CBA v Silkman
[2001] NSWSC 582
•6 July 2001
CITATION: CBA v Silkman [2001] NSWSC 582 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S): SC 10388 of 1999 HEARING DATE(S): 3, 4, 5 and 6 July 2001 JUDGMENT DATE:
6 July 2001PARTIES :
Commonwealth Bank of Australia (Plaintiff/Cross-Defendant)
Robert Charles Silkman (Defendant/Cross-Claimant)JUDGMENT OF: Windeyer J at 1
COUNSEL : Mr G K Burton (Plaintiff/Cross-Defendant)
Ms M Tzannes (Defendant/Cross-Claimant)SOLICITORS: Corrs Chambers Westgarth (Plaintiff/Cross-Defendant)
Sukkar & Associates (Defendant/Cross-Claimant)CATCHWORDS: MORTGAGES - claim for possession on default and judgment for sums secured - defence and cross-claim under Contracts Review Act - real defence loans obtained for purposes not stated on application and not explained to be secured on home - mortgagor alleged payments to bank manager to secure loan - Contracts Review Act defences fail - unpleaded claim of wrongful payments made out but gave no reason to vary written documents - CONTRACTS - Contracts Review Act - contract not unjust when borrower understood basis for liability under a mortgage and had no concern about its terms - EQUITY - unconscionable dealing - no special disability in person obtaining money by means known to be improper LEGISLATION CITED: Contracts Review Act 1980, s7, s9 CASES CITED: Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 DECISION: See paragraphs 29 and 30
IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
WINDEYER J
FRIDAY 6 JULY 2001
10388/99 COMMONWEALTH BANK OF AUSTRALIA v ROBERT CHARLES SILKMAN
JUDGMENT
1 HIS HONOUR: In this case the plaintiff, the Commonwealth Bank of Australia, seeks to enforce the provisions of two mortgages and a guarantee, made between it as lender and the defendant, Mr Silkman, as borrower.
2 Under the first of those mortgages, which is over the house of Mr Silkman at 171 Auburn Road, Yagoona, the Bank lent to Mr Silkman, as borrower, the sum of $170,000. That loan was later extended, by the sum of $30,000, to enable Mr Silkman to purchase a motor car for his de facto wife. That is the first mortgage sued upon. It is not suggested that the total amount, namely $200,000, was not received by Mr Silkman.
3 The second mortgage sued upon was given as security by way of third party guarantee for a loan of $30,000, made by the Bank to a company, Dealwind Pty Limited, of which Mr Silkman and a Mr Lawler were directors and, as I understand it, the sole shareholders. They had guaranteed the loan.
4 There has been default under both mortgages. That is not disputed.
5 What is disputed by Mr Silkman, is that he gave security over his home for the full amount of those loans. He accepts and admits that he gave security over his home for the sum of $60,000 under the first mortgage, that sum being required to discharge an existing mortgage over that home to the ANZ Bank limited. What he says is that the additional $110,000 of the $170,000, claimed to be secured and stated to be secured by the first mortgage, was not charged on the property and that he was led to believe that this was an amount lent to him.
6 In the same way the $30,000 increase in the home loan under the first mortgage, to enable him to buy the car for his wife, he says was not secured, or explained to be secured, on his home and he never understood that it was.
7 So far as the Dealwind third party mortgage is concerned, what he says is that he was given no explanation that the mortgage given to secure his guarantee could put his house at risk. In fact, what he says is that he was told that it was not at risk and if there was any problem then the bank manager in question, Mr Kapeleris, was close to the shredder, by which he says he understood that if there were any problems, the security document would just disappear.
8 That is, in essence, the Defence to this claim, which is made by way of a Defence based on the Contracts Review Act 1980. It is fair to say that what Mr Silkman is really saying is that, by means of his paying MONEY to Mr Kapeleris, he was able to obtain a loan on terms other than the written terms, in that the written terms would not be enforced. That, I should say, is a claim which has never been pleaded, but, nevertheless, the action proceeded on the basis that it had been.
9 He also seeks to set aside the mortgages, on the basis of s7 of the Contracts Review Act, claiming that they are, or the arrangement was, an unjust contract within the meaning of that Act, at the time the respective mortgages were signed.
10 In support of that, there have been set out in the Defence and Cross-claim some of the matters which are referred to in s9 of the Contracts Review Act. I should say, as I have said before, that it is quite hopeless to plead a Defence by just setting out the matters which s9 requires the Court to take into account in considering whether or not provisions of a contract are unjust. What must be set out are the facts relevant to determining whether or not, for instance, there was inequality of bargaining power, or there was an opportunity for legal advice. Having said that, it can be left at one side, because the matter has just proceeded on the basis of the evidence which was given and I do not think anyone has suffered because of the pleading deficiency.
