Defteros v Foster (Ruling)
[2015] VCC 1025
•12 August 2015
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMON LAW DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-15-02295
| GEORGE DEFTEROS | Plaintiff |
| v | |
| FRANCES MARLENE FOSTER | Defendant |
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JUDGE: | HIS HONOUR JUDGE O'NEILL | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 July 2015 | |
DATE OF RULING: | 12 August 2015 | |
CASE MAY BE CITED AS: | Defteros v Foster (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1025 | |
RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: CIVIL PROCEDURE – Summary judgment – the defendant, as proprietor of land, gave a mortgage to the plaintiff to secure legal costs – default in payment of amount due pursuant to mortgage – application by summons to enter judgment for possession of the land the subject of the mortgage – defendant alleges mortgage void pursuant to the provisions of the National Consumer Credit Protection Act 2009 (Cth) – capacity of the defendant to understand the nature and content of mortgage documents – unconscionability – whether defendant ought to have been offered independent legal advice – application of s63 of the Civil Procedure Act 2010 – whether there is a real question to be tried – whether the matter should proceed to trial pursuant to s64(b) of the Civil Procedure Act 2010
Legislation Cited: County Court Civil Procedure Rules 2008; Civil Procedure Act 2010, s63, s64(b); National Consumer Credit Protection Act 2009 (Cth); Consumer Credit Code (Vic) s6(1); National Credit Code, s5(1)
Cases Cited:Hogan v BPW Transpec [2013] VSC 249; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158; G E Mortgage Solutions Ltd v Perdikis [2013] VSC 606; Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd (2011) 35 VR 1; Karam v Palmone Shoes Pty Ltd [2012] VSCA 97; Ticco Pty Ltd v Complete Family Healthcare Services Pty Ltd [2005] VSCA 221; Manderson M & F Consulting (A Firm) v Incitec Pivot Ltd (2011) 35 VR 98; Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors [2012] VSC 490; Zhao v Argo Pty Ltd [2014] VSC 24; Kong v Kang & Ors [2014] VSC 28; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Brott v Shtrambrandt & Ors [2009] VSC 467; Perpetual Trustee Victoria Ltd v Yap [2010] NSWSC 761; State Bank of New South Wales v Watt [2002] ACTSC 74; Davey v Challenger Managed Investments [2003] NSWCA 172; Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41; Commonwealth Bank of Australia v Smith (1991) 42 FCR 390; Maguire & Tansey v Makaronis (1997) 188 CLR 449; Bradley West Clarke List v Keeman [1998] ANZ Conv R 77
Ruling: The plaintiff’s Summons is dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Ribbands | Defteros Lawyers |
| For the Defendant | Mr J Alesci | Di Mauro Solicitors |
HIS HONOUR:
Preliminary
1 By Summons dated 20 May 2015, the plaintiff, Mr George Defteros (“Mr Defteros”), seeks judgment against the defendant, Ms Frances Marlene Foster (“Ms Foster”), pursuant to Order 22 of the County Court Civil Procedure Rules 2008 (“the Rules”); alternatively, pursuant to the provisions of Part 4.4 of the Civil Procedure Act 2010 (“the CP Act”).
2
Mr Defteros relied on two affidavits sworn by him on 5 May and 25 June 2015, and affidavits of Jason Glass sworn 2 July 2015 and Dylan Reynolds sworn
26 June 2015. On behalf of Ms Foster, her affidavits sworn 19 June and 30 June 2015 were filed and relied upon. No witnesses were called to be cross-examined. The summons proceeded on the basis of oral and written submissions.
3 For the reasons which follow, summary judgment should not be given in favour of Mr Defteros, and the summons should be dismissed, principally on the basis the matter should proceed to trial pursuant to s64(b) of the CP Act as there are questions which are appropriate to be determined at trial.
