De Pasquale v ASCF Managed Investments Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Appeal to a Single Judge)

DE PASQUALE v ASCF MANAGED INVESTMENTS PTY LTD (ACN 106 424 088)

[2021] SASC 21

Judgment of the Honourable Justice Livesey  

2 March 2021

REAL PROPERTY - TORRENS TITLE - INDEFEASIBILITY OF TITLE - EXCEPTIONS TO INDEFEASIBILITY

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - HARSH AND UNCONSCIONABLE CONTRACTS AND STATUTORY REMEDIES

EQUITY - GENERAL PRINCIPLES - UNCONSCIONABILITY, UNCONSCIONABLE DEALINGS AND OTHER FORMS OF EQUITABLE FRAUD - SPECIAL DISABILITY

The appellants appealed against an order for possession made by a Master on 19 December 2019 concerning their home at West Beach.  The appellants are a married couple approaching retirement with no apparent income. The second appellant suffers from a number of medical conditions. She requires full-time care to undertake the tasks of basic daily life. The first appellant provides this care to the second appellant, rendering him unable to work.

The appellants were induced by a third party to make a series of borrowings using their properties as security. Despite borrowing more than $1.23 million, the appellants did not receive any significant benefit from the borrowings. The first appellant retained only $22,000 and the second appellant retained nothing. Most of the borrowings were transferred to the third party.

The respondent was the lender and mortgagor in relation to the third loan tranche involving the appellant in the amount of $525,000. It was a short-term loan of only three months, ostensibly for the purpose of refinancing the appellants’ other loans. Interest was 1.5 per cent per month. If interest was not paid, the appellants were liable to pay the outstanding interest at the rate of 3 per cent per month, compounding monthly.

The second appellant was the guarantor of this loan. When this loan was made, the solicitors for the lender were issuing notices of default to the appellants for one of the earlier loans. The solicitors acted for the respondent as well as the earlier lender.

The appellants contended that there were triable issues as to whether the respondent acted unconscionably at general law or under statute (or both) when executing the loan agreement and associated mortgage. The appellants claimed that the solicitors’ knowledge of their default was attributable to the respondent. They also argued that the respondent acted unconscionably within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) by engaging in “asset lending” and the respondent acted unconscionably in equity in seeking to enforce the guarantee against the second appellant, relying on Garcia v National Australia Bank and Yerkey v Jones.

None of these issues were raised before the Master. The appellants’ only contention had been that they were the victims of a fraud perpetrated by a third party. The appellants applied to tender further evidence which had not been put before the Master.

Held per Livesey J, allowing the appeal:

1.      The appellants may, in the interests of justice, raise their new contentions on appeal and tender further evidence on appeal.

2.      The appellants have raised…

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Details
Case
[2021] SASC 21
Decision Date

CaseChat Overview and Summary

The appeal in De Pasquale v ASCF Managed Investments Pty Ltd involves the appellants, Mr and Mrs De Pasquale, who are the registered proprietors and mortgagors of a residential property at West Beach. The respondent, ASCF Managed Investments Pty Ltd, is the registered mortgagee of the property. The dispute centres around the enforceability of the mortgage and the alleged unconscionability of the loan transaction, particularly considering Mrs De Pasquale's special disability and lack of independent legal advice. The matter was initially heard by the South Australian Supreme Court, where the Master dismissed the appellants' application to set aside the mortgage. The appellants subsequently appealed to the Full Court.

The legal issues before the court include determining whether the appellants can raise new contentions on appeal, whether there are triable issues concerning the enforceability of the mortgage, and if the respondent acted unconscionably. Key issues also involve the attribution of knowledge to the respondent, the adequacy of legal advice provided to the appellants, and whether the respondent’s actions constituted "asset lending" under the Australian Securities and Investments Commission Act 2001 (Cth). Additionally, the court needed to consider if the appellants’ special disabilities, including Mrs De Pasquale’s medical condition and lack of independent legal advice, affected the enforceability of the mortgage.

