Billich v Vonderwall No. Scciv-02-460

BILLICH V VONDERWALL
[2002] SASC 421

JUDGE BURLEY. The plaintiff has applied by summons for, and obtained, an order for possession of certain land pursuant to the provisions of Part 17 of the Real Property Act 1886.
The summons came on for hearing before a Master on 26 April 2002. On that occasion there was no appearance by or on behalf of the defendant, the owner of the land. On the basis of the affidavit material then before the Court, an order for possession was made in favour of the plaintiff against the defendant. The defendant has applied to set aside that order. He has put before the Court an explanation as to why there was no attendance by him on 26 April this year. He now argues that he has a defence to the application for the possession order and asks that the possession order be set aside so that he may pursue that defence.
It is not in dispute that, at the time the possession order was made, the affidavit material then before the Court established that the plaintiff was entitled to an order for possession. The effect of that evidence is that the defendant has given a mortgage to the plaintiff in order to secure a debt consisting of a loan by the plaintiff to the defendant and his step-brother. The debt has not been repaid, the plaintiff has given the relevant notices requiring repayment of the debt and those notices have not been complied with. In the absence of a defence which impugns either the loan agreement or mortgage in respect of the debt, it is clear that the plaintiff was, when the summons was called on for hearing, entitled to an order for possession in respect of the subject land against the defendant.
Part of the defence of the defendant is centred upon the defendant’s contention that he lacked the intellectual capacity to enter into the loan agreement or the mortgage. Allied to this is the contention that the impugned transaction was unconscionable in the manner referred to by the High Court in The Commercial Bank of Australia Ltd v Amadio and Anor (1983) 151 CLR 447.
It was common ground that, on an application such as this, the Court is asked to exercise a discretion to set aside a judgment obtained in the circumstances referred to above based on a consideration of the reasons for non-attendance at the hearing by the defendant, whether or not the defendant establishes that a triable issue arises in relation to either the validity or enforceability of the transaction upon which the judgment was based and the question of the relative prejudice to the parties if the judgment is or is not set aside.
As to the first matter, the defendant explained his absence from the hearing by stating that he intended to appear at the hearing but went to the wrong Court. By the time he had established that he was at the wrong Court, the hearing in this Court had been completed. The plaintiff does not contend that the defendant has failed to establish a satisfactory reason for the defendant’s non-attendance at the hearing. The submissions of both parties were primarily directed to the question of whether or not a triable issue arises on the affidavit material now before the Court such that it is at least arguable that the defendant has a defence to the proceedings brought by the plaintiff.
The defendant relied upon the following affidavits which were admitted into evidence:
The affidavit of the defendant sworn on 2 July 2002.
The affidavit of the defendant sworn on 29 August 2002 and the exhibit thereto.
The affidavit of Alan John Merritt sworn on 1 November 2002 and the exhibit thereto.
The plaintiff relies upon the following affidavits admitted into evidence:
The affidavit of the plaintiff sworn on 31 July 2002 and the exhibits thereto.
The affidavit of Charles Patrick Beresford sworn on 30 August 2002.
Before turning to the defendant’s evidence, I should mention that the affidavit of Mr Merritt, who is the defendant’s solicitor, has exhibited to it the report of Dr Carol Cayley, who is a consulting psychologist. The report relates to the intellectual capacity of the defendant. In the summary at the conclusion of the report she stated:
“Mr Vonderwall is a person of limited intellectual ability whose comparatively better verbal skills may tend to mask the true extent of his lack of ability in many situations. He is likely to be easily influenced by others, and unlikely to assert himself when required. In my opinion, Mr Vonderwall would not be able to understand the documents provided to him, at any more than the most basic level. Even with a great deal of explanation, it is unlikely that Mr Vonderwall would truly be able to grasp the concepts involved in a financial transaction of this nature. In addition, individuals with an intellectual disability have a tendency to acquiesce when they do not really understand what is required of them or they believe that is what the questioner expects (eg Clare & Gudjonsson, 1993). Thus, should Mr Vonderwall simply be asked if he understands what has been said to him or what he has read, he is likely to say that he does, when in fact his understanding is very limited.”