The facts
4 Ms Foster’s husband, Mr Mervyn Hogan (“Mr Hogan”), operated a company, Juliana Enterprises Pty Ltd (“Juliana”), although Ms Foster was its sole director. Mr Hogan had been bankrupt on a number of previous occasions. Another company, BPW Transpec (“BPW”), supplied a truck and trailer and provided services to Juliana.
5 In proceedings in the Supreme Court of Victoria, Juliana sued BPW for loss and damage which it alleged arose out of the installation of a crane to a truck tray (“the Supreme Court proceedings”). Those proceedings were commenced on 9 September 2010. Juliana was placed in liquidation on 5 June 2012. On 6 July 2012, Juliana and Mr Hogan executed a Deed of Assignment which enabled Mr Hogan to pursue the cause of action in the Supreme Court proceeding. He was substituted as the plaintiff.[1] At the conclusion of the trial, Elliott J dismissed the claim and ordered costs against Mr Hogan.[2]
[1]See Hogan v BPW Transpec [2013] VSC 249 at paragraphs [5]–[6]
[2]Hogan v BPW Transpec (supra) at paragraph [158]
6 During the Supreme Court litigation, Mr Defteros’ firm, Defteros Lawyers, sought security for legal fees for acting on behalf of Juliana and Hogan. On 14 June 2012, Ms Foster and Mr Hogan entered into a Deed of Guarantee and Indemnity by which they guaranteed to pay all legal costs and disbursements incurred by Defteros Lawyers in the proceeding (“the guarantee”). In support of the guarantee, Ms Foster gave Mr Defteros a second mortgage over a property registered in her name at 18 Wolseley Drive, Bell Post Hill, Victoria (“the property”).[3]
[3]It is unclear from the evidence as to whether this was the only property the subject of the mortgage or whether there was another Queensland property involved.
7 Demand was made by Mr Defteros for payment of his legal costs and disbursements. A “Notice to Pay” dated 12 August 2014 was issued to Ms Foster claiming the sum of $281,159.33 as at that date was owed as legal costs and disbursements.[4] Mr Defteros seeks to enforce the mortgage. On 20 January 2015, a Writ was issued in this Court seeking an order for possession of the property.
[4]Exhibit GD2 to the affidavit of George Defteros sworn 11 May 2015
8 On 24 February 2015, Ms Foster filed and served a Defence which alleged:
·The mortgage was void and unenforceable as various provisions of the National Consumer Credit Protection Act 2009 (Cth) (“the NCCP Act”) had not been complied with.
·Mr Defteros was in a position of trust and owed a fiduciary duty to Ms Foster which was breached by Mr Defteros’ failure to:
§permit Ms Foster to read the mortgage documents;
§explain the mortgage documents to her correctly;
§advise her to seek independent legal advice;
§take into account that she was ill, on medication and unable to properly attend to her affairs;
§take into account she was unable to afford the debt or service or repay the debt.
9 Mr Defteros brings this summons seeking judgment.
The Civil Procedure Rules and the Civil Procedure Act 2010
10 Order 22.03 of the Rules provides:
“An application under section 61 of the Civil Procedure Act 2010 by a plaintiff in a civil proceeding for summary judgment in the proceeding shall be made in accordance with this Part of this Order.”
11 Section 61 of the CP Act provides:
“A plaintiff in a civil proceeding may apply to the court for summary judgment in the proceeding on the ground that a defendant’s defence or part of that defence has no real prospect of success.”
12 Section 63 of the CP Act provides:
“(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a … defence … or part of the … defence … has no real prospect of success.”
13 Section 64 of the CP Act provides:
“Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because –
(a) it is not in the interests of justice to do so; or
(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.”
