Farm Mortgages v Irving
[2009] VCC 984
•21 August 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST – BANKING & FINANCE DIVISION
Case No. CI-08-01397
| FARM MORTGAGES LTD A.C.N. 005 475 294 | Plaintiff |
| v | |
| LORRAINE JOCLYN IRVING | First Defendant |
| RICK ANTHONY IRVING | Second Defendant |
| JANET MARIE IRVING | Third Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 10 and 11 August 2009 |
| DATE OF JUDGMENT: | 21 August 2009 |
| CASE MAY BE CITED AS: | Farm Mortgages v Irving and Ors |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 0984 |
REASONS FOR JUDGMENT
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Catchwords: Banking and Finance – mortgage – whether mortgage unenforceable by reason of s.44 of the Consumer Credit Code (Victoria) – whether concealment amounting to misrepresentation such as to discharge the mortgage.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Anthony T. Schlicht | Arthur E. George & Sons |
| For the Defendants | Mr Andrew T. Broadfoot | South West Community Legal Centre |
| HER HONOUR: |
1 The plaintiff, a trustee mortgage investment company formed to facilitate contributory mortgages, claims an amount of $230,972.87 plus possession of the land at 39 Nicholson Street, Warrnambool (“Certificate of Title Volume 8358 Folio 032”) (“the property”), pursuant to advances made further to a loan and mortgage dated 10 July 2003 as varied on 22 August 2006.
2 The first defendant admitted that she was the registered proprietor of the property. She further admitted signing a mortgage dated 10 July 2003 and a variation dated 22 August 2006, and further that the plaintiff advanced the sum of $110,000 “to the second defendant or the third defendant (or both of them)” by a “first loan” and further admits the advance of $63,000 by a “second loan” on or about 30 August 2006 “to the second defendant or the third defendant (or both of them).” [1]
[1] Paragraph 5(a) and (b) Defence and Counterclaim of First Defendant filed 13 October 2008
3 Mr Broadfoot, who appeared as counsel for the first defendant, also admitted the service of a notice of default, and further the quantum claimed.
4 However, Mr Broadfoot submitted as follows:
(a) firstly that the mortgage was unenforceable by reason of s.44 of the Consumer Credit Code (Victoria) (‘the Code”); and (b) secondly, that there was concealment amounting to a misrepresentation by the plaintiff in failing to disclose at the time of the making of the further advance of $63,000 that it was also making a further advance of some $160,000 to the second and third defendants. 5 The first defendant’s Counterclaim thereby seeks relief, inter alia, that the mortgage should be set aside.
6 An earlier submission to the effect that the mortgage should be set aside on the basis of unconscionability was abandoned during the course of the trial.
7 Mr Schlicht, who appeared as counsel for the plaintiff, submitted:
(a) that s.44 of the Code did not apply because the first defendant mortgagor was a debtor in her own right. Further that the Code did not in any event apply; and (b) that there was no concealment to warrant a discharge of the mortgage. 8 Accordingly, the issues in the case were:
(a) whether s.44 and/or the Code applied; and (b) whether there was concealment such as to discharge the mortgage. Background facts
9 The plaintiff is one of the old solicitor’s contributory mortgage companies which subsequently became regulated by the Australian Securities and Investments Commission and thereafter became a public limited company. Mr Harris, the managing director of the plaintiff and a practising solicitor, gave evidence that the plaintiff has a number of clients who are investors who put money into various mortgages.
10 The first defendant is an elderly woman on the pension.
11 The second and third defendants are the son and daughter-in-law, respectively, of the first defendant. The second defendant had previously run a dairy farm prior to facing bankruptcy proceedings. He then, after entering into the first loan the subject of this proceeding, purchased a partnership with Ray White which subsequently soured. He is currently engaged in sales with Logans Contracting.
12 On 4 June 2008 the plaintiff obtained a default judgment against the second and third defendants for $207,209.86.
13 The first defendant first entered into a mortgage with her late husband over the property in 1993. A solicitor, Mr Jellie, provided a certificate in relation to this mortgage dated 8 April 1993 and gave evidence. He believed that the contents of the certificate were correct wherein it was stated that he explained the contents and effect of the mortgage. The mortgage was to secure an advance for the benefit of the first defendant’s son and daughter-in-law.
