
Catchwords:
Practice and procedure - Whether appeal commenced - Whether purported service of notice of appeal was ineffective under the Service and Execution of Process Act - Whether extension of time in which to commence appeal should be granted
Practice and procedure - Application for a stay of summary judgment in action by mortgagor for possession of secured property - Allegation that mortgagor engaged in unconscionable conduct - Whether appeal rendered nugatory if stay not granted - Whether appeal has reasonable prospects of success - Balance of convenience - Whether payment of principal loan sum into court should be required as a condition for the grant of a stay
Legislation:
Service and Execution of Process Act 1992 (Cth), s 8, s 9, s 12, s 15, s 16, s 17
Supreme Court (Court of Appeal) Rules 2005 (WA), r 26, r 27, r 29
Result:
Extension of time in which to appeal granted
Stay granted subject to condition that $525,000 is paid into court
Category: B
Representation:
Counsel:
| First Appellant | : | Ms L K Thurston-Moon |
| Second Appellant | : | Ms L K Thurston-Moon |
| Respondent | : | Mr M W Mistilis |
Solicitors:
| First Appellant | : | Cullen MacLeod Lawyers |
| Second Appellant | : | Cullen MacLeod Lawyers |
| Respondent | : | Hotchkin Hanly |
Case(s) referred to in decision(s):
Argyle Diamonds Ltd v Flour Australia Pty Ltd [2018] WASC 356
ASIC v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43; (2012) 213 FCR 380
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51
Blomley v Ryan (1956) 99 CLR 362
Clack v Murray [2017] WASCA 88
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161
Kowalczuk v Accom Finance [2008] NSWCA 343
Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94
Mavaddat v HSBC Bank Australia Ltd [2015] WASCA 205
Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353
Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67
Serventy v Commonwealth Bank of Australia [2016] WASCA 86
Serventy v Commonwealth Bank of Australia [No 2] [2016] WASCA 223
REASONS OF THE COURT:
At the conclusion of the hearing of the appellants' (Mr and Mrs Bagshaw) application for an extension of time in which to appeal and a stay of the judgment entered by the primary court, we made the following orders:
(1)The appellants have leave, by 4.00 pm on 14 June 2019, to amend their notice of appeal to apply for an extension of time in which to appeal.
(2)Subject to compliance with order 1, the time for the appellants to commence the appeal be extended to 21 June 2019.
(3)The orders made by the Acting Master on 14 March 2019 in CIV 2358 of 2018 are stayed until the determination of this appeal or further order.
(4)Order 3 of these orders is discharged at 4.00 pm on 12 July 2019 unless, by that time, the appellants have paid into court, or into such other fund as may be agreed by the parties, the sum of $525,000.
(5)The parties have liberty to apply to vary or discharge orders 3 and 4 of these orders on 72 hours' notice to the other parties.
These are our reasons for making those orders.
Background
By agreement signed by Mr and Mrs Bagshaw on 25 March 2014, the respondent (RTS) agreed to loan Mr and Mrs Bagshaw the sum of $500,000 (Principal Sum) to be repaid on the 'Expiry Date'. Interest was payable at 17% per annum if payment was made by the due date and not in default, otherwise 22% per annum. The Principal Sum was advanced on or about 8 April 2014. Repayment of the Principal Sum was secured by third mortgages registered on the titles of land of which Mr and/or Mrs Bagshaw were registered proprietors.
RTS made a further advance of $25,000 to Mr and Mrs Bagshaw on or about 15 August 2016 (Additional Principal Sum), having signed an acknowledgement on 4 August 2016 that their principal debt was $525,000, plus outstanding costs and interest.
On 3 August 2018, RTS commenced the primary proceedings. RTS pleaded that Mr and Mrs Bagshaw failed to pay interest totalling 'at least $200,084.69' prior to 1 January 2018. RTS pleaded that, on 30 January 2018, it served default notices on Mr and Mrs Bagshaw demanding payment of the Principal Sum, the Additional Principal Sum, legal fees and disbursements, interest and costs. RTS pleaded that the amounts demanded had not been paid. It claimed an order for delivery of possession of the secured properties to RTS and costs on an indemnity basis pursuant to the mortgage.
On 30 November 2018, RTS applied for summary judgment. That application was heard by the Acting Master on 26 February 2019. At the conclusion of the hearing of the application, she reserved her decision.
On 14 March 2019, the Acting Master granted RTS's application for summary judgment, and ordered Mr and Mrs Bagshaw to give vacant possession of the secured properties to RTS within 90 days of the date of that order. That period will expire on 12 June 2019 (the day after the present application was heard).
On 2 April 2019, Mr and Mrs Bagshaw filed an appeal notice against the Acting Master's judgment. Their solicitors made arrangements for a third party to serve RTS's registered office, located in New South Wales, with a copy of the notice of appeal.