In allowing the appeal, the Full Court held that it was in the interests of justice for the appellants to raise their new contentions and tender further evidence. The court identified several triable issues, including whether the respondent’s knowledge could be attributed to them, whether the respondent acted unconscionably by providing the loan knowing the appellants were in default and unable to repay without selling their home, and whether the respondent engaged in "asset lending" unconscionably. The court also found that the issue of the appellants' receipt of independent legal advice and the respondent's actions concerning the guarantee and security provided by the second respondent were matters for trial. Consequently, the court ordered that the case be transferred to the ordinary civil list of the General Division to proceed with pleadings and discovery.

The court's decision ensures that the appellants' new contentions and evidence are considered, and the identified triable issues will be litigated in the usual manner, providing a fair opportunity for all parties to present their case. The outcome protects the appellants' right to challenge the enforceability of the mortgage on equitable and statutory grounds, particularly given Mrs De Pasquale's special disability.

Orders

Orders of the court

Held per Livesey J, allowing the appeal:

1. The appellants may, in the interests of justice, raise their new contentions on appeal and tender further evidence on appeal.

2. The appellants have raised a number of triable issues:

2.1 Whether the knowledge of the solicitors acting for the earlier lender and the respondent can be attributed to the respondent.

2.2 Whether the respondent acted unconscionably in providing the loan to the appellants where the respondent’s solicitor knew that the appellants were already in default of another loan and could not repay the new loan other than by selling their home.

2.3 Whether the respondent acted unconscionably within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) by engaging in "asset lending".

2.4 Whether the respondent knew that the appellants had not received independent legal advice when their solicitors, Conatur Legal, acted for all of the borrowers, guarantors and mortgagors in the transaction.

2.5 Whether the respondent acted unconscionably in purporting to enforce the guarantee and security provided by the second respondent, as well as whether the second respondent was a volunteer and did not receive legal advice independently of her husband, pursuant to Garcia v National Australia Bank and Yerkey v Jones.

3. This is a proper case for transfer to the ordinary civil list of the General Division of this Court, to continue on pleadings and discovery in the usual way.

Background

Background to the litigation

Accordingly, a matter will not be dealt with in a summary way if there is any “real question of fact or law to be determined”.[6] The appellants argue that there are a number of triable issues and that the matter should proceed through the usual course of pleadings and discovery to trial.[6] Dey v Victorian Railways (1949) 78 CLR 62; Spencer v Commonwealth (2010) 241 CLR 118.Factual Background The appellants, Mr and Mrs De Pasquale, are the registered proprietors and mortgagors of residential property at West Beach (the Property). The respondent, ASCF Managed Investments Pty Ltd (ASCF), is the registered mortgagee of the Property. The value of the Property as at 9 November 2018 was approximately $700,000.00.[7] [7] Affidavit of Kathryn Lauren Brann sworn on 9 September 2019, [10]. Mrs De Pasquale suffered a neurological trauma in her early childhood which was not identified until she was 48 years of age. Mrs De Pasquale was diagnosed with Cerebral Syringomyelia in 2000. Following her diagnosis, she underwent two spinal surgeries, one of which resulted in the insertion of a Syringopleural Shunt. Mrs De Pasquale’s condition deteriorated to the extent that, approximately eight years ago, she became confined to a wheelchair. Mr De Pasquale has been her full‑time carer ever since. He provides daily assistance with toileting, dressing, feeding and maintaining her personal hygiene. Mrs De Pasquale has been deaf from “early in her life”. Her deafness and lack of language use or comprehension has “seriously impeded” her capacity and ability to function.[8] Due to Mrs De Pasquale’s medical needs, neither of the appellants is able to work. They do not receive a government pension. [8] Affidavit of the Second Appellant sworn on 19 March 2020, [5]. The appellants are the sole directors and shareholders of De Pasquale Enterprises (Aust) Pty Ltd and Depent Pty Ltd, the latter of which acts in its corporate capacity and as trustee for the Depent Trust (the De Pasquale Entities). As at June 2018, the appellants owned four properties – one property at O’Sullivan Beach, one at Parafield Gardens and two at West Beach. Their total assets at this time were estimated to be worth $1.9 million, against total liabilities of $500,000.[9][9] Affidavit of the First Defendant sworn on 28 October 2019, [9]. In June 2018, the appellants were introduced to Jonathan Pargan Leffler by one of Mr De Pasquale’s business associates, Robert Thompson. The appellants proceeded to enter a business arrangement with Mr Leffler, Good Life One World Pty Ltd (Good Life) and his business associate Louise Helen Gray (the Leffler Entitites), and they made a series of borrowings. There was no evidence tendered as to the structure or ownership of Good Life. The parties proceeded on the basis that Good Life was Mr Leffler’s company. The arrangement between the appellants and the Leffler Entities involved Mr Leffler using the appellants’ properties as security to allow him to purchase a number of units at Payneham, on the understanding that when Mr Leffler sold the units, he would use the proceeds to help the appellants develop their properties.[10] Mr De Pasquale hoped that this arrangement would allow him to fund his early retirement.[11] [10] Affidavit of the First Defendant sworn on 28 October 2019, [11]; Appellants’ Submissions, [25]. [11] Affidavit of the First Defendant sworn on 28 October 2019, [11].