14 Then in 1998, a further mortgage was entered into by the first defendant with the Bank of South Australia (a division of St George Bank) over the property. Mr Rick Irving gave evidence that the advance was used for the farm business and also for the purchase of some flats (which were subsequently sold).
15 A guarantee and indemnity was in evidence which related to this advance as well as a certificate of a solicitor, Mr Nicol ,dated 16 June 1998. Mr Nicol was called as a witness in the case and said he signed the certificate although he only had a vague recollection of meeting Mrs Irving.
16 He also, however, provided a file note of 17 June 1998 which he said was prepared at the time and which related to his meeting with Mrs Irving. That note records that:
“I explained to her that she could be put out of her house unless Rick kept up the payments to the Bank of South Australia and, in view of the fact that she is singing a Guarantee, she will still be liable for any additional debt owed to the Bank in the event that her house is sold and the proceeds are not sufficient to pay out the loan from the Bank. She understood all of this, and was happy enough to sign the Guarantee.”
events of 2003
17 There is some controversy as to the first time Mr Rick Irving met Mr Harris. However, it appears that the initial approach came through a firm of solicitors, VG Peters and Co. It is not disputed that it was in a context wherein bankruptcy proceedings had been issued against Mr Rick Irving and there was some urgency associated with Mr Rick Irving’s need for funds. Mr Irving’s evidence was that the loan was sought to prevent him becoming a bankrupt and also to pay out the debt in respect of the pre-existing mortgage to St George bank of about $18,000.
18 A diary note of 28 May 2003 of Mr Harris’ was produced, which confirms that a meeting took place between himself, Mr Rick Irving, and Mrs Lorraine Joclyn Irving. The diary note includes a reference to the fact that Mr Rick Irving had 180 cows on a leased property on a monthly tenancy. It further noted that “Pivot” had brought a bankruptcy hearing, and that the hearing was “on 5 June”. (A report of Dunn and Bradstreet reported an unsatisfied county court judgment in the name of Pivot Limited against Richard Irving of 11 September 2002 in an amount of $44,749.88).
19 A loan application and personal balance sheet in the name of both Mrs LJ Irving and Mr RA Irving was subsequently provided and apparently signed by both under the words “I/We apply for $95,000.” A Privacy Act authority is also provided in the names of both Mrs Irving and Mr Rick Irving.
20 The documentation records that the plaintiff originally made an offer to advance funds of $100,000. However, in the result, an increased amount of $110,000 money was requested.
Amended letter of offer
21 An amended letter of offer dated 10 June 2003 addressed to Mrs L.J. Irving of 39 Nicholson Street Warnnambool and Mr RA and Mrs JM Irving c/o VG Peters commences “Dear Sir and Mesdames” and referred to a mortgage advance on 39 Nicholson Street, Warrnambool, and that:
“We have been able to arrange a new mortgage for you as detailed below.”
22 The advance was said to be an amount of $110,000 with a term of three years. Interest was to be quarterly, and the security was the brick-veneer dwelling house comprised in Certificate of Title Volume 8358 Folio 032. The letter continued:
“The Mortgagees will at settlement pay the net proceeds of the Mortgage to satisfy and have discharged the Bankruptcy Notice and Proceedings against Mr RA and Mrs JM Irving and to satisfy any other outstanding Judgments against Mr RA and Mrs JM Irving.
We confirm that all parties have agreed that the net proceeds of the mortgage be
paid to Mr Rick Anthony and Mrs Janet Marie Irving.
Our clients would have no objection if Mrs L.J. Irving wished to take a stock
mortgage over the stock of Mr R.A. and Mrs J.M. Irving.”
23 The letter enclosed a number of annexures, including a Consumer Credit Code exclusion declaration, and continued:
“Please then forward both copies of the Mortgage and this letter when signed to Mrs L.J. Irving to take to her own Solicitor together with the enclosed Schedule 2 Solicitor’s certificate and Schedule 4 Solicitor’s acknowledgment so that the Solicitor can complete his Certificate and witness the mortgage.
While we will be forwarding to you account reminders before each payment date,
it is of course your responsibility to make the payments.”
24 The document appears to be signed at the bottom by each of the Irvings, including the first defendant, under an acknowledgment that:
“We the Proposed Mortgagors and Covenantors agree the above and ACKNOWLEDGE that we have received a copy of the Memorandum and understood the contents of same and we UNDERSTAND and ACKNOWLEDGE that the terms of the proposed mortgage are contained in BOTH the Mortgage Schedule Form and this Memorandum which documents constitutes the mortgage.”