On 3 April 2019, a copy of the notice of appeal was served on the registered office of RTS, and a copy was emailed '[a]s a matter of courtesy' to RTS's solicitors. Later that afternoon, Mr and Mrs Bagshaw's solicitor appreciated that notice had not been given under the Service and Execution of Process Act 1992 (Cth) (SEPA Act). The solicitors arranged for the appeal notice to be re-served with a SEPA Act notice on 4 April 2019, which was the last day for commencing the appeal without an extension of time. The third party did not serve the documents until 9 April 2019.
By application in an appeal filed on 18 April 2019, Mr and Mrs Bagshaw seek '[l]eave to appeal to appeal non pro tunc' and a 'Stay of Execution'. In substance, they seek an extension of time in which to commence the appeal and a stay of the Acting Master's orders until the determination of the appeal or further order.
It is convenient to deal first with the application for an extension of time in which to commence the appeal.
Application for an extension of time in which to appeal
The Acting Master's orders granting final judgment to RTS were not interlocutory. Therefore, r 26(2) of the Supreme Court (Court of Appeal) Rules 2005 (WA) (Rules) required the appeal to be commenced within 21 days of the Acting Master's decision.
Rule 27 of the Rules relevantly provides that an appeal is not commenced until an appeal notice has been both filed and served in accordance with r 29 of the Rules. Rule 29 relevantly provides:
(1)To -
(a)commence a civil appeal (including an appeal that requires leave to appeal) within time; or
(b)apply for an extension of time within which to commence a civil appeal (including an appeal that requires leave to appeal),
the appellant must file and then serve -
(c)a Form 2; and
(d)any document required by subrule (2).
(2)If the Form 2 says that an extension of time within which to commence the appeal is needed, the form must be filed with an affidavit by the applicant or the applicant’s lawyer or both explaining why the appeal was not commenced within time.
…
(4)Any document filed under this rule must be served on the respondent personally.
…
Section 9(1) of the SEPA Act relevantly provides for service of process under that Act on a company to be effected by leaving it at the company's registered office. Section 12 of the SEPA Act provides that, subject to that Act, service of a process under the SEPA Act has the same effect and may give rise to the same proceedings as if the process had been served in the place of issue. Section 15(1) of the SEPA Act provides that an 'initiating process' issued in a State may be served in another State. 'Initiating process' is defined in s 3(1) to mean, relevantly, a process by which a proceeding is commenced. Under s 15(3), service on a company must be effected in accordance with s 9 of the SEPA Act.
Section 16 of the SEPA Act provides:
Service is effective only if copies of such notices as are prescribed are attached to the process, or the copy of the process, served.
Regulation 6 of the Service and Execution of Process Regulations 2018 (Cth) (SEPA Regulations) prescribes Form 1 in sch 1 to those Regulations for the purposes of s 16 of the SEPA Act.
Section 17 of the SEPA Act makes provision for the time for 'appearance', defined in s 14 in a manner which includes a notice of respondent's intention (Form 4). Section 17(1) of the SEPA Act provides:
If the person served is required or permitted to enter an appearance under a law of the place of issue, the period after service within which the person may enter an appearance is:
(a)whichever is the longer of the following periods:
(i)21 days;
(ii)the period in which the appearance would have been required or permitted to be entered if the process had been served in the place of issue; or
(b)such shorter period as the court of issue, on application, allows.
Section 17, to the extent that it applies, qualifies r 31(2) of the Rules, which would ordinarily require a Form 4 to be filed within 7 days after the date on which the respondent is served with the appeal notice.
Section 8(1) of the SEPA Act relevantly provides that the SEPA Act does not affect a decision of a court to allow substituted service of a process. Section 8(4)(a) relevantly provides that, subject to that Act, the SEPA Act applies to the exclusion of a law of a State (the relevant State) with respect to the service in another State of process of the relevant State to which the SEPA Act applies.
In the present case, the appeal was required to be commenced by being filed and served on RTS by 4 April 2019. RTS contends that service of the appeal notice on RTS's registered office on 3 April 2019 was not effective because it was not accompanied by the notice required by s 16 of the SEPA Act. On that basis, an extension of time in which to commence the appeal is required.
Ordinarily in a case such as the present, there would be no difficulty in granting any required extension of time in which to appeal. The notice of appeal was given to RTS and to its solicitors within the required time, so that RTS was aware that the appeal had been instituted. Service would have been effected within time but for the error by the process server and the requirements of s 16 of the SEPA Act. The delay until 9 April 2019 was minimal, and has occasioned no prejudice to RTS, which filed its notice of intention within the required time. It cannot be said that the prospects of the appeal succeeding are so low as to make the grant of an extension of time futile, and the delay is satisfactorily explained. The interests of justice would clearly require the grant of an extension of time in these circumstances.
