Cuppaidge v Baldwick and Baldwick
[2000] QDC 252
•4 August 2000
DISTRICT COURT OF QUEENSLAND
CITATION: Cuppaidge v. Baldwick & Baldwick [2000] QDC 252 PARTIES: GEORGE EDMUND ASHLEY CUPPAIDGE (Plaintiff)
v.
DENIS CLAUDE BALDWICK AND YVETTE MARCELINE BALDWICK (Defendant)FILE NO/S: D2241 of 1999 DIVISION: PROCEEDING: Application ORIGINATING COURT: District Court Brisbane DELIVERED ON: 4 August 2000 DELIVERED AT: Brisbane HEARING DATE: 27 July 2000 JUDGE: McGill DCJ ORDER: Order that:
1. Paragraph 12 of the defence filed 28 June 2000 be struck out, with liberty to replead.
2. The application be otherwise dismissed.
3. The plaintiff file a statement of claim in the consolidated action as he may be advised.
4. The consolidated action be stayed until that statement of claim be filed
CATCHWORDS: GUARANTEE and INDEMNITY – Actions against guarantors – assignment of benefit – need of assignment of benefit of principal obligation
MORTGAGES – recovery of possession of land – attornment clause – assignment by mortgagee – whether assignee can terminate tenancy
PRACTICE – consolidation of actions – requirements for pleading
PRACTICE – Separate decisions on questions – when not appropriate
Uniform Civil Procedure Rules 80, 171, 284, 483, 896
General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125 – applied
Custom Credit Corporation Limited v. Miller [1964] QWN 2 – followed
Finance Allotments Pty Ltd v. Young [1961] Qd.R. 452 - followed
Bank of New South Wales v. Crow [1979] Qd.R. 222 – followed
Metropolitan Permanent Building Society v. McClymont [1983] 1 Qd.R. 160 – followed
Simmons v. Lee [1998] 2 Qd.R. 671 – cited
International Leasing Corp (Vic) Ltd v. Aiken (1966) 85 WN (Pt 1) (NSW) 766 - cited
Hutchens v. Deauville Investments Pty Ltd (1986) 61 ALJR 65 – followed
Consolidated Trust Co Ltd v. Naylor (1936) 55 CLR 423 – cited
Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447 – cited
Garcia v. National Australia Bank Limited (1998) 72 ALJR 1243 – citedCOUNSEL: R Mack for plaintiff
No appearance for defendantsSOLICITORS: James Conomos Lawyers for the plaintiff
No appearance for defendants
This is an application under r.171 to strike out certain paragraphs of the defence of the defendants. The action was commenced by plaint filed on 3 June 1999, and a Notice of Intention to Defend and defence were filed on 28 June 2000; the application was filed on 18 July 2000 and sought to strike out paragraphs 3, 4, 5, 6, 7, 8(b) and 12 as disclosing no defence. It was accepted by counsel for the applicant plaintiff that the approach laid down by the High Court in General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125 applied to the application.
The plaintiff’s claim as set out in the plaint is to recover possession of certain land. It is alleged by the plaintiff and admitted by the defendants that they were at all material times registered proprietors of that land, and that it is valued by the Valuer General at less than the jurisdictional limit of the District Court. Accordingly, this court has jurisdiction to hear and determine the claim: District Court Act 1967, s.68(1)(d)(xi). It is alleged that a bank became registered as mortgagee over the land on 6 December 1994, that pursuant to that mortgage the defendants attorned tenant to the bank of the land “from week to week commencing on the date of execution of the mortgage by the mortgagor”, that the bank’s interest under the mortgage was assigned to the plaintiff on 18 December 1998, that the amount owing under the mortgage as of that date was $100,339.17, that the defendants have failed to pay that sum to the plaintiff, notwithstanding demand, that the plaintiff has served a Notice of Exercise of Power of Sale, and has on 17 May 1999 “demanded possession of the land forthwith upon service of the notice”. It is also alleged the defendants remain in possession of the land subject of the mortgage.