On the basis of the whole of Dr Cayley’s report an application was made to appoint Public Trustee as guardian ad litem for the defendant. That application was granted and consequently the application to set aside the possession order was pursued by Public Trustee as guardian ad litem for the defendant. The order appointing Public Trustee as guardian ad litem was made by me at the commencement of a hearing of the application on 14 November 2002. I then indicated to the parties that the granting of the application to have Public Trustee appointed guardian ad litem was a separate application from the application to set aside the default judgment and that any finding made by me leading to the appointment of Public Trustee as guardian ad litem did not relate to the application to set aside the possession order. In other words, it was necessary for the defendant to satisfy me, on the application to set aside the possession order as to any matters relating to his intellectual capacity which had a bearing upon whether or not the possession order was to be set aside.
The question of the intellectual capacity of the defendant at the time of entering into the impugned transaction must necessarily be considered in light of the submissions advanced by Mr Manetta, counsel for the defendant. In accepting Dr Cayley’s report I find that the defendant’s verbal skills are approximately equivalent to those of a child aged thirteen and a half and his non-verbal or problem solving skills are approximately equivalent to those of a child aged eight years and three months.
In his affidavit of 2 July 2002 the defendant has stated that he is the registered proprietor of the subject property which he purchased in 1994 for $54,000.00. To finance that purchase, he sold a house that he had owned at Port Adelaide which he had bought with the proceeds of a motor vehicle accident damages claim. In 1987 he was awarded $160,000.00. He said that he was assessed as having a 75 per cent disability because of damage to his legs.
I mention at this stage that the defendant has been in receipt of a disability pension and was in receipt of such a pension at the time that he entered into the impugned transaction. There is no direct evidence as to the basis upon which the disability pension was awarded but I infer that the disability related to the injuries to his legs rather than to any intellectual disability.
The defendant said that in 1998 his step-brother, Peter Oldfield, spoke to him about a difficulty he was having in obtaining finance in relation to the purchase of a four wheel drive motor vehicle. He asked the defendant for financial assistance stating that he needed $30,000.00. The defendant said that Mr Oldfield pestered him about obtaining his financial assistance. Mr Oldfield stated that the defendant would need to provide a guarantee. He stated to the defendant that details of the defendant’s house would be required but there was no risk to the house because he (Mr Oldfield) would repay the loan.
The defendant trusted his step-brother. They grew up together and he had received help from Mr Oldfield with his house and car in times past.
Paragraphs 7 and 8 of the affidavit are as follows:
“7One night, when I was staying at Peter’s house in Camden Park, he asked me again about going guarantee for his loan. I said again that I didn’t want to. Peter then said to me that he would ‘see to it’ that my business of fishing-rod making and repair would not succeed if I didn’t help him. He also said that there would be $1000 in it for me if the deal went ahead.
8I decided that I would guarantee his loan, as I was very anxious that my business succeed and I trusted Peter and Peter told my mother and his Father that there was no way I would lose my house.”
A few days after that incident Mr Oldfield brought the defendant some papers to sign. He went to an office on Unley Road and was told that they needed to go to a solicitor to witness the signatures. On that occasion Mr Oldfield told the defendant not to tell anybody else about what he was doing. The defendant was unaware of who the lender of the money was.
At paragraph 10 of the affidavit, the defendant said that he went to a solicitor’s office on 11 November 1998. He asked the solicitor to explain the paperwork to him and whether his house could be taken from him if the loan was not paid by Mr Oldfield. The defendant said that before the solicitor could explain the documentation, Mr Oldfield nudged the defendant in the ribs and told him to “shut up” and sign the documents and he would explain it later. The defendant then signed the documentation.
After that Mr Oldfield showed the defendant the car he had bought. It was a Ford F350 and he gave the defendant a thousand dollars which the defendant used to buy a car.
In 2001 the defendant received correspondence from the lender requesting payment. He contacted his step-brother about this. He said that he would take care of it. The defendant was later notified that an application would be made for an order for possession in respect of his house. He consulted a solicitor at Kadina. He said that the solicitor told him that there was nothing he could do and that he was going to lose his house.
The defendant said that it was never explained to him that if his step-brother did not make payments, his house could be sold, nor was he told that if one payment was missed the whole of the loan would be due.