In considering where the interests of justice lie, it is important to bear in mind the purpose of the requirement for personal service of a notice of appeal. As Mitchell JA noted in Clack v Murray:[1]
The purpose of requiring personal service of originating court process is to give notice of the proceedings to the relevant party. That is so that he or she may have an opportunity to resist the relief claimed in the proceedings. The ordinary meaning of the phrase 'personal service' is that the document in question must come to the notice of the person for whom it is intended. The means by which the person served obtains the document are usually immaterial. Where a notice of appeal is in fact received by a respondent, the document will have been 'left with' that respondent even if it is not handed to the respondent by a representative of the appellant seeking to effect personal service. Once the respondent receives the notice of appeal, the object of the requirement for personal service has been achieved. A person who the evidence establishes has actually received the document cannot validly complain that he or she has not been personally served. (citations omitted)
[1] Clack v Murray [2017] WASCA 88 [10].
RTS in fact received the notice of appeal within the required time. But for s 16 of the SEPA Act, personal service would have been effected and an extension of time would not be required.
However, RTS contends that the appeal has still not been properly commenced, essentially for two reasons.
First, RTS contends that the notice attached to the appeal notice served on 9 April 2019 was not the notice prescribed by the SEPA Regulations. This is said to be because of a departure from the following part of the prescribed form:
If you want to contest this claim, you must also file an appearance in the [issuing court]. You have only 216 days after receiving the attached process to do so.
…
If the defendant need not enter an appearance (as defined in section 14 of the Act) in order to contest the claim, omit this paragraph and the remainder of the form.
If the document that must be filed is not called an appearance, substitute the correct name.
If the issuing court has allowed a shorter period for filing an appearance, substitute that shorter period and disregard the next paragraph.
If the law of the State or Territory of issue would allow a longer period than 21 days for filing an appearance in the case of service within the State or Territory, substitute that longer period. If that law would allow different periods for service within the State or Territory, depending on the distance of the place of service from another place, and the period based on the longest distance would be longer than 21 days, substitute that period.
Note: This note is a summary, for guidance only, of subsections 17(1) and (1A) of the Act. The applicable period under those provisions must be stated.
RTS says that the notice attached to the appeal notice on 9 April 2019 misstated the time required for filing a respondent's notice of intention as being 7 rather than 21 days. RTS therefore contends that the purported service of the appeal notice was not effective, and the appeal has not been commenced.
As Quinlan CJ noted in Argyle Diamonds Ltd v Flour Australia Pty Ltd,[2] substantial compliance with the prescribed form will be sufficient. Compliance with the form is to be judged by reference to the form as a whole and not by reference to individual parts. Substantial compliance is to be assessed by reference to the purpose of the form. The purpose of Form 1 in the SEPA Regulations is to inform the recipient of their rights and the processes by which they might defend themselves.
[2] Argyle Diamonds Ltd v Flour Australia Pty Ltd [2018] WASC 356.
Secondly, RTS submits that the appeal notice served out of time did not comply with r 29 of the Rules because the Form 2 did not indicate that an extension of time was required or attach an affidavit explaining why the appeal was not commenced in time.
Given that RTS was aware of the appeal within time, and is now represented in the appeal, these objections are purely technical in nature, as counsel for RTS accepted. It must be doubted whether the SEPA Act form served on 9 April 2019 failed to substantially comply with the prescribed form merely by reason of an understatement of the time for filing a notice of respondent's intention. But in any event, it is plain that RTS is well aware of the processes for defending this claim.
In response, counsel for Mr and Mrs Bagshaw contends that an appeal notice is not an 'initiating process' within the meaning of s 15 of the SEPA Act, so that notice under s 16 of that Act is not required. We note that neither party was able to point to any authority which determines whether an appeal notice is an 'initiating process' for these purposes. Alternatively, she submits that the notice served on 9 April 2019 substantially complied with the prescribed form, so that service on that date was effective.
It is unnecessary to resolve RTS's contentions or the response to those contentions. It is appropriate to regularise the appeal notice by granting leave to Mr and Mrs Bagshaw to file an amended notice of appeal that applies for an extension of time in which to appeal. The affidavit explaining the reasons that the appeal was not commenced in time has already been filed. Subject to the amended appeal notice being filed and served, an extension of time in which to appeal should be granted to a time which gives Mr and Mrs Bagshaw a reasonable opportunity to effect personal service of the amended appeal notice, a SEPA notice and the affidavit. It will be a matter for Mr and Mrs Bagshaw to decide whether to take advantage of that opportunity, or whether they are content to rely on the purported service on 3 and 9 April 2019 in the event that RTS applies to set aside the amended notice of appeal.
Primary proceedings
Evidence before the Acting Master
In support of its summary judgment application, RTS relied on two affidavits of Raymond Thomas Stack, a director of RTS and Stacks Managed Investments Ltd (Stacks Finance), sworn on 30 November 2018 and 25 February 2019. In opposition to that application, Mr and Mrs Bagshaw relied on the affidavit of Mr Bagshaw sworn on 25 January 2019.