Mortgagee’s recovery of possession as landlord
Where a mortgagor attorns tenant to the mortgagee the relationship of landlord and tenant is taken to exist between them, and the mortgagee may bring an action for recovery of possession which is the action appropriate when suing as landlord rather than as mortgagee: Custom Credit Corporation Limited v. Miller [1964] QWN 2. Gibbs J said in that case:
“It is clear enough that where a tenancy created by an attornment clause in a mortgage has been determined by notice to quit and the mortgagee brings an action for the recovery of the land, the writ may be specially endorsed under O.6 r.7.”
That was a rule dealing with a specially endorsed writ of summons in inter alia an action “in which the plaintiff seeks to recover … possession of any land”, and could be contrasted with an endorsement under O.6 r.11 which spoke of various forms of relief by a mortgagee, including “delivery of possession”.
The distinction between an action to recover possession of land and an action for delivery of possession of land was explained in Finance Allotments Pty Ltd v. Young [1961] Qd.R. 452. Under the Uniform Civil Procedure Rules the distinction remains as is shown for example by r.286, although either action will produce a judgment for possession of land which may be enforced pursuant to r.896. That the mortgagee may recover possession pursuant to the attornment clause of the mortgage, where that is expressly relied on in the pleading, was supported also in the Bank of New South Wales v. Crow [1979] Qd.R. 222 and Metropolitan Permanent Building Society v. McClymont [1983] 1 Qd.R. 160.
In Miller, Gibbs J spoke of a tenancy which “has been determined by notice to quit” and in McClymont McPherson J (as His Honour then was) spoke of a writ which was specially endorsed with a reference to a tenancy by attornment arising out of a registered Bill of Mortgage, “breach of terms of that tenancy, its termination by the plaintiff and the defendants’ continuation in possession after demand therefore”. Form 71 in the former Rules of the Supreme Court, which contained the form of special endorsement in O.6 r.7 by a landlord claiming recovery of possession against a tenant also contains an allegation that the “tenancy was duly determined by Notice to Quit …”.
In the present case the tenancy attorned was from week to week. By the Property Law Act 1974 s.130(1), a weekly tenancy may be terminated by the landlord upon notice to the tenant, and unless otherwise agreed upon, the notice shall satisfy the requirements of s.131 and be given in the manner prescribed by s.132, and to provide a period of notice required by s.133. Section 131 requires the notice to be in writing, signed by the person giving the notice or that person’s agent, and contains requirements as to content, s.132 allows the notice to be given a range of ways including by delivering it to a person apparently over the age of 18 and apparently residing on or in occupation of the land, by posting it up in a conspicuous place upon the land or by sending it by registered post to the tenant at the tenant’s usual or last known place of abode or business. The period of notice is, by s.133, at least one week’s notice expiring on the last day of a week of the tenancy.
The plaint does not appear to contain an allegation that the tenancy from week to week has been terminated in accordance with those provisions; a Notice of Exercise of Power of Sale demanding possession of the land forthwith upon service of the notice alleged in para. 12 would not appear to be consistent with the requirements of the statute. But the provision of the mortgage alleged in para. 3 of the plaint includes that:
“Such tenancy in the event of breach by the mortgagor of any of his obligations under the mortgage to be determined by the bank without notice”.
Assuming that this is an effective agreement otherwise for the purpose of s.130 of the Property Law Act, the right to determine the tenancy without notice, that is by demand for possession, is dependent upon the existence of a breach by the mortgagor of an obligation under the mortgage. The pleading proceeds on the basis that the breach consisted of failing to pay on demand an amount payable under the mortgage to the mortgagee, that is the plaintiff.
By summons filed the same day as the plaint, the plaintiff sought summary judgment for recovery of possession. Exhibited to the plaintiff’s affidavit and in support of this application is a copy of the relevant mortgage, registered in favour of Westpac Banking Corporation on 6 December 1994, which describes the debt or liability secured as:
“Money hereby secured as defined in document L964056B, including monies owing or which become owing to the bank by the mortgagor and/or George Edmund Ashley Cuppaidge and Denis Claude Baldwick (“the debtor”).”