11 What the defendant says, so far as the first mortgage is concerned, is that Mr Kapeleris told him that he could get moneys which would enable him to buy a house on the Gold Coast. The way that he would be able to achieve this was by finding some friendly builder to whom he would make payment, purportedly for repairs to his property, which had not been done and which it was never intended would be done. The builder would collect the cheque, which the Bank would make payable to him. The builder would then hand that cheque or his own cheque for the same amount to Mr Silkman, who would give that cheque to his daughter, who would put it into a Bank account in her name and leave it there with the Bank for a short time, so that it looked as if she had funds of her own available and that she, with the aid of that money, treating it as her own, would then borrow additional funds from the Commonwealth Bank and buy a house on the Gold Coast in her name. The procedure was put into effect.
12 Mr Silkman says that it was never intended that the Gold Coast house, which it was admitted was purchased, was his daughter's. She makes no claim to it. He says that it was his and that he got it with the moneys which he obtained from the Bank. There could be no possible doubt that those moneys were repayable by Mr Silkman to the Bank whether or not they are secured. In the same way the $30,000, which was obtained from the Bank by way of an increase in the housing loan to enable him to purchase the car, was money for which he got an advantage and moneys which he is required to repay. Although some argument was put that he should not be required to repay money from which he gained the benefit, I just do not understand how that argument could be seriously put forward. In any event, there is no possible basis on which an order could be made releasing him from that liability.
13 So far as the moneys lent to Dealwind and secured by the second mortgage is concerned the position is as follows: the first loan was for $30,000; that was subsequently increased by $25,000 to $55,000. Mr Silkman signed an authority as guarantor to the Bank, authorising that increase, or more precisely, accepting that his guarantee extended to that amount. There could be no doubt whatsoever that he was liable for that amount, whether or not it was secured.
14 That loan was later increased to $93,000, at a time when Mr Silkman was in gaol for reasons unconnected with this case. There is, at least, some doubt as to how this came about, but I am satisfied that increase was for a temporary period. The loan was subsequently reduced within the limits to $55,000 and, on the evidence that the Bank required consent of the guarantor to any increase over and above the authorised amount, I am not prepared to find that Mr Silkman is liable for any amount in respect of this Dealwind loan over and above the $55,000 plus interest on it and costs and fees in connection with it.
15 The loans for $170,000 and $30,000 are secured by the first mortgage. The loan of $55,000 is secured by the second mortgage. The documents are all admitted. The questions for decision are whether an order should be made, under the Contracts Review Act, to vary the documents, or whether the transactions or some of them should be set aside as unconscionable.
16 All the documents signed by Mr Silkman, so far as are relevant, are either mortgage documents, or are documents which refer to the amounts being charged against the home. He says that he did not know that to be the position. He says that he did not read any of the documents. He says that Mr Kapeleris gave him no advice about anything but just said, "Sign these documents and you will get the money." But he also says that he did not care what he signed, because what he was interested in was getting the money and he would sign the documents necessary to get him the money.
17 He also admitted that he knew what a mortgage was and he understood that if he did not repay the moneys due under the mortgages, then the Bank could recover those moneys from him and sell the property to enable it to do so.
18 The documents relied upon for an order for possession, namely the first mortgage for $170,000 and the second mortgage, securing the liability of Dealwind to the Bank, are clearly mortgages. The liability under a mortgage was known to Silkman. Unless there is some conduct on the part of Kapeleris which in some way would mean that the liability ought not be enforced, because the arrangement was unjust under the Contracts Review Act, or the transaction unconscionable, any claim for variation, will have to fail.
19 It is unfortunately necessary, then, to consider the allegations against Kapeleris. Those allegations, shortly, are that he was prepared to make money available to Mr Kotsohilis, or persons introduced by him, including Silkman, for payment of money, namely $5000 on each occasion. Mr Kapeleris says that did not happen. Silkman's evidence was that he paid $6000 to Mr Kotsohilis and Mr Kotsohilis says that of the $6000, he paid $5000 to the bank manager. There is also evidence of Mr Isgro of paying money to Kapeleris on behalf of Silkman.
20 For the most part one is relying on witnesses who could hardly be said to be witnesses of great credit. Mr Silkman is a man whose previous career is such that it is necessary to treat anything that he says with considerable care. The same for Mr Kotsohilis, who seems on his evidence to have embarked on a career of defrauding of the Bank, so that he and Kapeleris could make some money out of that fraud.
21 In fact, the claim of Mr Silkman, so far as all this is concerned, is that he could get what he wanted from Mr Kapeleris, with Kapeleris going to his house, producing the documents for signature, collecting the required payment, approving the application on behalf of his bank employer and making the funds available. There was even a suggestion, put to Kapeleris, that he had offered Mr Kotsohilis $25,000 not to come to give evidence. His response to that made it unlikely, I think, that he had made such an offer.