Mr Stack's affidavits annexed the mortgage and loan documents, the latter of which referred to the purpose of the loan as being 'to re‑finance NAB'. He deposed as to the advance of the Principal Sum and Additional Principal Sum to Mr and Mrs Bagshaw. He deposed as to the issue of default notices, and that Mr and Mrs Bagshaw were in default of their obligations to repay those sums and to pay interest on the debt. Mr Stack annexed a Loan Account Statement which showed that Mr and Mrs Bagshaw ceased making interest payments in May 2016, and that the outstanding loan balance was $911,487.31. He also annexed documents relating to a loan of $1.8 million by Stacks Finance to Mr and Mrs Bagshaw, secured by a first mortgage over the properties. Stacks Finance is a company related to RTS. The documents annexed included documents which contained positive representations as to Mr and Mrs Bagshaw's capacity to service the Stacks Finance loan. They also indicated that Mr and Mrs Bagshaw had the benefit of both accounting and legal advice at the time of the refinancing in relation to which the loan funds were advanced by RTS.
Mr Bagshaw's affidavit gave the following account of the circumstances of the loan from RTS.
Mr Bagshaw deposed that he was 81 years old and, like his father, lived on the secured property his entire life. He left school when he was 16, and has no formal educational qualifications. Mrs Bagshaw was 74 years old and they had been married and farming on the secured property for approximately 50 years. They had farmed cattle and sheep on the secured property since buying it from Mr Bagshaw's family about 50 years ago. They had raised their family on the secured property. Mr Bagshaw deposed that, as a result of the above matters, the secured property had great sentimental value to him.
In about 1985, Mr and Mrs Bagshaw were directors and shareholders of a company that operated an Avis car rental franchise in Welshpool. Mr Bagshaw said that 'about 5 or 6 years ago' (ie in about 2013 or 2014) the business suffered a significant downturn as a result of the end of the mining boom. He said that, as a result of decreased sales, the fleet reduced in number and the business stopped making a profit.
Mr Bagshaw deposed to obtaining a loan of about $3 million from Stacks Finance and his dealings with Mr Stack for that purpose. In 2007, this loan was refinanced with National Australia Bank Ltd (NAB), which granted an interest-only loan of $3.1 million. The interest on the NAB loan was paid using profits from the Avis business. In 2010, a $200,000 loan was taken out with the Country Housing Authority, secured by the second mortgage on the property.
Mr Bagshaw described the circumstances in which the mortgage was granted to RTS in the following terms:
Default of the NAB Loan
30.When the Avis Business stopped making a profit we could no longer pay the NAB loan.
31.The NAB then called in its loan.
32.As a result, I then had to seek alternative finance urgently to repay the NAB loan.
33.I recall that one of the first things my wife and I did when the NAB called in its loan, was to go and see the ANZ to see if it would provide us with the necessary finance. We did this because I knew other farmers that the ANZ had offered finance to.
34.However, during my wife and I's conversations with the ANZ, one of the ANZ's representatives told us words to the effect that the ANZ would not provide us with finance we needed.
35.My wife and I, then engaged a finance broker to seek alternative finance for us.
36.I recall that the finance broker told us that words to the effect that he could not get a deal for us.
37.I was under significant financial pressure at this time because my wife and I needed the funds from the NAB loan to run the Avis Business and the farm at the Secured Property. We also needed the money for our general living and medical expenses.
38.I therefore felt that I had no other options available to me, other than to seek alternative finance from [RTS], or else I would lose the farm and my family's home.
Loan with [RTS]
39.When the NAB called in the loan and I could not get finance from another major bank, I approached either Mark Newman, who was a representative of [RTS] or one of its related entities, or Ray [Stack], about securing the necessary finance.
40.I told either Mark or Ray [Stack] words to the effect that the NAB wanted its money back or else it was going to foreclose on the farm.
41.I also told either Mark or Ray [Stack] that words to the effect that I was very stressed about it all and felt that I was under significant amount of pressure because I did not want to lose the farm and my family home.
42.I recall that Ray [Stack] told me words to the effect that because he had dealt with us before and we had a good track record with the first loan, that he would offer us the finance we needed.
43.I trusted Ray [Stack] to help me because of our pervious [sic] relationship. I thought Ray [Stack] would do the right thing by me.
44.When Ray [Stack] first told us about [RTS's] loan he said that the interest would be 15%. However, when we got the mortgage documents it said the interest was 17%.
45.I felt that despite the fact that we had agreed interest at 15%, I needed to sign the mortgage documents which said the interest was 17% immediately because the NAB had told me that they needed the money that day or it would foreclose on the farm.
Mr Bagshaw deposed that he and Mrs Bagshaw signed RTS's mortgage as well as a further mortgage to Stacks Finance in the amount of $1.8 million to cover the NAB loan. Mr Bagshaw's affidavit indicates that the $500,000 was borrowed from RTS for the purpose of a broader refinancing of Mr and Mrs Bagshaw's debts, including the discharge of the NAB loan, and for funding working capital requirements and current expenditure.