25 Correspondence from V.G. Peters and Co dated 19 June 2003 then returned the completed mortgage, declaration under the Code, and solicitor’s certificate.
Solicitor’s certificate
26 The solicitor’s certificate was signed by Mr James Gerard Serong, who gave evidence in the case. He confirmed that he had signed the certificate although he had no specific recollection of meeting Mrs Irving. However, his practice was to explain the documents to the client. In relation to a mortgage his practice was to explain that if the client couldn’t meet their commitments then the mortgagee had various right to call in assets and if need be, to sell up assets. He would not have signed the certificate without providing such an explanation.
Declaration under the Code
27 The declaration was signed by Mrs Irving as well as Mr Rick Irving and his wife and declared:
“[T]hat the credit to be provided to us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).”
Mortgage dated 10 July 2003
28 The mortgage executed by Mrs Irving as mortgagor recites, inter alia, that the mortgagor (described as the first defendant) “mortgages to the Mortgagee the said estate and interest in the said land and covenants and agrees with the Mortgagee as set out in the provisions contained in a Memorandum of Common Provisions retained by the Registrar of Titles…”.
29 Pursuant to provision 1(1)(a) of the Memorandum of Common Provisions, the Mortgagor “shall pay to the Mortgagee at the time or times agreed upon from time to time between the Mortgagor and the Mortgagee and if no time or times are agreed upon then upon demand the moneys hereby secured...”.
30 Pursuant to clause 31(1)(f) the “moneys hereby secured” includes the principal moneys secured and each and all sums of money in which the Mortgagor may now or hereafter be indebted or liable or contingently indebted or liable to the Mortgagee in any manner or on any account whatever.
31 Following entry into the loan and mortgage, tax invoices were forwarded. Each of these invoices included the first Defendant as an addressee and were generally addressed to all three of the Irvings at the Nicholson Street address and commenced “Dear Sir/Mesdames..” They also show that at various points the loan was in arrears so that standard interest rather than concessional interest was payable.
events of 2006
32 In 2006 a further approach was made by Rick Irving to Mr Harris. A file note of Mr Harris of 2 June 2006 records:
“Phone in by Rick Irving when he said that he was hoping to buy a four bedroom weatherboard house on an 850 square metre block in Ziegler Parade, Allansford for $230,000. He said he had about $15,000 which realistically is just about enough for the costs. He therefore wanted to borrow $230,000. He said that his mother’s property had been recently the subject of an appraisal by an estate agent at $260,000. I said that if his mother was agreeable, and he said that she was as she knew that he was paying $295 a week rent in Warrnambool at the moment which was dead money, he could increase the first mortgage subject to Valuation on his mother’s house from $110,000 to $173,330 being an increase of another $63,330 on his mother’s house and we could lend him and his wife $153,330 on their $230,000 purchase both of which mortgages would be at 66.66%...”
Further letter of offer
33 In the result, a further letter of offer was made to Mrs Irving, increasing the mortgage to $173,000.
34 The letter of offer of 26 July 2006 was addressed to Mrs Irving at the Nicholson Street address and to Mr Rick Irving and his wife at a separate address. It commences “Dear Sir and Mesdames” and reads as follows:
“A renewal and increase to $173,000.00 of the above mortgage has been
arranged for you on the following terms.”
35 The terms then included a three year term with quarterly interest and that other terms were that the Mortgage would be on the same terms as previously. The letter confirmed:
“[T]hat all parties have agreed that the net proceeds of the increase of the
mortgage be paid to Mr Rick Anthony Irving and Mrs Janet Marie Irving.”
36 The first defendant admitted that this letter contained her signature which also appears to have been signed by Mr Rick Irving and Mrs Janet Irving agreeing to “the above”.
Declaration under the Code
37 There was also a second declaration under the Code in the requisite form to the effect that “credit was provided to us by the credit provider wholly or predominantly for business or investment purposes” dated 10 August 2006, again signed by each of the Irvings.