Evidence

Evidence Before The Court

My task in this case is to determine whether there are triable issues, absent which the appellants face the loss of their home. Whilst the respondent is ordinarily entitled to the benefit of the earlier determination, that is subject to the identification of triable issues. Any finding regarding the existence of triable issues does not foreclose the parties from litigating those issues in the usual way. In my opinion, this is a case where it is in the interests of justice to permit the appellants to raise new contentions on appeal. Any immediate concern about the change in the appellants’ approach can be reflected in any order for costs. Further Evidence The appellants also sought to rely on evidence that was not adduced before the Master. In particular, the appellants sought to rely on the ASCF Loan Application Form and a further affidavit from Mrs De Pasquale that provided more information about her medical condition and capacity. At the time of the appeal, the Supreme Court Civil Rules 2006 (SA) (the 2006 Rules) applied. Relevantly, r 286 provided:(1) An appeal is to be by way of rehearing (unless the law under which the appeal is brought provides to the contrary). (2) Subject to any limitation on its powers arising apart from these Rules, the Court may determine an appeal as the justice of the case requires despite the failure of parties to the appeal to raise relevant grounds of appeal, or to state grounds of appeal appropriately, in the notice of appeal.(3) Subject to any limitation on its powers arising apart from these Rules, the Court may–(a) draw inferences of fact from evidence taken at the original hearing and, in its discretion, hear further evidence on a question of fact; … The appellants submitted that “the justice of the case” required the admission of the further evidence for four reasons. First, given the nature of the summary hearing, no discovery of documents had occurred. The loan application was not in the possession of the appellants until after the hearing before the Master. Secondly, the appellants submitted that the rules that typically apply to the admission of “fresh evidence” after a trial do not apply where the matter is determined summarily, without any trial. Thirdly, as the loan application document is the respondent’s own document, no issue of prejudice arises. Finally, and as to the new affidavit, the appellants submitted that the issue of Mrs De Pasquale’s capacity was not fully apparent to her solicitors prior to the hearing before the Master. In Andrew Garrett Wine Resorts, Besanko J set out the factors relevant to whether an appellate court should favourably exercise the discretion to receive further evidence: [16]I propose to receive the further evidence put forward by the mortgagors. In that event, I will also receive the affidavit of Mr French. I have a discretion to receive further evidence, and in considering the exercise of the discretion, I should have regard to the interests of justice. A relevant factor in the exercise of the discretion will be whether the parties seeking to tender the further evidence could have put the evidence before the court below. Sometimes that will be a highly relevant factor, but in other cases the circumstances will be such that it will not be so significant … [16] Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank Ltd (2004) 206 ALR 69, [25].

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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