Mr Bagshaw deposed as to his unsuccessful attempts which he had made to sell the secured property over the last 4 years. He deposed that they had not been able to borrow further money as they had no security to offer another financier. The farm business was in difficult financial circumstances because they could not buy any new cattle or sheep, and only sold cattle or sheep intermittently.
Acting Master's approach
The Acting Master concluded that the evidence adduced by RTS established its prima facie right to relief. She disallowed objections, on hearsay grounds, to evidence as to the making of advances, default under the mortgage documents and the amount owed under the mortgage documents.[3]
[3] Primary decision [12] - [21].
The Acting Master then considered Mr and Mrs Bagshaw's submission that there was a serious question to be tried because RTS engaged in unconscionable conduct. She accepted Mr and Mrs Bagshaw's submission that the elements of unconscionability are:[4]
(a)the weaker party suffers from some special disadvantage that prevents them from protecting their own interest;
(b)the stronger party knows of, or should know of, the special disadvantage; and
(c)the stronger party takes unfair advantage of the weaker party.
[4] Citing Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447.
The Acting Master noted Mr and Mrs Bagshaw's submission that they were under a special disadvantage because:
(a)Mr and Mrs Bagshaw were in desperate financial need, in particular:
(1)their Avis business was no longer making a profit;[5]
(2)NAB was about to foreclose on their family farm;[6]
(3)they had failed in their endeavours to obtain financing.[7]
(b)Mr and Mrs Bagshaw were elderly, being 76 and 69 at the time the Mortgage was entered into;[8]
(c)Mr and Mrs Bagshaw had limited education;[9]
(d)Mr and Mrs Bagshaw were under great emotional distress as they were about to lose the family farm and had no way of supporting themselves if they did not receive the required finance;[10]
(e)in contrast, RTS was highly experienced in arranging mortgages being in the business of providing financial products and services; and
(f)RTS's financial position was far superior to that of Mr and Mrs Bagshaw.
[5] Affidavit of Hilland Stanford Bagshaw sworn 25 January 2019 par 15 - 18, 30 (Bagshaw affidavit).
[6] Bagshaw affidavit pars 30 - 32.
[7] Bagshaw affidavit pars 33 - 39.
[8] Bagshaw affidavit pars 3, 8.
[9] Bagshaw affidavit pars 6, 7.
[10] Bagshaw affidavit pars 10 - 13, 37 - 38.
The Acting Master referred to Mr and Mrs Bagshaw's submission about other elements of unconscionability, referred to RTS's submissions and quoted passages from Blomley v Ryan,[11] and Amadio.[12] The Acting Master then concluded:
It is my view that, even if [Mr and Mrs Bagshaw] were to prove all of the facts and matters deposed to in the Bagshaw [a]ffidavit, those facts do not and could not give rise to a finding that [Mr and Mrs Bagshaw] were in a position of special disadvantage as compared to [RTS] and therefore, cannot support a defence based upon unconscionable conduct.
I, therefore, find that there is no real question to be tried in relation to whether [RTS] acted unconscionably and/or breached any warranty that is alleged to have been owed by the defendants. [31] - [32]
[11] Blomley v Ryan (1956) 99 CLR 362, 415.
[12] Amadio (462).
The Acting Master rejected a submission that RTS could not obtain summary judgment for possession of the secured property in the absence of a specified monetary sum that is owed by Mr and Mrs Bagshaw to RTS.[13] She rejected a submission as to breach of s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) on the basis that RTS is not a provider of financial services pursuant to s 12BAB of that Act.
[13] Primary decision [33] - [35].
Grounds of appeal
Mr and Mrs Bagshaw appeal against the Acting Master's decision on the following grounds:
1.There was an error of fact and law in the Acting Master's finding that there was no serious question to be tried on the hearing of the summary judgment application, in that sufficient facts were raised by [Mr and Mrs Bagshaw] to establish that there was a serious question to be tried with respect to [Mr and Mrs Bagshaw's] defence based on [RTS's] unconscionable conduct which arose either at common law or pursuant to Schedule 2 section 20 and 21 of the Australian Consumer Law.
2.Further or in the alternative, there was an error of fact and law in that the Acting Master did not give any or sufficient weight to the evidence in Raymond Stack's affidavit dated 25 February 2019 and [Mr and Mrs Bagshaw's] submission as to the effect and application of that evidence.
3.There was an error of law in the Court's failure to consider that the fact that [RTS] had filed a further affidavit demonstrated that there was a dispute as to the facts of this matter which should be properly resolved at trial.
4.There was an error of law in the Court's reliance on the hearsay evidence contained in the affidavit of Raymond Stack sworn on 30 November 2018 because the deponent did not set out the grounds for his information and belief under Order 14 Rule (2) of the Rules of the Supreme Court 1971 (WA) or under the Evidence Act 1906 (WA).