A schedule to this was also executed by the plaintiff and Mr. Baldwick as debtors, confirming the mortgagor’s request to the bank not to make demand for repayment of accommodation already provided to them, or alternatively to agree to provide or continue accommodation to them, by which they agreed to be bound as a party to the mortgage and accepted and undertook all obligations of the debtor in the mortgage as set out in document L964056B. That document is also registered. The relevant terms of that document are lengthy; it is sufficient at this point to say that they provide that “monies hereby secured” includes monies lent or to be lent by the bank to their mortgagor or to the debtor. The mortgage appears to be a third party mortgage, or at least to be capable of functioning as one, that is, a mortgage granted by the mortgagors to secure the indebtedness of the debtors to the bank. As such, it is analogous to a guarantee.
The application for summary judgment was adjourned twice before being adjourned on 5 July 1999 sine die. By then the defendants had filed affidavits. The female defendant denied she signed the mortgage to the bank or that the effect of it was ever explained to her. The male defendant deposed to his having entered into a partnership with the plaintiff in June 1994 for which funds were borrowed from the bank secured by a second mortgage over the land owned by the defendants. Under the partnership deed, any indebtedness by the partnership was to be discharged with the plaintiff paying the first $60,000, the male defendant paying the next $60,000 and any further indebtedness to be shared equally between them. He deposed to an absence of any accounting between himself and the plaintiff in respect of the partnership. Exhibited to this affidavit is a document entitled “Deed of Dissolution of Partnership” which appears to have been executed by both the plaintiff and the male defendant which provided for the rescinding of the partnership agreement, for the plaintiff to transfer $30,000 into the credit of the partnership account, that the plaintiff divested himself in favour of the male defendant of all his interests in any partnership asset, and that the male defendant was solely responsible for the duties, obligations and liabilities of the partnership business.
Effect of assignment of mortgage
The benefit of a mortgage is generally assignable at law, and the same applies to the benefit of a guarantee: Simmons v. Lee [1998] 2 Qd.R. 671 at 674. If the principal obligation and the benefit of the guarantee are assigned concurrently by the principal creditor to the same assignee, the guarantee can be enforced by the assignee: International Leasing Corp (Vic) Ltd v. Aiken (1966) 85 WN (Pt 1) (NSW) 766 at 796. However, the benefit of a guarantee cannot be assigned if the assignor retains the benefit of the guaranteed debt: Hutchens v. Deauville Investments Pty Ltd (1986) 61 ALJR 65. In that case a company borrowed money from financier A which was secured by a first mortgage debenture granted by the company, and a third party mortgage granted by a director of the company over land he owned. Subsequently the company borrowed money from a second financier, B, but then became insolvent. The assets of the company were sufficient to discharge the debt owed to A but insufficient to pay out B. Had the debt owed to A been discharged from the assets of the company, the director would have been under no liability under his guarantee and mortgage; alternatively, if A had recovered under that guarantee and mortgage he would have been subrogated to the rights of A to recover from the company under its first mortgage debenture and would have been completely reimbursed: p.66.
However A assigned to B the money owing to it by the company and its interest under the first mortgage debenture, and by a separate instrument of transfer of mortgage, transferred to B its interest in the mortgage given by the director to A. B subsequently transferred the benefit of that mortgage to a related company, C, for a stated consideration more than the amount alleged to have been secured by it. The High Court said (p.67) in these circumstances:
“Questions arise about whether the transfer of the real property mortgage by [B to C] could, of itself, suffice to effect a transfer of [the director’s] indebtedness as guarantor which was, as has been seen, the only actual liability which it secured and whether, if it could not, [C] is entitled as mortgagee to enforce the security of the real property mortgage given to secure the payment of a debt owing to a company other than itself.”
But assuming that in favour of C, the court regarded the most fundamental difficulty in its path was the absence of any suggestion in the pleading or the evidence that there was any assignment in law or equity to C of the debt owed by the company to B, or the benefit of the first mortgage debenture: p.67. The difficulty arose from the suggestion that the benefit of the liability as guarantor and the real property mortgage to secure it were a loan transferred to C with the result that the company remained liable as principal debtor to B: p.68. The court went on to say (p.68):
“It would seem to be simply impossible, as a matter of basic principle, to assign the benefit of a guarantee or the security for it (as distinct from the property secured) while retaining the benefit of the guaranteed debt and thereby to convert the one debt owing by both principal debtor and guarantor to the one creditor into two debts, one owing by the principal debtor to the creditor and the other owing by the guarantor to the assignee.”