Variation of mortgage
38 A variation of mortgage was then executed by the first defendant on 22 August 2006.
39 The particulars of the variation are described as follows:
“The time for payment of the principal sum is hereby extended until the 21st of July 2009 and repayments shall be quarterly from the 21st July 2006. The rate of interest payable by the Mortgagor while any part of the principal sum remains owing shall during the extended term of the mortgage be 8.45% per annum as to the higher rate and 6.45% per annum as to the lower rate. The principal sum now owing under the said mortgage is $173,000.00. The interest rate and Administration charge shall be reviewed annually on 21st July so that the rate and Administration Change charged is equivalent to the rate than being charged by Farm Mortgages Ltd or their successors in title upon loans of a similar nature and amount. The mortgagor shall pay annually (in addition to the interest) an Administration Charge of 1.4% of the outstanding balance by quarterly instalments of 0.35% and any Goods and Services Tax payable thereon. The mortgagor may repay on one months notice on payment of one extra months interest either a) the whole sum due at any time or b) multiples of $1,000.00 being at least $5,000.00 on any quarter day and interest shall abate accordingly.”
40 There was also a separate advance made to Mr Rick Irving and his wife of approximately $160,000 and a mortgage taken over the Ziegler Parade property.
41 The loan account subsequently went into default, and on 30 November 2007 the plaintiff service a notice of default. These proceedings were subsequently issued on 11 January 2008.
Witnesses
plaintiff’s evidence
42 The plaintiff called the principal of the plaintiff, Mr Harris and the three solicitors who had signed the three solicitor’s certificates, Mr Jellie, Mr Nicol and Mr Serong.
43 Mr Harris was a straightforward witness and it was not suggested that his evidence was unreliable.
44 The evidence of the three solicitors was less significant as a result of the abandonment of the unconsionability defence and has already been summarised.
defendant’s evidence
45 The first defendant was called together with her son, Mr Rick Irving.
46 Mr Rick Irving was uncomfortable in the witness box and was at times vague but no significant credit issues arose in relation to his evidence.
47 Mrs Irving herself was an articulate, elderly lady who did not appear to be suffering from any obvious impairment or problems in comprehension which may have vitiated her execution of the relevant documentation. However, she was unable to recall very much at all in terms of significant events, and particularly events surrounding the entry into the variation of mortgage.
48 By way of example, she claimed not to recall signing the variation document nor was she able to recall any explanation given by her son as to why she was being asked to sign the document, this notwithstanding that she agreed it was her signature on both the 26 July 2006 letter of offer and variation of mortgage dated 22 August 2006.
49 Her lack of recollection was to some extent explained by reason of the fact that she claimed to be on medication for nerves and blood pressure since the death of her husband in 1995 as well as the fact that she had had to contend with problems with her other son. However, this was not completely satisfactory. For example, her claim to “not recall” the entry into the 2006 transactions was inconsistent with her own evidence in an earlier affidavit sworn in the proceeding on 4 September 2008. Thus in paragraph 7 of that affidavit she stated that:
“…in or about August, 2006 at Rick’s request, I accompanied him and Janet to the Warrnambool offices of their solicitors, VG Peters and Co. I believe that, while there, I signed a Variation of my Mortgage to Farm Mortgages, which increased the amount owing under the Mortgage by $63,000.”
50 There was also no explanation as to why her memory might be more impaired in relation to the variation of mortgage as compared with her memory concerning her entry into the older 2003 mortgage.
51 In the light of the deficiencies in the memory of Mrs Irving I am therefore unable to be confident that her account of events and issues is complete and substantially reliable.
Whether the Consumer Credit Code applies
Whether s.44 applies
52 Sub-sections 44(1) and (3) of the Code[2] provide:
“44 Third party mortgages prohibited
(1) A credit provider must not enter into a mortgage to secure obligations under a credit contract unless each mortgagor is a debtor under the contract or a guarantor under a related guarantee.
(2) A credit provider must not enter into a mortgage to secure obligations under a guarantee unless each mortgagor is a guarantor under the guarantee or a debtor under the related credit contract.
(3) A mortgage which does not comply with this section is unenforceable.”
(emphasis added)”
[2] Pursuant to s.5(1) of the Consumer Credit (Victoria) Act 1995, the Consumer Credit (Queensland)
53 The concept of a “credit contract” is defined under s.5 as a contract under which credit is or may be provided, being the provision of credit to which this Code applies. Section 6 then defines the provision of credit to which the Code applies which will be considered further below.
54 Pursuant to s.8(1)(a) the Code applies to a mortgage if it secures obligations under a credit contract.
55 Presuming that the Code applies, the issue of whether s.44(1) applies turns then on whether Mrs Irving is a debtor under the credit contract, being the loan contract(s) under which obligations to pay arose and which obligations the mortgages “secured.”