14 In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd,[5] the Court of Appeal discussed the test for summary judgment pursuant to s63 of the CP Act. The Court noted:
[5][2013] VSCA 158
“Upon the present state of authority:
a) the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.”[6]
[6]Lysaght (supra) at paragraph [35]
15 It is clear that a court “needs to be very careful in giving summary judgment and should only do so if there is no real question to be tried”.[7] The power to terminate proceedings must be done with “caution”[8] and “sparingly”.[9]
[7]G E Mortgage Solutions Ltd v Perdikis [2013] VSC 606 at paragraph [9]
[8]See Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd (2011) 35 VR 1 at paragraph [15]
[9]Karam v Palmone Shoes Pty Ltd [2012] VSCA 97 at paragraph [28]; Ticco Pty Ltd v Complete Family Healthcare Services Pty Ltd [2005] VSCA 221 at paragraphs [20]–[21] and [36]–[37]
16 Section 64 of the CP Act was considered in Manderson M & F Consulting (A Firm) v Incitec Pivot Ltd.[10] The Court of Appeal noted:
“In JBS Southern Aust Pty Ltd v Westcity Group Holdings Pty Ltd Croft J had occasion to consider, on appeal from an Associate Judge, a contention that a decision granting summary judgment in relation to some claims under s 63 was erroneous. His Honour undertook a helpful review of the background to the legislation and one recently decided case in this court.
The authorities reviewed by Croft J in JBS Southern Aust v Westcity Group Holdings, which disclosed the underlying rationale for s 63 of the Act, make it clear that an inquiry as to whether a case has ‘no real prospects of success’ involves considerations extending beyond an analysis of the sufficiency of the statement of claim to plead a cause of action. The new power under s 63 is not one to be exercised by reference only to the sufficiency of the pleading. For as Croft J said in JBS Southern Aust v Westcity Group Holdings, ‘even if the Court had doubts as to the prospect of success of a defendant’s claims … in terms of the s 63 test, the proper course would be to exercise the discretion under s 64 and to require a full trial of the claims’. The same may be said of a plaintiff’ claim in this case.”[11]
[10](2011) 35 VR 98
[11]At paragraphs [31] – [32]
17 In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors,[12] Pagone J allowed a matter to proceed to trial pursuant to s64 of the CP Act. His Honour noted:
“… The caution against granting summary judgment ‘unless it is clear that there is no real question to be tried’ focuses attention upon the nature of the dispute said to exist and an evaluation of it as one requiring determination at trial. An issue sought to be engaged may be complex but may be without any prospect of success even though it may require ‘argument, perhaps even of an extensive kind’, to demonstrate that it has no real prospect of succeeding. Even then, as s 64 of the Civil Procedure Act 2010 makes clear, it may not be appropriate to proceed by way of summary judgment if the dispute is of such a nature that only a full hearing on the merits is appropriate. The nature of the dispute in this case requires a consideration of the legal arguments concerning the terms of the contract with Ottedin and of the guarantees, and an exploration of the facts concerning the sale to Parklea. These are not just complex questions which may be shown to have no prospects of success after argument (even of an extensive kind) but matters of substance to be determined at trial.”[13]
[12][2012] VSC 490
[13]Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors (supra) at paragraph [34]
18 Other decisions of the Supreme Court followed a similar line of reasoning, and applications to obtain summary judgment have been set aside on the basis that it is more appropriate that the issues be investigated and resolved at trial, even if the merits of the validity of such questions can be seriously doubted.[14]
[14]See Zhao v Argo Pty Ltd [2014] VSC 24
19 In Kong v Kang & Ors,[15] it was noted:
“It is thus seriously to be doubted that the defences now raised by Taing, at least, are genuine. But the difficulties identified by Mr Anderson SC in the evidence of Kang and Taing do not enable a determination of where the truth lies from conflicting and argumentative affidavits. The efficacy of the defences is not able to be resolved except at trial. Thus there are questions to be investigated at trial and the dispute is of such a nature that only a full hearing on the merits is appropriate. … .”[16]
[15][2014] VSC 28
[16]At paragraph [86]
20 Thus, even if the efficacy of matters raised in a defence are seriously doubted, it is enough, for the purposes of s64 of the CP Act, that there may be questions to be investigated and determined more appropriately at trial.