The court also noted that there was another question which may need to be investigated, whether if money obtained by the receiver had been deliberately applied in discharge of the indebtedness under the second mortgage debenture rather than the first mortgage debenture in order to preserve B’s ability to enforce the guarantee against the director, and by subverting and rendering valueless the director's right of subrogation to the benefit of the first mortgage debenture, the director was entitled to be discharged from his obligations as guarantor or to have his liability reduced by the amount which ought to be applied in discharge of the debt owed by the company under the first mortgagee security: p.69.
The deed of assignment by the bank to the plaintiff dated 18 December 1998 is exhibited to a copy of an affidavit of the plaintiff filed on 29 June 1999. That document appears to me to purport to assign to the plaintiff the bank’s right, title and interest, both legal and beneficial in and to the mortgage granted by the defendants, and to release a mortgage granted by the plaintiff to the bank, both in consideration of a payment of $100,339.17. So far as I can see, it does not contain any assignment by the bank to the plaintiff of the debt owed to the plaintiff by the male defendant to the bank or the debt owed by the partnership to the bank. It would seem therefore to be an attempt to assign the benefit of a guarantee without assigning the principal debt to which the guarantee is security, contrary to the decision of the High Court in Hutchens (supra).
The effect of the assignment is a matter of construction of the document: Consolidated Trust Co Ltd v. Naylor (1936) 55 CLR 423 at 436. Accordingly, there may be room for argument about whether this is the correct effect. In addition, the position may be affected by some provision in the terms of the mortgage to which I have not referred. The matter was not, of course, the subject of full argument, nor indeed should it be, given that the present proceedings are simply an application to strike out part of the defence of the defendant. For the purpose of deciding that application it is not necessary for me to decide whether the defendants have a good defence to the plaintiff’s claim. It is sufficient for it to appear that the defendants may have a good defence to the plaintiff’s claim, being one raised by that part of the pleading sought to be struck out.
Consolidation of proceedings
There were also proceedings commenced in the Supreme Court, between the same parties, but these were by order of the Supreme Court on 13 July 1999 remitted to the District Court at Brisbane. By a consent order by another judge made on 6 October 1999, they were consolidated with the plaintiff’s action. That order also provided for the sale of the house, the subject of the plaint, a mechanism for doing that, and went on to “order the proceedings be decided without further pleadings and be determined by a trial of the following questions as between the plaintiff and the female defendant:
(a) Did not the events as generally described in the attendance note Exhibit “A” to this order[1] occur?
(b) Did not the female defendant sign her name on the mortgage number 700384437 in favour of Westpac Banking Corporation on 7 November 1994 at the offices of Westpac Banking Corporation in the presence of David John Van Eyk, Chris Coonan and the male defendant?”
[1]There is no Exhibit A to the order, although there is an Exhibit A to a draft of the order on the file, parts of which are illegible.
There was then provision for an accountant in effect to take an account of the entitlements and liabilities of the former partners, which appears to ignore the terms of the deed of dissolution of partnership (perhaps for good reason). It provides for judgment subject to answers in the affirmative to the questions identified earlier in favour of the plaintiff for the amount owing under the mortgage together with interests and costs, and then provided that if the questions are answered in the negative, the plaintiff have judgment against the male defendant for the amount owing under the mortgage together with interests and costs. There was then a provision: “Order the judgment on any issue in these consolidated proceedings shall be stayed pending the determination of all issues in dispute in these consolidated proceedings.” Such an order is, to say the least, odd.