56 Although attention should be given to the varied operative mortgage (which amounts to a new contract[3]) and associated loan contract, given the way the transactions were structured it is necessary to consider the position of the first defendant under both the original loan given in 2003 as well as the further (and operative) loan of 2006 which builds on the terms of the earlier loan.
[3] Scarel v City Loan and Credit Corporation Pty Ltd, unreported decision of the Supreme Court of New South Wales, 2 December, 1986 per Young J
57 In terms of the 2003 documentation:
(a) the original application for loan is completed in the name of both
Mrs LJ Irving and Mr RA Irving;
(b) the offer of the advance of 10 June 2003 is addressed to “Dear Sir
and Mesdames” and names Mrs Irving as one of the addressees;
(c) the offer of 10 June 2003 refers to “your responsibility to make the
payments”;
(d) the declaration given under the Code is provided by all three Irvings
including Mrs Irving and refers to credit being provided “to us”; and(e) the mortgage generally embodies and reflects the terms of the loan credit contract (with the same provisions for interest) which mortgage clearly contemplates Mrs Irving as a debtor obliged to pay the “moneys hereby secured” pursuant to the provisions of the Memorandum of Common Provisions, particularly clause 1.
58 Between the time of the 2003 contract and the 2006 loan contract, and consistent with the parties intending that Mrs Irving be treated as a debtor, invoices were also addressed to all three Irvings at Mrs Irving’s address.
59 In relation to the 2006 varied loan it is relevant that:
(a) again the offer of 26 July 2006 is addressed to “Dear Sir and
Mesdames” and names Mrs Irving as one of the addressees;(b) the declaration given under the Code is again provided by all three Irvings including Mrs Irving and refers to credit being provided “to us”; and
(c) the terms of the Variation of Mortgage contemplate obligations on
the mortgagor as a debtor in her own right.
60 Further, although both the 2003 and 2006 offers make reference to the fact that “the parties” have agreed that the benefit of the advance was to be paid to Mr Rick Irving and his wife, this is entirely consistent with Mrs Irving as debtor directing where the proceeds are to be paid. The “responsibility” to make payments however was that of all three Irvings including Mrs Irving.
61 In my view then Mrs Irving was a debtor under both the 2003 credit contract and continued to be a debtor under the (operative) 2006 credit contract and the provisions of s.44(1) do not apply.
62 It is therefore, strictly, unnecessary to consider whether the Code applies in any event. However, out of deference to the submissions of counsel I will consider this issue.
Whether Code applies
63 Mr Schlicht submitted that:
(a) the Code did not apply, placing particular reliance on the conclusive
effect of the declarations given pursuant to s.11(2) of the Code; and
(b) that the plaintiff did not “provide the credit” pursuant to s.6(1)(d)
given the investors actually provided the funds.
64 He otherwise took no point about the prima facie application of the Code to the contract as a credit contract pursuant to ss.4-6.
65 Section 6(1) of the Code states:
“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 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.”
66 There are also presumptions relating to the application of the Code set out in s.11 as follows:
“(1) In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
(2) Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).
(3) However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes. For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained.
(4) A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not.”
67 There is thus a general presumption that the Code applies by reason of s.11(1) given that the first defendant claims that the credit contract is one to which the Code applies.
68 However, given there was a declaration[4] provided in relation to both the first loan and the variation credit is presumed “conclusively” not to be provided wholly or predominantly for personal, domestic or household purposes unless that declaration is ineffective pursuant to s.11(3).
[4] It was accepted by Mr Broadfoot that the declaration was substantially in the requisite form.
69 The crucial issue thereby became whether the plaintiff “knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes” pursuant to s.11(3).
70 Again, I will consider this question in the context of each of the loans the subject of this proceeding.
first loan
71 In relation to the first loan, Mr Harris gave evidence that he was told the purpose of the loan was to avoid the bankruptcy of Mr Rick Irving so as to clear all debts. This was consistent with the terms of the letter of offer of 10 June 2003. The evidence also suggested that the debts generally related to the business of Mr Irving as Mr Irving had not paid debts for several years in relation to feed and fertiliser costs (the company, Pivot Limited, was apparently a fertiliser supplier).