The next affidavit filed was that of the plaintiff sworn on 31 July 2002. The plaintiff is a self-funded retiree and is reliant upon income from personal investments, including the income from the loan. From time to time she has deposited funds with a mortgage broker, Readett Simmons and Associates, through whom the funds were lent to borrowers at interest. Those loans were secured by first mortgage over real property. On 4 November 1998 she received an investment proposal from Readett Simmons in relation to a proposed loan to the defendant and Peter Oldfield. A copy of the proposal is Exhibit NB1 to the plaintiff’s affidavit. The borrower is described as the defendant and Mr PJ Oldfield, who is described as the step-brother of the defendant. Security was to be given by way of registered first mortgage over the defendant’s home which was valued at $45,000.00. A valuation to that effect was attached. The amount of the loan was $29,000.00. Interest was to accrue at 11 per cent and the loan was for a period of two years. The purpose of the borrowing was stated to be to pay out a loan to a credit union and to purchase a four wheel drive vehicle. The plaintiff signed an authority to Readett Simmons to lend the $29,000.00 on the terms stated.
The mortgage transaction was subsequently entered into. At the time the defendant and his step-brother were unknown to the plaintiff.
Part of the transaction involved a credit contract which was prepared by conveyancers instructed by Readett Simmons. This was signed by the defendant and his step-brother, apparently in the presence of a solicitor. The credit contract provided for 23 monthly instalments of $266.00 with a final payment of $29,284.85.
A document called a Precontractual Statement was also prepared. Part of that statement contained signed instructions by the defendant and his step-brother in relation to the disbursement of the proceeds of the loan. Attached to the document is a copy of a pro forma letter whereby the defendant and his step-brother accepted the terms of the proposed loan. The letter is endorsed with the passage:
“BEFORE YOU SIGN
READ THIS CONTRACT DOCUMENT
so that you know exactly what contract you are
entering into and what you will have to do
under the contract.”
The plaintiff has stated that the last payment in respect of the loan was made on 12 November 2001 and that she has received no payments since then.
At the conclusion of her affidavit the plaintiff has said that she has read the affidavit of the defendant sworn on 2 July 2002. She said that at the time the loan was provided she had no knowledge whatsoever of the matters deposed to in that affidavit.
In his affidavit of 29 August 2002 the defendant referred to the plaintiff’s affidavit. He stated that he had no communication from Readett Simmons and Associates other than a letter of 30 October 1998 together with enclosures which included the Precontractual Statement and the letter of acceptance. The balance of the affidavit is as follows:
“3The only people I visited in relation to the loan were Capital Link on Unley Road, Unley and later the solicitors in Gilles Plains referred to in my affidavit sworn herein on 2 July 2002. My step-brother, Mr Oldfield, had told me that he could not get finance any other way than through Capital Link because his credit was bad.
4I visited Capital Link with my step-brother, Mr Oldfield, about four times as best I recall. I do not recall the date of each visit.
5The first time was to fill out an application form. On that occasion I told the Capital Link officer that my only income was the pension.
6The second time was to hand over the title deed to my house. On that occasion I asked the Capital Link officer why he wanted it and he replied that I would get it back when the loan was paid off.
7The third time was to sign papers to have my house valued.
8The fourth time my step-brother and I were told by the officer that the money was approved and that all we needed to do was to get our signatures witnessed by a solicitor.
9My step-brother and I always spoke with the same person at Capital Link but I do not recall his name. On one occasion he asked my step-brother how we knew each other. My mother had not yet married Mr Oldfield’s father at that stage but had been living together with him for about eight years in a de facto relationship. Mr Oldfield told the officer this and also that he, Peter Oldfield, had been a part of my life since school.
10At no time did anybody ask me whether I would be able to make payments towards the loan or whether I knew that I may have to sell my house to pay for the loan. I do not recall specifically whether the Capital Link officer asked us what the purpose of the loan was but I assume he did so and that Peter Oldfield had told him because Peter arranged with him how he was to make the payments and also how the loan was to be split up.
11I did not understand much of what was discussed at Capital Link. Things were spoken of in a way which I did not understand. I simply trusted Peter Oldfield to handle it for me.”
The next affidavit to be filed is the affidavit of Mr Beresford sworn on 30 August 2002. He is the solicitor for the plaintiff. Exhibited to his affidavit is correspondence between his firm and the solicitor who witnessed the signatures of the defendant and his step-brother. The first exhibit is a copy of a letter from the plaintiff’s solicitors dated 8 July 2002 in which they ask for the solicitor’s comments on paragraph 10 of the defendant’s affidavit sworn on 2 July 2002. Paragraph 10 of the affidavit of the defendant sworn on 2 July 2002 is as follows:
“I went with Peter to the Solicitor’s office on 11^th November 1998 where I asked the Solicitor to explain the paperwork to me and whether my house could be taken from me if the loan wasn’t paid by Peter but before the Solicitor could tell me, Peter nudged me in the ribs and told me to shutup and just sign and that he would explain it to me later. I did so.