There was subsequently a further order, again by consent, for the plaintiff to file and serve an affidavit by a certain date, for the plaintiff to deliver with the affidavit a proposed draft amended order, with provisions for the proposed draft amended order to be amended and for the parties to have liberty to apply in the event of a failure to agree. On 21 December 1999 the same judge ordered that the consent order made on 6 October 1999 be vacated, repeated the order for consolidation, cited an undertaking on the part of the defendants to use their best endeavours to sell their property, and made provision for the distribution of the proceeds of sale, made provision for the accountant to report on the respective entitlements and liabilities of the former partners, gave directions for pleadings, ordered that the questions previously mentioned be determined between the plaintiff and the female defendant, directed the plaintiff to file any amendment to the plaint within 14 days, the defendants to file and serve a defence and counterclaim within 28 days, made provision for further pleadings and mutual disclosure, and for the parties to sign a request for trial with the proceedings then to be placed on a callover list with priority.
It does not appear that an amended plaint (or as it ought now to be an amended Statement of Claim under the Uniform Civil Procedure Rules) has ever been filed on behalf of the plaintiff. This is unfortunate, because I suspect that, in the light of the undertaking given on behalf of the defendants in the order of 21 December 1999, the justification for the plaintiff’s obtaining possession of the mortgaged land, which is the only relief sought in the action, has really disappeared. At least one of the orders to which I have referred suggests that there is an assumption that the plaintiff is claiming money from the defendants in this action, but I have found nothing to indicate the presence of any money claim by the plaintiff in this action. If the plaintiff did have that in mind, it is unfortunate that the opportunity to file an amended pleading was not taken.
It is also surprising that, following the consolidation, the plaintiff was not required to file a new pleading. The procedure in this case seems to have become something of a mess. That has arisen because the parties have not been content to follow the procedures laid down by the rules of court, but have sought to invent their own procedure for resolving disputes, which seems to have little to do with such fundamental requirements as pleadings and trials. Counsel for the plaintiff submitted in effect that the only matters in issue between the parties were the resolution of the questions quoted earlier. On the existing pleadings, plainly that is not the case, and any scheme for dealing with this litigation which assumes that that is the case is bound to be misconceived.
In my respectful opinion, parts of the orders of 6 October 1999, 29 November 1999 and 21 December 1999 were inappropriate and should never have been made. It is understandable that a judge faced with consent to an order of some complexity in what appears to be a complicated matter on a busy Chamber day may well not examine the situation sufficiently thoroughly to expose the deficiencies in what is proposed in the order. My own experience suggests that parties to litigation sometimes do not appreciate that the consent of the parties does not overcome any limitation on the jurisdiction of the District Court, nor does it serve to convert what is an inappropriate order into an appropriate one. For example, orders for actions to be consolidated and that they be heard together are alternative orders, not cumulative. Once two actions have been consolidated, there is one action on foot, and it is meaningless to speak of one action being heard together.
Once an order for consolidation is made, there must be directions for pleadings in the consolidation action. This may take the form that an existing pleading stand as the Statement of Claim in the consolidated action, otherwise a Statement of Claim in the consolidated action must be filed and served. Unless and until there are pleadings in the consolidation action, it is impossible to say what the issues are in that action. Until those issues have been resolved by an exchange of pleadings, it is impossible to know whether there are particular questions of fact (or law) which it is appropriate to have answered prior to the trial. It is not enough that the questions concerned are questions which may arise; it is essential that any questions be properly based on agreed or found facts, so that any answer is not hypothetical: Bass v. Permanent Trustee Co Ltd (1999) 73 ALJR 522. It is also necessarily inappropriate to use that mechanism to identify questions upon which the whole trial will turn; if it were the case that there were particular questions the answers to which will decide the whole proceeding one way or the other, the appropriate course is not to have those questions decided before the trial, but to have a trial to decide them. Having taken the time to examine this matter in some detail, an opportunity which His Honour obviously did not have, it is clear that the whole procedure is misconceived. Something further will have to be done to rectify it.
The terms of the defence
On 28 June 2000 a Notice of Intention to Defend on the part of the defendants was filed with an attached defence and counterclaim. The defence admitted certain allegations in the plaint and admits that the mortgage contained the wording alleged in para. 3 of the plaint, although it denied that the female defendant is contractually bound by that. This was a reference to allegations in paras. 10 and 11 that the female defendant executed the documentation without understanding or comprehending its effect, that the execution was procured by the male defendant, that she only executed it at his request and without any explanation, and that she did not appreciate this left her with some personal liability to the bank in respect of the debts of the male defendant’s partnership, and that the conduct of the bank was unconscionable and the female defendant was entitled to have the mortgage set aside. This plea would appear to be intended to invoke the principle in Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447 and Garcia v. National Australia Bank Limited (1998) 72 ALJR 1243. This part of the defence is not challenged by this application.