21 Section 64 would appear to provide a lower hurdle than s63.
The contentions of each party
22 Mr Alesci, for Ms Foster, raised the following arguments in his submissions, with reference to the pleadings and evidence:
(1)the Consumer Credit Code (“the Code”) applied to the mortgage transaction (“the Consumer Credit Code issue”);
(2)the mortgage transaction was unconscionable (“the unconscionability issue”); and
(3)the defendant was not given the opportunity to seek independent legal advice when entering the mortgage transaction (“the independent legal advice issue”).
23 Mr Ribbands, for Mr Defteros, contended:
(1)the Code does not apply to the mortgage transaction as:
(a)it is a one off transaction to which the Code does not apply;
(b)Defteros Lawyers is not in the business of providing credit; and
(c)the credit was not for personal, domestic or household purposes.
(2)as to the unconscionability issue, the mortgage transaction was not unconscionable, and Commercial Bank of Australia Ltd v Amadio[17] can be distinguished on the basis that the mortgage benefited Ms Foster, whereas in Amadio, there was no benefit to the provider of the mortgage;
(3)as to the independent legal advice issue, there is no requirement to obtain independent legal advice in the circumstances which applied, in particular because Defteros Lawyers was not a financial institution.
The Consumer Credit Code issue
[17](1983) 151 CLR 447
24 Mr Alesci argued the NCCP Act applies to the mortgage transaction. As Defteros Lawyers were not, at the relevant time, a licensed credit provider pursuant to s29 of the NCCP Act, and no preliminary assessment of the defendant was made as is required by s116, s123 provides a prohibition on licensees assisting consumers to enter or increase credit limit under unsuitable credit contracts.
25 Section 29(1) of the NCCP Act provides:
“A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.”
26 Pursuant to s6 of the NCCP Act, a person engages in a credit activity if “the person is a mortgagee under a mortgage”, being “a mortgage to which the National Credit Code applies”.[18]
[18]NCCP Act, s5
27 Mr Ribbands argued the National Credit Code does not apply to this mortgage transaction.
28 Section 5(1) of the National Credit Code provides:
“(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a) the debtor is a natural person or a strata corporation; and
(b) the credit is provided or intended to be provided wholly or predominantly:
(i)for personal, domestic or household purposes; or
(ii)to purchase, renovate or improve residential property for investment purposes; or
(iii)to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investments purposes; and
(c) a charge is or may be made for providing the credit; and
(d) the credit provider provides the credit in the course of a business of providing credit carried on in the jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.”
29 In Brott v Shtrambrandt & Ors,[19] a solicitor sought to secure legal costs in Family Court proceedings by mortgage over a client’s property. The mortgage did not specify what property was to be charged. Beach J held that as the credit was provided wholly or predominantly for personal, domestic or household purposes, the Consumer Credit Code (Vic) applied and the mortgage was void under s40 of the Consumer Credit Code (Vic) because the mortgage did not identify nor describe property.
[19][2009] VSC 467
30 Section 6(1) of the Consumer Credit Code (Vic) has wording similar to s5(1) of the National Credit Code. Section 6(1) of the Victorian Code provided:
“1. This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case or pre-contractual obligations) is proposed to be entered into –
(a)the debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and
(b)the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and
(c)a charge is or may be made for providing the credit; and
(d)the credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.”