When providing advice to Mr Vonderwall, I saw him alone and not in the presence of Mr Oldfield. I emphatically deny that at any time in my presence, Peter Oldfield nudged Paul Vonderwall in the ribs and said words to the effect that he should ‘shut up, just sign, and that he would explain the documents to Mr Vonderwall later.’ Nothing like that or anything resembling it was said in my presence or to my knowledge.”
The solicitor’s reply by letter dated 19 August 2002 is as follows:
“I advise that I was retained by Paul James Vonderwall to provide advice and to witness his signature upon certain documents in November 1998. The appointment for that purpose took place on 6^th November 1998, not 11^th November 1998 as stated in Mr Vonderwall’s affidavit at paragraph 10.”
Also exhibited to Mr Beresford’s affidavit is a document which has apparently been signed by the defendant and Mr Oldfield. The solicitor is shown as the witness to those signatures. The document is apparently page 3 of the mortgage.
As stated earlier, there are two aspects to the defence which the defendant has argued arises on the facts put before the Court on this application: first, that the defendant did not have contractual capacity because of his intellectual impairment; and, second, the transaction was an unconscionable transaction and liable to be set aside in equity.
On the facts before me it is at least arguable that by reason of intellectual impairment the defendant lacked contractual capacity to enter into the loan agreement and subsequent mortgage. It was submitted by Mr Slattery, counsel for the plaintiff, that even if it is assumed that the intellectual impairment of the defendant was such as to preclude him from having contractual capacity, it must also be established that the other contracting party was aware of that lack of capacity. He argued, and I agree, that on the factual material before the Court on this application there could be no suggestion that either the plaintiff or Readett Simmons was aware of any intellectual impairment on the part of the defendant.
Mr Slattery relied upon the judgment of Lord Esher MR and Lopes LJ in Imperial Loan Company v Stone (1892) 1QB 599 at 601, 602-603, to support the proposition that the other contracting party must be aware of the lack of capacity on the part of the party seeking to avoid the transaction by reason of his lack of capacity.
Mr Manetta, counsel for the defendant, submitted to the contrary in his written submission dated 28 November 2002. In my view, the contention advanced by the plaintiff is correct. The defendant in this case must show not only that he has an arguable case that he lacked the contractual capacity to enter into the credit contract and mortgage; he must also show that the plaintiff, either personally or by her agent, was aware of that lack of capacity: see also Cheshire and Fifoot, Law of Contract, 4th Aust Ed, para 1701. There is no evidence to suggest that either the plaintiff or Readett Simmons was so aware and consequently I do not consider that a triable issue has arisen to this extent.
During the course of his submissions Mr Manetta also raised the defence of non est factum. It was part of his submission that the defence applied where the party to the contract relying upon the defence was not aware of the nature of the transaction that he was entering into. Such a defence may overlap with a defence based on alleged lack of contractual capacity. However, there is insufficient evidence before me to determine whether or not it is arguable that the defence may apply.

There remains to be considered whether or not it is arguable that the mortgage is liable to be set aside in equity on the grounds of unconscionability. It is clear from Amadio (supra) that there must be proof of a special disadvantage in a contracting party which was known to the other contracting party and that the other contracting party exploited that special disadvantage.
Essential to this ground of defence is the requirement that, on an application such as this, the defendant establish an arguable case that the plaintiff or her agent, Readett Simmons, was or should have been, aware of the special disadvantage (consisting of the defendant’s intellectual impairment) and of any undue influence that his step-brother might have exercised in relation to the defendant, but proceeded with the transaction nonetheless.
It has not been suggested that the plaintiff personally had knowledge of such matters but Mr Manetta has strongly argued that, as a matter of inference, it is at least arguable that Readett Simmons became aware of the improvident nature of the transaction insofar as the defendant was concerned and that that in turn should have caused Readett Simmons to make further enquiries to ensure that the defendant was not being taken advantage of.