The defence continued:
“3. As to paragraph 4 of the Plaint the defendants:
(a) Admit and allege that the plaintiff paid the sum of ONE HUNDRED THOUSAND THREE HUNDRED AND THIRTY NINE DOLLARS AND SEVENTEEN CENTS ($100,339.17) to the Westpac Bank on or about the 18th December, 1998;
(b) say that such payment was in full discharge of any mortgage debt held by the plaintiff and defendants with Westpac Bank;
(c) admit that the plaintiff and Westpac executed a document dated 18th December, 1998 which was called a “Deed of Assignment”’
(d) admit that the Deed of Assignment purports to assign to the plaintiff all of the right, title and interest, both legal and beneficial in the subject mortgage held by Westpac;
(e) say that such assignment occurred after or contemporaneously with the discharge of the mortgage debt by the plaintiff.
4. As to paragraphs 5 and 6 of the plaintiff the defendants:
(a) admit the plaintiff by way of correspondence sent to the defendants on or about the 18th day of December, 1998 purported to give notice to the defendants of an assignment of the mortgage;
(b) admit a copy of the correspondence was sent to the solicitors for the defendant.
5. The defendants do not admit the contents of paragraph 7 of the Plaint as the defendants:
(a) are uncertain of the term “mortgage over the land pursuant to the mortgage” and its meaning therein;
(b) after reasonable enquiry remains uncertain as to the truth or falsity of the balance of the allegations,
(c) otherwise rely on the matters particularised in paragraph 3 aforesaid.
6. The defendants deny the allegations in paragraph 8 of the Plaint and believe the allegations to be untrue by reason that:
(a) the Plaintiff by the payment of the moneys particularised in paragraph 4(a) of the Plaint and paragraph 2(a) herein has discharged the entire indebtedness secured by the mortgage;
(b) says that after the payment referred to in (a) herein there were no moneys owing to the Westpac Bank pursuant to the mortgage entered into by the Plaintiff and Defendants;
(c) says as a consequence thereof there was no indebtedness of the Defendants to the Plaintiff pursuant to or which remained secured by the said mortgage;
(d) alternatively denies the allegations for the reasons particularised in paragraphs 10 and 11 herein.
7. The defendants admit the allegations of fact in paragraph 9 of the Plaint save that for the reasons particularised aforesaid the Defendants say there was not any debt owing by the Defendants to the Plaintiff which is secured by the mortgage.
8. The Defendants:
(a) admit the allegations of fact in paragraphs 10, 11, 12, 13 and 14 of the Plaint;
(b) say that by reason of the matters particularised aforesaid:
(i) no moneys are due and owing by the Defendants to the Plaintiff pursuant to the mortgage;
(ii) the Plaintiff is not entitled to the recovery or possession of the subject property for any alleged debt owed by the Defendants which is secured by the mortgage.”
Paragraph 9 referred to the partnership between the plaintiff and the male defendant, the fact that it borrowed money from Westpac which was secured by the subject mortgage, and alleged that on a true accounting of the partnership thee will be an indebtedness by the plaintiff to the male defendant. Finally the defence said:
“12. Save as aforesaid the defendants deny each and every allegation in the plaintiff as if the said had been set forth and denied seriati.” [sic]
The pleading went on by way of counterclaim to seek a declaration that upon the true construction of the mortgage document the plaintiff is not entitled to seek recovery of possession of the subject property, all necessary accounts and inquiries in respect to the partnership between the male defendant and the plaintiff and such further or other orders as the court thinks fit. The female defendant sought a declaration that the plaintiff is not entitled to recover possession of the property, an order setting aside the mortgage as against her and an injunction restraining the plaintiff from purporting to recover possession of the property or otherwise exercising a power of sale or interfering with the female defendant’s interest in the property.