72 However, Mr Broadfoot suggested to Mr Harris that the purpose of the loan was to prevent the bankruptcy trustee taking control of Mr Irving’s assets. More particularly he suggested that the loan was “for the purpose of protecting Mrs Irving’s house, for the purpose of protecting Mr Irving’s assets and to enable them personally to move on and go about with their lives?”
73 The response of Mr Harris was that “I would have characterised it as basically allowing the enterprise to continue.” He later clarified that he understood the enterprise to be the share farming on the dairy farm engaged in by Mr Irving and his wife.
74 Mr Broadfoot suggested that this meant that Mr Harris knew or had reason to believe that the credit was being provided predominantly for personal purposes, namely, to avoid the consequences that would follow in the event of a bankruptcy by which Mr Irving’s assets would vest in the trustee.
75 I do not accept this submission. Although the trigger for the advance may well have been the impending bankruptcy, the credit was to be “applied” to pay off trade debtors of Mr Rick Irving. This may well have had other beneficial consequences in terms of personal assets but, in my view, s.11(3) concentrates attention on the purposes for which the credit was to be “applied.”
76 In these circumstances, I am not satisfied that the credit provider knew or had reason to believe at the time of the first declaration that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
77 In my view, therefore, the declaration was effective in relation to the first loan.
variation
78 It will be recalled that the diary note of 2 June 2006 referred to Mr Irving’s desire to buy a new house and Mr Harris’s response that there would need to be an increase of another $63,330 “on his mother’s house” to fund this. Under cross examination Mr Harris agreed that it was his understanding that Mr Rick and Janet Irving wished to purchase a four-bedroom weatherboard house to live in with the increase in the principal advanced.
79 Mr Broadfoot then submitted that even if the first loan involved provision of credit predominantly for business purposes, Mr Harris knew that the further advance of credit of $63,000 was to be applied for personal or domestic or household purposes. This was because this amount was advanced to enable the second and third defendants to purchase a residential home to live in.
80 However, this submission is inconsistent with the way the transaction was structured. Thus although a further uplift of $63,000 was provided, the existing facility of three years was also at an end. In this context, a single amount of credit of $173,000 was provided by way of “renewal and increase” pursuant to the terms of the loan documentation. The variation of mortgage was also executed in respect of a single new principal sum of $173,000.
81 The “predominant” portion of the further amount lent related to an extension of a pre-existing loan given for business purposes. In these circumstances, I am also not satisfied that the credit provider knew or had reason to believe at the time of the second declaration that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.
82 In my view the provisions of s.11(3) do not therefore apply and the declaration is conclusive.
83 Further, an examination of each of the transactions pursuant to s.6, (looking beyond what the credit provider “knew or had reason to believe”) would also lead to the same result in these circumstances even if the declarations were, contrary to the above, ineffective.
84 Thus, I reject the submissions of the first defendant that because the first loan was given to avoid the sequestration of personal estates, the credit was provided for personal purposes. Rather, consistent with the knowledge of Mr Harris, the credit under the first contract was “provided” or intended to be “provided” wholly or predominantly for business purposes being the payment of trade debtors of Mr Rick Irving.
85 Mr Rick Irving further gave evidence that a small portion of the first advance was in fact used to pay out the pre-existing St George mortgage in an amount of $18,000. To the extent this was relevant, it will be recalled that this mortgage was also taken out for a business purpose, namely, for the farm business and the purchase of flats which had been sold.
86 In relation to the second varied credit contract, although part of the credit advanced was for personal purposes, the credit was provided “predominantly” for business purposes. If there be any doubt about this, the position is made even clearer by s.6(5)(a). Pursuant to s.6(5)(a) the predominant purpose for which credit is provided is the purpose for which more than half of the credit is intended to be used. Clearly more than half of the credit was intended to be used for business purposes.
87 In these circumstances, if I was wrong in my conclusions that the declarations were effective, I would nevertheless be satisfied that the credit provider has rebutted the presumption otherwise applicable pursuant to s.11(1) by the application of s.6.