Mr Manetta criticised the plaintiff for not putting before the Court all of the information available to Readett Simmons relating to the transaction. I think this submission reveals the essential difficulty with this application. The task of establishing whether or not an arguable defence arises in this regard is rendered extremely difficult where neither of the parties has given full discovery to the other in relation to these issues. The Court is left to speculate whether or not, given the allegedly improvident nature of the transaction insofar as the defendant is concerned, the plaintiff’s broker Readett Simmons was put on notice that further enquiries should be made.
There is no evidence from Readett Simmons as to what information they were given other than that disclosed by way of documentation exhibited to the various affidavits. As a matter of commercial practice one would expect a broker in the position of Readett Simmons to make some enquiries as to the disbursement of the loan funds. There is no evidence before me as to whether any such enquiries were made or if they were made what was disclosed by those enquiries. Had the enquiries been made it is possible that a reasonable person in the position of Readett Simmons would have been concerned as to the voluntariness of the transaction on the part of the defendant. It seems that the proceeds of the loan were used exclusively for the step-brother’s purposes. In addition the basis of the loan was interest only for a period of two years and then repayment of the whole of the principal sum at the expiration of that period. If Readett Simmons were aware, and it seems they should have been aware, that the defendant was only in receipt of a pension, alarm bells might have been rung.
In these circumstances, I think it is open to me to conclude that the defendant may have an arguable defence based on the grounds of unconscionability and that he should not be precluded from pursuing that defence in circumstances where neither party has given full discovery and where, in particular, the defendant has not had the opportunity to obtain non-party discovery from the brokers who acted on his behalf and, potentially, from the brokers who acted on behalf of the plaintiff. Had the defendant attended at the original hearing, and raised from the Bar table the matters that have been the subject of debate on this application, it is likely that the Court would have directed that pleadings be exchanged between the parties or at least that discovery be given between them prior to proceeding further. I do not think that the defendant should be disadvantaged now by the fact that he originally went to the wrong Courtroom and thereby missed the opportunity of putting these matters before the Court.
I should mention that Mr Slattery also raised the question of the indefeasibility of the plaintiff’s title to the mortgage and how fraud may affect indefeasibility. Reference was made to such cases as Latec Investments Ltd and Ors v Hotel Terrigal Pty Ltd (In liq) and Ors (1965) 113 CLR 265 and Bahr and Anor v Nicolay and Ors (1987-1988) 164 CLR 604. As I understand his argument, it was to the effect that there would be no suggestion that there was any unconscionable conduct on the part of the plaintiff and consequently the plaintiff’s title to the mortgage rendered inviolate whatever occurred between the defendant and Mr Oldfield.
If it is assumed that the plaintiff did not engage in unconscionable conduct and that such conduct should not be attributed to her, I accept Mr Slattery’s submission. However, his argument overlooks the fact that it was a central part of the defendant’s case that unconscionable conduct should be attributed to the plaintiff because of the conduct of her alleged agent, Readett Simmons. Part of the defendant’s submission was that Readett Simmons, and through them the plaintiff, should have been put on notice to make further enquiries in relation to the defendant’s role in the transaction because of the improvident nature of the transaction as far as the defendant was concerned. Consequently, reliance upon the indefeasibility provisions in the Real Property Act does not assist the plaintiff on this application.
Insofar as prejudice to the parties is concerned, I consider that the potential prejudice to the defendant, the loss of his home, outweighs the prejudice to the plaintiff. If the mortgage is enforceable, she will be further delayed in realising her security. That is not sufficient, in my view, to require an exercise of the relevant discretion in her favour.
Setting aside the possession order will put the defendant in the position of being able to plead any defence available to him, even if the particulars of some of the essential elements of the defence must await discovery and inspection of documents.
I must also allow for the possibility that the process of discovery does not provide evidential support to the defence. If that is the case, and the defendant cannot adequately particularise the essential elements of any defence relied upon, the defence previously filed is then subject to being struck out either in part or totally. It is for these reasons that I consider a proper balance of justice is struck by setting aside the possession order and directing that the matter proceed on pleadings.
For the above reasons, I propose to make an order setting aside the order for possession and the orders made consequent upon it. I will also hear the parties as to costs and as to what further directions need to be given in relation to this action. I make it clear that the conclusions reached by me on this application about the availability and non-availability of the respective grounds of defence do not preclude the defendant from maintaining whatever grounds of defence are available to him when he files and serves his defence.

[2002] SASC 421

19 December 2002