Evidence on the stay application
In support of their application for a stay, Mr and Mrs Bagshaw rely on the affidavits of Mr Bagshaw sworn 3 April 2019 and Laura Kathleen Thurston‑Moon sworn 18 April 2019.
Mr Bagshaw deposes that the refusal of a stay would lead to the following consequences for Mr and Mrs Bagshaw:
(1)The secured property has been in his family since 1903 and has been his home for his whole life. He has lived on the secured property with Mrs Bagshaw for 50 years. The secured property has special significance for him, and damages would not be able to compensate him for the loss of the property.
(2)Mr and Mrs Bagshaw will have nowhere to live because they are unable to live with their children, other family members or friends.
(3)Mr and Mrs Bagshaw will lose their only source of income and have no ability to earn an income.
(4)The secured property is likely to sell for less than the debts secured by the three mortgages over the property, which may lead one of the mortgagors to apply to bankrupt Mr and Mrs Bagshaw.
(5)Default provisions would likely be triggered on the other two mortgages which would likely cause significant and irreversible effects on Mr and Mrs Bagshaw's credit rating.
Mr Bagshaw deposes that Mr and Mrs Bagshaw would be unlikely to be able to pay the principal of $525,000 into court if required as a condition of the stay. They have limited assets, significant liabilities and have been advised by their finance broker that he has exhausted all possible sources to refinance the secured property.
Ms Thurston-Moon annexes a copy of a transcript of the primary proceedings, and annexes a draft Appellants' Case (a final version of which has now been filed).
RTS relies on an affidavit of Mr Stack sworn on 7 May 2019 in opposition to the application for a stay.[14] He deposes that, as at 2 May 2019, Mr and Mrs Bagshaw were indebted to RTS in the amount of $1,113,461.29. He annexes 2014 and 2016 valuations of lots that form parts of the secured property and says that, based on those valuations, the value of the secured property was $3,665,000 excluding GST on a market based evaluation and $2,600,000 excluding GST on a forced sale based evaluation. He deposes that the total indebtedness of Mr and Mrs Bagshaw to RTS and Stacks Finance will be $3,691,828.65 on 1 June 2019 assuming no payments are made.
[14] In written submissions filed on their behalf on 15 May 2019, Mr and Mrs Bagshaw objected to paragraphs 12 - 13 of the affidavit and sought that they be struck out. At the hearing of the application, counsel for Mr and Mrs Bagshaw indicated that the objection was not pressed.
Stay application - general principles
The general principles to be applied in considering whether to make a suspension order are summarised in Eastland Technology Australia Pty Ltd v Whisson,[15] in the following terms:
•The successful litigant at first instance will ordinarily be entitled to enforce the judgment pending the determination of any appeal.
•It is for the applicant for a stay to move the court to a favourable exercise of its discretion.
•It will not do so unless special circumstances are shown justifying the departure from the ordinary rule.
•The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation, or where refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal. It is often put shortly that it will first and foremost be necessary to establish that without the grant of a stay, the right of appeal, whether upon the grant of leave or special leave or not, will be rendered nugatory.
•If that can be demonstrated, the stay will generally still be refused unless it can be established that the appeal process, whether upon the grant of leave or special leave or not, has ultimately reasonable prospects of success so as to result in the grant of relief to the appellant.
•If that hurdle can be overcome, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant; where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted.
[15] Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9].
Whether appeal rendered nugatory if stay not granted
Mavaddat v HSBC Bank Australia Ltd[16] and Serventy v Commonwealth Bank of Australia[17] were both concerned with recovery actions by a mortgagee of a family home. In those cases, Murphy JA found that the refusal of a stay would render the appeal nugatory on the basis that:
(1)The subject matter of the litigation was, in substance, the alleged defence to the mortgagee's claim under a loan agreement secured by the mortgage;
(2)If a stay were not granted, the mortgagee would be entitled to sell the property without a determination of the defence on the merits; and
(3)If this court were to allow the appeal, the effect of the determination would be that the mortgagee did not have an entitlement to sell the secured property without the mortgagor having a determination of his or her defence on the merits.
[16] Mavaddat v HSBC Bank Australia Ltd [2015] WASCA 205 [21].
[17] Serventy v Commonwealth Bank of Australia [2016] WASCA 86 [8].
In Mavaddat, Murphy JA found that the fact that the mortgagor intended to herself sell the secured property went more, in the particular circumstances of that case, to the question of the balance of convenience, rather than whether a stay was necessary to preserve the subject matter of the litigation - which concerned the bank's entitlement to sell the secured property.
We apply the same approach in the present case, where the secured property is not only Mr and Mrs Bagshaw's family home, but is also the farm which has been in Mr Bagshaw's family for generations and which is Mr and Mrs Bagshaw's only source of income. The subject matter of the appeal is whether RTS has the right to sell the secured property without the primary court hearing and determining Mr and Mrs Bagshaw's unconscionability defence at trial. The grant of a stay preventing RTS from selling the farm prior to the determination of the appeal is necessary to preserve the subject matter of the appeal.