31 In Brott,[20] Beach J noted:
“Obtaining credit for the purpose of conducting Family Court proceedings against one’s spouse (or former spouse) falls within the rubric ‘personal, domestic or household purposes’.”[21]
[20]Supra
[21]at paragraph [72]
32 The facts in this application are different from those in Brott. The mortgage to Defteros identified the property to be mortgaged, rather than a charge over all property owned by the clients (as in Brott). Secondly, the purpose for the provision of credit was, like Brott, for the purpose of litigation, but rather than Family Law proceedings, was related to litigation of a commercial nature involving Ms Foster’s husband and his company. It is therefore not clear as to whether the National Credit Code would apply. However, it has been determined that whether credit is provided wholly or predominantly for personal, domestic or household purposes is a complex question.[22] It will be necessary for there to be further evidence as to the precise nature of the provision of the credit said to be secured by the mortgage. In particular, as to whether that credit may be considered in the nature of “personal, domestic or household purposes”. In my view, this is a matter appropriate to be investigated at trial, and for there to be not only evidence on the point, but fulsome submissions following that evidence.
[22]See Perpetual Trustee Victoria Ltd v Yap [2010] NSWSC 761
33 A further issue in considering the Code is whether Defteros Lawyers provided credit (the mortgage) in the course of its business as a credit provider or as incidental to other business of a credit provider. In his affidavit, Mr Defteros swore he had not entered a similar mortgage arrangement before. Nonetheless the interpretation of the section requires careful assessment.
The unconscionability issue
34 Unconscionability comprises three elements:
(1)a relationship where one of the parties is placed at a special disadvantage vis-à-vis the other;
(2)the stronger party has knowledge of the special disadvantage; and
(3)the stronger party unconscientiously exploits the weaker party’s disadvantage.[23]
[23](1983) 151 CLR 447 at 459 (per Gibbs CJ), at 461-462 (per Mason J), at 474 (per Deane J). See further Equity and Trusts in Australia (2014), Professor G E Dal Pont at page 307
35 In Commercial Bank of Australia Ltd v Amadio,[24] Mason J noted:
“… I qualify the word ‘disadvantage’ by the adjective ‘special’ in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.”[25]
[24](supra)
[25]At 462
36 Mr Alesci submitted that his client was under a special disadvantage (or disability) of the kind that would warrant a finding of unconscionability. He submitted she was not given the opportunity to properly read the complex documents, to obtain independent legal advice, that her physical condition was such that she was unable to understand the nature and extent of the mortgage commitment and that the terms of the document were not explained to her. While the fact that a person does not receive independent legal or financial advice is by itself no special disadvantage,[26] in Davey v Challenger Managed Investments,[27] Handley JA found that a claim of special disadvantage could not be sustained in large part because the elderly appellants received independent legal advice before signing mortgage security documents. He noted:
“[19] Although the appellants submitted that they were in positions of special disadvantage this was not the case. They were not illiterate and English was their first language. They were in full possession of their faculties, and although they were elderly they were in general good health. A mortgage and a guarantee are well known transactions in the community and Mrs Crees had entered into a similar transaction for the benefit of her son only a few months earlier.
[20] The transaction involved guarantees and mortgages to secure a cash advance for the benefit of the children and repayment of an existing mortgage debt in favour of another lender. As Hodgson JA said during argument, the appellants had a relationship with the real borrowers that made it reasonable for the appellants to give them assistance. The appellants had, to the knowledge of the lender, obtained legal advice which has been found by the trial Judge to be both independent and competent. As far as this lender was concerned, this was a cash advance to the company and it had no direct dealings with the appellants. If, contrary to the views expressed above, the appellants were in some position of special disadvantage, the lender did not have actual or constructive notice of this.
[21] Independent legal advice was desirable, if not necessary, in this case to ensure that the appellants, who were volunteers, understood the transactions and their implications, and, with an appropriate understanding, executed the security documents freely and voluntarily. They received such advice before they executed the documents. The appellants were seen together, in the absence of the children, who were in the country. The appellants suggested that each of them should have been interviewed separately, but Mr Grellman was not aware of any conflict of interest, or even the possibility of such a conflict, and there was no need for separate interviews.”[28]
[26]See State Bank of New South Wales v Watt [2002] ACTSC 74 at paragraph [37]
[27][2003] NSWCA 172
[28]At paragraphs [19]–[21]
37 While it would appear clear Ms Foster was not illiterate, and it may be accepted mortgages are common transactions, there is some doubt as to whether, given the medical condition from which she was suffering, and which was referred to in several medical certificates,[29] that she was able to understand the nature and content of the documents. That is a matter which, in my view, ought to be explored in the course of evidence, in particular, medical evidence as to her cognitive functioning and whether she had sufficient time to read the documents. It will be necessary to explore, in the course of evidence, precisely what occurred at the meeting between herself, Mr Hogan and the representatives of Defteros Lawyers in the meeting on 14 June 2012. As may be seen from Davey, there are circumstances in which independent legal advice may be seen as necessary.