88 It follows that the Code does not apply.
89 In these circumstances, it is unnecessary to consider the further submissions of the plaintiff concerning s.6(1)(d).
90 I accordingly reject the defence based on the Code.
Concealment
91 Mr Broadfoot, citing Bank of India v Patel,[5] submitted that the conduct of the plaintiff, in failing to disclose at the time of making the further advance, that it was simultaneously making a further advance of $160,000 to the second and third defendants constituted concealment amounting to a misrepresentation such as to discharge the first defendant’s obligations as mortgagor.
principles
[5] Bank of India v Trans Continental Commodity Merchants Ltd & Jashbai Nagjibhai Patel [1983] 2
92 In Patel, Goff LJ states that there is no general principle that “irregular” conduct on the part of the creditor, even if prejudicial to the interests of a surety, discharges the surety, though there are particular circumstances in which the surety may be discharged. Further that the most significant and possibly only examples of such circumstances were specified by the trial judge in that case which examples included “concealment amounting to misrepresentation.”6
93 The general rule is that a bank is not obliged to disclose to the surety matters affecting the credit of the customer.7
94 However, the general rule appears to be subject to an obligation to disclose anything which has taken place which “was not naturally to be expected”8 or where there are some “unusual features”9 in the particular case.
95 It must be borne in mind that the cases cited by counsel arose in the context of the taking of a guarantee. However, for reasons already given, in my view the first defendant was taking on the obligation to make payments as a debtor in her own right and regardless of any limits on her co-debtors.
96 There may be some debate as to the precise circumstances in which an obligation to make disclosure would arise in the case of co-debtors. However, in Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd,10 the court, while finding that a person was generally bound by the terms of the document he/she signed,
Lloyd’s LR 298 at 302
Ibid at 302
Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 455
Ibid at 455
Goodwin v The National Bank of Australasia Limited (1968) 117 CLR 110 at 111
(2004) 219 CLR 165
stated “there may be cases where the circumstances in which a document is presented for signature, or the presence in it of unusual terms, could involve a misrepresentation.”[11]
[11] (2004) 219 CLR 165 at 187
background facts
97 Mrs Irving claimed little recollection of events surrounding the taking of the further loan and mortgage in 2006.
98 More particularly, she claimed no recollection at all of the following matters:
• of signing the variation of mortgage; • of any conversation with her son as to the reason she signed the variation; • of any conversation with her son to the effect that he had purchased a new house until after he had moved in; and • of being told that her son had borrowed an extra $160,000 (until after she became aware of this through the litigation process).
99 She did however claim that if she had known that her son would also be borrowing $160,000 at the time of entering the variation then she would not have agreed to any increase in the mortgage on her house.
100 As indicated already the general lack of recollection may, to some extent, be explained by the medication the first defendant is taking but it means that I am unable to completely rely on the evidence of the first defendant.
101 More particularly:
•
Mrs Irving admitted that her signatures were on both the letter offering a renewal and increase of 26 July 2006 together with the variation of mortgage of 22 August 2006;
•
The evidence of Mr Rick Irving suggested that an explanation to the effect that the finance was needed for the purchase of Ziegler Parade was given to his mother. Thus, his evidence was that he had been initially advised by Mr Harris prior to signing the contract for Ziegler Parade that financing could be done on a “stand alone” mortgage basis without need to affect his mother’s property but that at some time between purchase and settlement he was told there would need to be an increase to the first loan also. His evidence continued:
“…To the best of your knowledge, are you saying that your mother may never have known that she actually increased the amount owing under the mortgage to assist you in buying your house?...No, I never said that.
Are you able to say whether you did or didn’t tell your mother?...At some stage I
told my mother. As I said before, I cannot remember when I told her.
Leaving aside when, you told your mother that she had to increase her
mortgage?...Yes. I think she had to sign papers for the house.
And did you tell her what the papers were for?...That we’d bought a house.
And why did she have to sign these papers?...Because she was part of the
mortgage on the $110,000.
Did you tell her that the mortgage was going up from $110,00 to $173,000?...I
can’t recall that. As I said, I told her at some stage.
You told her that she had to sign?...After.
After you entered into the contract, I accept that. But you told her that she had to
sign some papers so you could buy the house?...Yes
But you didn’t say what they were for?...I just told her it was because we were buying a house and it was part of the – which I understood was a part of the process.
It was going to be used for part of the moneys to buy your house?...Yes.”
102 Notwithstanding the lack of recollection of Mrs Irving, I find, consistent with the evidence of Mr Irving, that at some point prior to the signing of the varied offer and mortgage, Mrs Irving was advised by her son that the increased finance was needed for the purchase of a new house. This is also consistent with the probabilities of the situation since it is unlikely, given the closeness of the relationship, that Mrs Irving would sign the documents without receiving an explanation from her son.