We also note that, as observed at [48] above, RTS has adduced evidence indicating that there is a significant difference between the amount which the secured property may be expected to realise in an open market sale and a forced sale. Particularly in those circumstances, Mr and Mrs Bagshaw's intention to sell the land does not preclude a finding that a stay is necessary to preserve the subject matter of the litigation.
Reasonable prospects of success
At this preliminary stage, we are not convinced that grounds 2 - 4 have reasonable prospects of success.
As to grounds 2 and 3, the affidavit of Mr Stack sworn on 25 February 2019 in the primary proceedings went to the question of RTS's knowledge that Mr and Mrs Bagshaw suffered from any special disability. That is not the issue on which Mr and Mrs Bagshaw failed. Rather, they failed to convince the Acting Master that there was an arguable case that they suffered from a relevant special disability.
As to ground 4, it is not apparent that Mr Stack's evidence was hearsay, as opposed to direct evidence based on his own knowledge of RTS's financial affairs. In any event, the Loan Account Statement was plainly admissible as a business record under s 79C of the Evidence Act, as well as under s 286 and s 1305 of the Corporations Act 2001 (Cth).
Having considered, in a necessarily preliminary way, the Appellants' Case, and having considered the arguments advanced on this application in relation to the merits of the appeal, we are unable to find that ground 1 has no reasonable prospects of succeeding. However, it is difficult to conclude that it is likely to enjoy good prospects of success.
The concept of 'special disadvantage' was summarised in Mavaddat v HSBC Bank Australia Ltd [No 2]:[18]
The circumstances of Amadio illustrate but do not confine the broader principle, which has been applied in a range of other circumstances. As Mason J noted, it is impossible to describe definitively all of the situations in which relief will be granted on the ground of unconscionable conduct. In essence the principle applies where some special disability or disadvantage impacts on a party's ability to judge his or her own best interests. It operates to prevent the other party from taking advantage of the opportunity when it knew or ought to have known of that circumstance. The concern which engages the principle is to prevent victimisation of the weaker party by the stronger, and to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction.
…
However, where the disabled or disadvantaged party obtained a substantive benefit from the transaction, an order setting aside the transaction may be conditional upon the party obtaining relief doing equity. (citations omitted)
[18] Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94 [80] - [81].
Mr and Mrs Bagshaw submit that the circumstances of a particular transaction may help to establish a special disadvantage. They contend that a 'situational disadvantage' can arise in circumstances such as the present case. They rely on the following observation on Forrest J in Perpetual Trustees Australia Ltd v Schmidt:[19]
Acceptance of the concept of situational disadvantage extends the reach of the doctrine to cases involving asset lending where there is intentional moral obloquy, contrary to good conscience on the part of the financier or the procurer of the loan in relation to its dealings (including the processing of the loan application) with the borrower. It is not limited to knowledge of linguistic, educational or intellectual difficulties, but, I think, extends to a situation where the loan documentation alerts the financier or its representative to real issues (such as the patent discrepancies exposed in this case) concerning the borrower’s ability to repay the loan, particularly where the security, in the form of the borrower's family home, is his or her only asset. (citation omitted)
[19] Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67 [207].
As this court noted in Serventy v Commonwealth Bank of Australia [No 2]:[20]
Determining whether a party to a transaction has engaged in unconscionable conduct will entail 'a precise examination of the particular facts' and 'every connected circumstance' as well as 'a scrutiny of the exact relations established between the parties'. The evaluative, fact sensitive nature of this enquiry reinforces the need for caution in the exercise of the power to grant summary judgment. That does not mean that an assertion of unconscionable conduct will be enough to preclude summary judgment. (citations omitted)
[20] Serventy v Commonwealth Bank of Australia [No 2] [2016] WASCA 223 [19].
The court in that case also noted that lending without regard to the borrower's ability to service the loan and solely on the basis of the available security, sometimes referred to as pure asset lending, may or may not amount to unconscionable conduct. Whether it does depends on all the circumstances.[21]
[21] Citing Kowalczuk v Accom Finance [2008] NSWCA 343 [96]; Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353 [206] ‑ [214]; compare ASIC v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43; (2012) 213 FCR 380 [212].
A difficulty facing this aspect of Mr and Mrs Bagshaw's argument is that the asset which became the secured property was, on Mr Bagshaw's account of events, very much in peril when Mr and Mrs Bagshaw entered into the loan agreement with RTS. At that point, NAB was about to foreclose its mortgage on the property. The receipt of the loan funds, far from depriving Mr and Mrs Bagshaw of their family farm, prima facie enabled them to retain and operate the farm and avoid foreclosure, at least until the present time. The loan of the funds was not in those circumstances, a fruitless exercise from the perspective of Mr and Mrs Bagshaw.[22] Nor was the difference between the assessed value of the property and all loans secured against the property such that RTS was at no risk of loss. The usual perceived vices of asset lending[23] are, prima facie, absent in the present case.