22 On the other hand, there are some matters which are against the acceptance of Mr Kapeleris as a witness of truth. First, there is his evidence as to the reason he accepted that Mr Silkman owed $110,000 to Mr Brown. The letter on which that acceptance was based would have been a red light to any bank manager. His evidence about this was quite unconvincing. Secondly, there was his evidence that he did not remember going to Long Bay Gaol to see Mr Silkman. I do not accept that he did not remember it and I find he went there. Thirdly, there was his evidence about his visit to Cessnock and his not knowing the reason why he was going to Cessnock. I do not accept that evidence and I find it to be untrue. He went there to see Silkman. Fourthly, there was his evidence that he had only been to the house of Mr Silkman on one or two occasions, when in his own affidavit he said it was three or four and I find it was at least as many as that. In addition, although one could imagine that Mr Kapeleris was somebody who could put this scheme of paying money to a builder for fictitious work into the mind of Mr Silkman, I do not think that Mr Silkman could have invented that scheme himself. Although I am hesitant and reluctant to say so, because in some ways it might be thought that the result of fraud claimed by Silkman should lie where it falls without the necessity of making any finding on it, I think it is necessary to make the finding and serious as it is I find that Mr Kapeleris did accept money to carry out the transactions. I should add that his relationship with Silkman and Kotsohilis, including visits to their homes and joining them on holidays, was not conduct usually expected of a senior banking officer, even if called a "relationship manager".
23 On that finding, the result is that Mr Silkman knowingly embarked on a fraudulent operation, involving a bank manager, for the purpose of obtaining funds which he would perhaps otherwise not have obtained. The evidence of Silkman that he was told that banks had ways of making loans disappear from their books and he believed this was normal procedure was impossible to believe. There is no reason why a mortgage signed to secure those funds, ought to be set aside.
24 There are a number of other grounds that have been put forward under the Contracts Review Act to justify some variation in the terms of the loan documents. So far as is necessary to go into them, the most telling perhaps, is the lack of education of Mr Silkman and therefore, what might be described as the inequality of bargaining power. If his story is correct, then what he was doing was engaging in fraud with Mr Kapeleris in which they were both equally involved. I do not accept that he did not know what he was doing when he signed the documents. I do not accept he did not read those documents at least so as to be aware the loan being a home loan. On his story, what happened was that he paid Mr Kapeleris to get what he wanted, not being concerned about the ramifications of this.
25 It would be fatuous to suggest that he would have considered getting legal advice, even if it were thought that he was given, or should have been given some further opportunity to get it. It would, I think, be ridiculous to suggest that if he had been told anything more than he was told by Kapeleris, he would not have signed the documents.
26 While I do not accept that Mr Kapeleris gave to Mr Silkman, the information and advice, which he said he gave, about what the documents meant and his liability under them, I do accept that he told him they were mortgages. He knew what a mortgage involved. None of the matters raised under the Contracts Review Act have been made out. In fact none of the others was addressed by evidence or argument.
27 There is, finally, a claim based on unconscionable conduct in reliance on Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447. For such claim to succeed it would require, in ordinary circumstances, a finding that Mr Silkman was in a position of special disability, or under some special disability, when he entered into the transactions. In my opinion, having seen him give evidence, he was under no such disability. There were various vague statements made about his being a user of cannabis and not understanding what was happening at the time documents might have been signed. None of that evidence, if it could be called that, was directly related to the occasions when the documents in question were being signed. The truth is that Silkman got exactly what he wanted by engaging in fraudulent conduct unknown to the Bank.
28 What I understand to be the fall back claim, even if not clearly articulated, namely to have the mortgages set aside, so far as any amount over $60,000 is concerned, could not be successful on the facts of this case unless the amount owing over and above that figure were paid by Mr Silkman. There is no offer to make payment and, as I understand it, there is no ability to make that payment.
29 It follows from all of this that the Defence and Cross-claim fail, and that the plaintiff is entitled to an order for possession, and judgment for amounts which I am unable to determine precisely today. I will stand the matter over to some date next week, to enable judgment to be entered for appropriate amounts. As I understand it, the interest difficulty relates only to a recalculation of the amount due under the third party mortgage, so as to make it relate to a principal sum of $55,000 and interest over and above that. Such interest would, of course, be on a compound basis.
30 I would propose to make an order that a warrant for possession issue but that that be postponed for a period of two weeks. By the time that any execution came about on that warrant, there would have been a delay of at least four weeks. That I consider to be sufficient. This matter has been going on one way or another since 1999. It has been before the court on eighteen occasions before coming to a hearing. It is time it was brought to an end.
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