[29]See Exhibit FMF1 to the affidavit of Ms Foster sworn 19 June 2015.
38 In the medical certificates referred to, Dr McDonald of the Winchelsea Medical Clinic described Ms Foster as being sixty-six years old with “significant ongoing health issues including an anxiety depressive condition, severe osteoarthritis requiring narcotic medication and hypertension”.
39 In my view, there may be circumstances where a person with such conditions could be affected to the point of not being able to understand the nature and content of the mortgage documentation placed before her to sign. According to the affidavit of Mr Reynolds sworn 26 June 2015:
“It was apparent to me that the defendant was not physically well, based on my observation of her and my knowledge of her general poor health.”[30]
[30]Paragraph 9 of the affidavit of Dillon Reynolds sworn 26 June 2015
40 Mr Reynolds, however, noted that Ms Foster appeared to understand what was said and appeared lucid.
41 These are all issues appropriate for exploration at trial.
The independent legal advice issue
42 The relationship between lawyer and client is a well-established category of fiduciary relationship.[31] When a lawyer enters into a situation where his or her interests may conflict with those of a client (lawyer-client conflict), the solicitor may be in breach of his or her fiduciary duty owed to the client. To avoid such a breach, the solicitor will need to establish the client provided fully informed consent. One means to show informed consent is by adducing evidence that the lawyer advised their client to seek independent legal advice.
[31]Hospital Products Ltd v United States Surgical Corporation & Ors (1984) 156 CLR 41
43 There are a number of matters which are not clear from the evidence. Was Ms Foster indeed a client of Defteros Lawyers? Or, in fact, were the clients Juliana and Mr Hogan? Ms Foster was a director of Juliana at the time. Both she and Mr Hogan were present at the meeting on 14 June 2014, when the mortgage was signed. There is sufficient evidence to show she may well have been a client of Defteros. The nature and extent of the relationship between Ms Foster and Mr Defteros will have to be examined in the course of evidence in the trial, as there is nothing in the affidavit material before me on the point. However, on the presumption she was a client, a number of preliminary conclusions may be inferred:
·Defteros Lawyers, by securing its legal fees by way of mortgage over Ms Foster’s property, was in a potential conflict of interest between its interests to recover costs, and the interests of Ms Foster.
·There is no evidence to suggest Defteros Lawyers urged Ms Foster to obtain independent legal advice despite this potential conflict.
·There are circumstances, in particular where a conflict of interest may arise, where it is appropriate that independent legal advice be suggested.