[22] See also Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51 [14] - [15], [55] - [57], [184] - [185].
[23] See Permanent Mortgages [206] - [214].
On the other hand, we recognise that there may be more force in the argument of a triable issue that RTS acted unconscionably if, knowing of Mr and Mrs Bagshaw's desperate financial predicament, it unconscionably took advantage of that predicament by the interest rates demanded in consideration for the grant of the loan. Depending on all the circumstances found at trial, that might arguably justify setting aside the loan agreement and mortgage. However, before equity would do so, it would prima facie require repayment of at least the Principal Sum and Additional Principal Sum. Equity would not, at least ordinarily, allow Mr and Mrs Bagshaw to retain the benefit of the transaction (namely the receipt of funds used to partially discharge their indebtedness to NAB) which they sought to have set aside as unconscionable.[24]
[24] See Mavaddatt [No 2] [89].
The Acting Master's reasons did not address the circumstances in which 'asset lending' may constitute unconscionable conduct on the basis that RTS may have taken account of Mr and Mrs Bagshaw's situational disadvantage. Having regard to the above matters, we accept that ground 1 is arguable in the relevant sense for present purposes. The Acting Master arguably erred in concluding that the facts deposed to in Mr Bagshaw's affidavit could not give rise to a finding that Mr and Mrs Bagshaw were in a position of special disadvantage as compared to RTS.
Balance of convenience
Mr and Mrs Bagshaw will suffer significant inconvenience if the stay is not granted. They will be required to leave the farm on which their home is situated and be deprived of the income generated by the farm without being likely to receive any of the sale proceeds. It is relevant to note that Mr and Mrs Bagshaw have been attempting to sell the secured property in any event, a fact which undermines Mr and Mrs Bagshaw's contentions based on the special significance of the secured property to them. However, there is, as noted at [48] above, evidence that the amount realised from a forced sale will be substantially less than a sale on the open market.
On the other hand, RTS will suffer prejudice which is unlikely to be remediated if an unconditional stay is granted. The evidence on the stay application is that the value of the secured property is less than the total amount owing by the appellants which is secured by the three registered mortgages. Mr and Mrs Bagshaw's difficult financial position means that it is unlikely that RTS will recover amounts beyond the sale proceeds of the secured property remaining after the discharge of the first and second mortgages. As such, RTS is unlikely to be compensated for the loss of the use of amounts owing to it if a stay is granted until the determination of the appeal. However, as counsel for RTS accepted, the prejudice to RTS will be substantially ameliorated if a stay is granted on condition that the Principal Sum and Additional Principal Sum are paid into court.
In our view, taking into account all the circumstances, the balance of convenience favours the grant of a stay on condition that the Principal Sum and Additional Principal Sum be paid into court.[25] There is no real basis for doubting that those sums were received and are secured by the mortgage. Repayment of those sums would, at least prima facie, be a condition of setting aside the mortgage if entry into that transaction were found to constitute unconscionable conduct on the part of RTS. Also, whilst we accept, for present purposes, that ground 1 is arguable, particularly in the sense referred to in [64] above, we have real reservations as to its prospects of success.
[25] Cf Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, 164.
Moreover, it is significant that Mr and Mrs Bagshaw have, on their own account of events, obtained a benefit from borrowing those funds in connection with a refinancing of current liabilities including the NAB loan. The loan funds, on their case, appear to have contributed to their opportunity to continue trading and obtain time for a more orderly realisation of their assets than would otherwise have been the case had NAB entered into possession of and sold the property in 2014.
While it appears on the evidence presently before us that Mr and Mrs Bagshaw are unlikely to be able to meet this condition, overall, in our view, it represents the fairest balancing of the parties' interests in all the particular circumstances of this case. In our view, in all the circumstances, a stay would not be justified without that condition, in circumstances where:
(1)there is no reasonable basis for apprehending that Mr and Mrs Bagshaw might retain the secured property without repayment of the Principal Sum and Additional Principal Sum (see [63] above); and
(2)RTS will receive no compensation for the loss of the use of those funds if a stay is granted without that condition.
Conclusion as to stay application
Having regard to all of the above circumstances, we considered it appropriate to exercise our discretion to grant a stay of the Acting Master's orders, subject to the condition that Mr and Mrs Bagshaw pay the amount of $525,000 into court or into such other fund as may be agreed by the parties. We considered that 4 pm on 12 July 2019 was an appropriate time by which payment of that sum should be made, and, having been given the opportunity to do so, neither counsel contended otherwise.
We also considered it appropriate to give the parties liberty to apply in relation to the stay orders on 72 hours' notice to the other parties, to allow for the court to reconsider the matter in the event that circumstances materially change.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ET
Associate to the Honourable Justice Mitchell13 JUNE 2019
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