The effect of the allegation in para. 3 of the defence is that there has been a payment made by the plaintiff to Westpac Bank which has discharged in full any mortgage debt owed by the plaintiff and defendants to the bank; the allegation in effect is that there was no debt owed by the defendants to the bank to be secured. This outcome may have occurred in one of two ways; if the payment was treated as a payment made in discharge of the defendants’ obligation to the bank, or if the payment was made in discharge of the debtors’ obligation to the bank, that is the debt owed by the plaintiff and the male defendant as partners to the bank. Further, para. 6(a) alleges that the payment of the monies referred to in the plaint (the same money referred to in para. 3 of the defence) “has discharged the entire indebtedness secured by the mortgage”. That, I think, should be understood as an allegation that it has discharged the indebtedness of the partnership to the bank. Clause 6(b) is not entirely clear because there was not one mortgage entered into by the plaintiff and the defendants, but if the principal obligation which was guaranteed by the third party mortgages was discharged, then there ceased to be any monies owing pursuant to either third party mortgage.
In my opinion, the facts pleaded in the paragraphs attacked by this application, if true, would amount to a good defence to the action. Although some minor criticism of the formulation of the paragraphs is justified, I do not consider that they are sufficiently defective to warrant striking out. If the indebtedness secured by the defendants’ mortgage was discharged at the time of the assignment of the mortgage, there was no obligation left to pay any money under it and therefore there was no default on the part of the defendants at the time when the plaintiff purported to terminate the tenancy by demand for possession. Since such a demand could only validly be given at a time when the defendants were in breach of their obligation under the mortgage the tenancy remains on foot. Furthermore, if the debt owed by the debtors to the bank was paid off rather than being assigned, that would have the consequence of discharging the obligations as sureties which were secured by the mortgages, relevantly the mortgage by the defendants, with the same consequence. Indeed, even if the debt owed by the partners to the bank was not paid off with the money, the fact that it was not assigned meant that there was no debt payable to the plaintiff as a consequence of the assignment. It appears to follow from Hutchens (supra) that in the absence of an assignment of the principal debt, there was no money owing under the assigned mortgage, so there was no default by the defendants which could be the basis of the termination of the tenancy by demand for possession.
A defence, or part of a defence, should only be struck out under r.171 where it is clear that the defence (or relevant part) cannot succeed. Far from being satisfied this defence cannot succeed, it seems to me on the face of it there is a good defence to the plaintiff’s claim as pleaded. There is in my opinion nothing in the relevant paragraphs which is embarrassing or likely to delay the fair trial of the action, in accordance with proper procedure. If a defence is bad in point of pleading, it will be struck out under r.171, but with liberty to replead. That, I think, applies to para. 12 of the defence, which does not comply with the requirements of r.166(4), not being accompanied by a direct explanation of their belief that the allegations are untrue or cannot be admitted. Paragraph 12 should therefore be struck out, but with liberty to replead. The application should otherwise be dismissed.
The plaintiff and the defendants were both sureties of the partnership’s debt to the bank under their respective mortgages. If it be the case that the plaintiff has as surety paid out the whole of the debt, the plaintiff may have an action against the co-sureties for contribution: see Meagher Gummow and Lehane “Equity Doctrines and Remedies (3rd ed., 1992) Chapter 10. It may be that the plaintiff could rely on the benefit of the assigned mortgage to secure his entitlement to contribution from them. It is unnecessary to consider whether this is available, because no such claim is pleaded on behalf of the plaintiff, and indeed, counsel for the plaintiff expressly disavowed any claim based on contribution, asserting an entitlement merely as assignee of the mortgage.
It is therefore appropriate that the application be dismissed. I am however concerned about the state of this action for reasons I have already given. I think it is quite unsatisfactory that there is no Statement of Claim by the plaintiff in the consolidation action. That, in my opinion, is essential, and the action cannot proceed without it. I therefore order that the plaintiff file a Statement of Claim in the consolidated action and order that the consolidated action be stayed until that be done. If either defendant is concerned about the effect this has on the counterclaim, an application can be made for an order that the counterclaim be tried separately.
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