44 According to Equity: Doctrines & Remedies:[32]
“If a person occupying a fiduciary position wishes to enter into a transaction which would otherwise amount to a breach of duty, the fiduciary must, if liability is to be avoided, make full disclosure to the person to whom the duty is owed of all relevant facts known to the fiduciary, and that person must consent to the fiduciary’s proposal. Consent need not be given expressly. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of each case may call for independent and skilled advice from a third party.”[33]
[32]J D Haydon, M J Leeming & P G Turner (2015, (5th ed))
[33]At page 116. See further Professor G E Dal Pont – Equity and Trusts in Australia (2014, (6th ed)) page 126. See further Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 at 393 and Maguire & Tansey v Makaronis (1997) 188 CLR 449 at 466-7
45 In Maguire v Makaronis,[34] the appellants were solicitors in the same firm. One partner in the firm acted for the vendor of a poultry farm, and another partner for the purchasers of the farm. In order for the transaction to proceed, a mortgage over other property owned by Mr and Mrs Makaronis was arranged. The solicitors did not disclose that they were the mortgagees. After the poultry farm was purchased, the business failed and a proceeding was commenced to set aside the mortgage on the basis of breach of fiduciary duty. The High Court set aside the mortgage although on condition that the monies borrowed be repaid. The Court said:
“… in the circumstances disclosed above, if the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies, it was for them to show, by way of defence, informed consent by the respondents to the appellants’ acting, in relation to the Mortgage, with a divided loyalty. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party. On no footing could it be maintained that the appellants had taken the necessary steps of this nature to answer the charge of breach of fiduciary duty. However, it should be noted that, contrary to what appeared to be suggested by the respondents in argument, there was no duty as such on the appellants to obtain an informed consent from the respondents. Rather, the existence of an informed consent would have gone to negate what otherwise was a breach of duty.”[35]
[34](supra)
[35]Maguire & Tansey v Makaronis (supra) at 739
46 While the facts of Maguire are different from the present case, it would appear clear that Defteros Lawyers stood to gain financially (to the extent of their reasonable fees) by the mortgage arrangement. In my view, that squarely raises the issue of the need to provide independent and skilled legal advice from a third party.
47 As stated, the true nature of the relationship between Ms Foster and Defteros Lawyers will need to be the subject of examination at trial. Until the nature of that relationship is clearly established, the extent to which a fiduciary duty was owed, and whether or not that duty was breached by failing to provide or suggest independent legal advice will have to be determined. In my view, that is an issue appropriate for trial.
48 Relevant considerations as to whether or not independent legal advice should be sought include “the need to explain the desirability of taking independent legal advice”[36] and “the degree of sophistication of the client”.[37] According to the defendant’s outline of submissions, Ms Foster was described as “an unsophisticated party, who has been a housewife for all her life and who was not involved in litigation undertaken by Hogan.” The material also suggests that she was a director of Juliana as her husband had asked her to be a director because of his bankruptcy.
[36]Bradley West Clarke List v Keeman [1998] ANZ Conv R 77 at 79-80
[37]J D Haydon, M J Leeming & P G Turner – Equity: Doctrines and Remedies (2015, (5th ed)) page 166
49 It is noted that in the affidavit of Mr Defteros sworn 11 May 2015:
“I am informed by Dillon Reynolds, a solicitor formerly in the employ of the Defteros Lawyers, and believe that he travelled to the defendant’s residence in Bell Post Hill and spent much of the day there explaining the mortgage documents, including advising the defendant to seek alternate legal advice … .”[38]
[38]At paragraph 8
50 Despite this, there is nothing in the affidavit of Mr Reynolds, nor the typed file notes, which indicate at any stage, it was suggested to Ms Foster that she obtain independent legal advice. To the contrary, the file note concludes:
“The clients were instructed that if there were any issues they could contact the office or refer to their copies of the documents.”
Conclusion
51 There are a range of factual issues which are the subject of dispute between the parties, including the time spent by Mr Defteros’ representatives, what precisely was said to Ms Foster and Mr Hogan and the extent to which Ms Foster understood the nature and extent of the commitment required by the execution of the mortgage documents. All those issues will have to be examined at trial.
52 I have not, for the purposes of this ruling, made any precise assessment as to whether the Defence discloses any real prospect of success. In order to determine the merits of the various matters raised in the Defence, there will need to be sworn evidence at trial. In my view, the matter ought to proceed to trial as is contemplated in s64 of the CP Act. It is in the interests of justice that the various issues referred to above are the subject of evidence and determination, and, in my view, only a full hearing on the merits will allow such a determination to take place.
53 Accordingly, the plaintiff’s Summons fails.
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