103 I accept however, as suggested by Mr Broadfoot, that there is nothing on the evidence to suggest that Mrs Irving was specifically advised that her son was also taking out a mortgage over Ziegler Parade in an amount of $160,000 as was in fact the case. Mr Harris’ evidence was that he did not “directly” disclose the existence of the further loan of $160,000.
104 In these circumstances it remains to be considered whether this was a matter that should have been specifically disclosed by the plaintiff.
application of the principles
105 Firstly, in my view, there were no “unusual” terms in the actual variation of mortgage or loan documents of 2006.
106 In terms of the transaction generally, as has been seen already, the reason for the taking of an increased principal in relation to the mortgage over Mrs Irving’s property was that Mr Rick Irving was purchasing a property, a matter known to Mr Harris and also, for reasons given already, a fact known to Mrs Irving.
107 In these circumstances, the fact that Mr Irving also needed to take out a mortgage over the property to be purchased (at Ziegler Parade) was not such an “unusual” feature as to require disclosure. Thus the history of events in this case included the previous potential bankruptcy of Mr Rick Irving and the fact that the account had previously fallen into arrears. Given Mr Irving’s financial history it would therefore “naturally be expected” that Mr Rick Irving would need to borrow further in order to fund the purchase of a new property and would be unable to fund it from his own resources.
108 The first defendant emphasized that the obligations to make further payments in relation to the advance of $160,000 “did adversely affect and materially prejudice”[12] the capacity of the second and third defendants to meet their obligations in relation to the varied 2006 loan. This was particularly said to be so in the light of the financial history of Rick Irving.
[12] See paragraph 24 of the Defence and Counterclaim
109 However, even if correct, this tends to underline the financial limits of Mr Irving and the likelihood of there being a need for another mortgage in circumstances where a new house was purchased.
110 On the calculations of Mr Schlicht the extra costs involved with “swapping over” (allowing for a reduction in rent) was in the order of $400 a month, a matter agreed to by Mr Irving. On Mr Broadfoot’s own calculations, the extra amount payable was approximately $550 which he described as “more than 10 per cent of [Mr Irving’s] after-tax income” and “not a trifling amount.”
111 However, even accepting that there was some $550 increase involved which was not “trifling”, there was little evidence of Mr Irving’s other expenses in 2006 so as to determine whether this was likely to have a major impact on Mr Irving’s ability to make payments. Rather the evidence of Mr Irving was that the joint income of his wife and himself was $5400 a month pre tax. Further, that problems arose in the real estate agency partnership he entered into after he had borrowed the further money when “everything went sour” and he lost money. The evidence did not suggest that the taking of the extra facility led to a default, nor that it would even be likely to lead to a default at the time of the taking of the facilities.
112 Accordingly, in my view there was no misrepresentation based on concealment in this case.
113 If I was wrong and there was such a misrepresentation then it would have been necessary to consider whether any such misrepresentation caused the First Defendant to enter the further transactions in any event.
114 As indicated already, the first defendant claimed that she would not have entered into the transaction if she had known of the extra $160,000 facility.
115 However, this somewhat self-serving statement needs to be considered in the light of the difficulties I have outlined with Mrs Irving’s evidence, including the fact that her recollection about events in 2006 was so impaired. Thus, Mrs Irving also claimed that she did not even recall being asked to vary the mortgage as she would expect “one to be paid first.” This notwithstanding that she had clearly agreed to a variation.
116 The suggestion that Mrs Irving would not have entered the 2006 transactions if she had known of the extra facility is also against the probabilities of the situation given the evidence suggested a continued readiness on the part of the first defendant to assist her son even in the previous context of impending bankruptcy.
117 In such circumstances, if it is necessary to consider, I would find that Mrs Irving would still have entered the transaction even if she had been made specifically aware of the details of the other facility. Accordingly, any concealment would not have caused the loss in any event.
118 The defence based on concealment has not been sustained.
Conclusion
119 There will be judgment for the plaintiff in an amount of $230,972.87 together with possession of the land at 39 Nicholson Street, Warrnambool (Certificate of Title Volume 8358 Folio 032).
120 The first defendant’s Counterclaim should be dismissed.
121 I will hear from the parties further as to the precise form of final orders.
Code applies for the purposes of the Consumer Credit (Victoria) Code and may be referred to as the
Consumer Credit (Victoria) Code (hereinafter “the Code”)
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