Gel Custodians Pty Ltd v Gibson

[2014] WASC 433

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   GEL CUSTODIANS PTY LTD -v- GIBSON [2014] WASC 433

CORAM:   ALLANSON J

HEARD:   ON THE PAPERS

DELIVERED          :   19 NOVEMBER 2014

FILE NO/S:   CIV 1174 of 2013

BETWEEN:   GEL CUSTODIANS PTY LTD

Plaintiff

AND

ANITA LOUISE GIBSON
First Defendant

CHRISTOPHER CHARLES SHANNON
Second Defendant

Catchwords:

Practice and procedure - Trial of a preliminary issue - No saving in time or cost - Turns on own facts

Legislation:

Australian Securities and Investment Commission Act 2001 (Cth)
National Credit Code
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 14, O 32 r 4
Transfer of Land Act 1893 (WA), s 68, s 214A

Result:

Application dismissed

Category:    B

Representation:

Counsel:

Plaintiff:     No appearance

First Defendant             :     No appearance

Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Norton Rose Fulbright Australia

First Defendant             :     In person

Second Defendant         :     In person

Case(s) referred to in judgment(s):

Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47

Landsdale Pty Ltd v Moore [2009] WASCA 176

Nyoni v Patterson [2012] WASCA 171

1. ALLANSON J: The defendants have applied to have the question of the plaintiff's right to sue them tried as a preliminary issue under O 32 r 4 of the Rules of the Supreme Court 1971 (WA).  The plaintiff opposes the application.

2. The application was ordered to be determined on the papers.  Each party filed submissions.  The defendants also filed an affidavit in support.

The action

1. The plaintiff began the proceedings on 4 February 2013 by writ with an indorsed statement of claim. 

2. The plaintiff claims as the lender under a loan agreement, dated 13 June 2006, between the plaintiff and the defendants.  The plaintiff also pleads a mortgage dated on or around 19 June 2006, by which the defendants mortgaged land to the plaintiff as security for repayment of the loan.  The mortgage is registered.  It is common ground between the parties that these transactions and documents relate to the purchase by the defendants of a property at Bakers Hill, where they now live.

3. The plaintiff pleads that the defendants breached the terms of the loan agreement and mortgage by failing to make monthly repayments as and when they fell due.  It seeks relief including payment of the sum outstanding under the mortgage and possession of the land over which it has security. 

4. The defendants are self‑represented.  They do not currently have a defence filed; an earlier pleading was struck out and they have not re‑pleaded.  They have made various applications in the proceedings, and filed affidavits in support.  From those documents, I believe that their claims include:

   1.The amount for which the plaintiff sues was not advanced to them.  The plaintiff has not suffered any loss, and does not have the necessary legal standing and rights to be the plaintiff or the mortgagee.

   2.The plaintiff's claim is fraudulent in intending to mislead the court to believe that the plaintiff provided valuable consideration to the defendants.

   3.The loan application was prepared by a mortgage originator, as agent of the plaintiff.  It was forged and included false and misleading information regarding the employment and financial situation of the defendants.   

   4.The plaintiff was aware of serious and unlawful acts, including forgery and fraud, that were committed by its agent.  

   5.The plaintiff was reckless and wilfully blind to the illegal actions of its agent, including failure to comply with lending guidelines and the mortgage originator's code of practice.

   6.The plaintiff and its agents have breached or failed to adhere to both State and Commonwealth legislation, including the Australian Securities and Investment Commission Act 2001 (Cth) and the National Credit Code.

5. The defendants may themselves seek a range of relief, which I assume will be by counterclaim, including:

   1.declarations that the loan agreement and security are void;

   2.the annulment of agreements;

   3.the annulment of other 'securitised instruments' within a named securitisation programme;

   4.the annulment of a power of attorney which the defendants gave to the plaintiff; the disclosure of the manner in which the power of attorney has been used since it was obtained in 2006;

   5.damages for damage the defendants have suffered in relation to their credit rating; and

   6.the restitution of amounts paid on the mortgage since 2006.

6. By chamber summons filed 14 February 2014, the plaintiff applied for leave to enter summary judgment pursuant to O 14 of the Rules of the Supreme Court.  On 17 April 2014, the master dismissed the application and gave the defendants leave to defend.  It is not necessary to go into the detail of the judgment given by the master.   

7. On 23 May 2014, the matter was admitted to the commercial and managed cases list. The defendants had an outstanding strike out application, and I programmed it for hearing on 3 July 2014. The defendants did not, however, persist with that application. On 27 June 2014, I made orders including that the strike out application be dismissed, on the basis that the defendants then intended to proceed by way of the current application under O 32 r 4 for the trial of a preliminary issue.

The application for a preliminary trial

1. The application is expressed in these terms:

   [T]he defendants apply to have determined, separately and prior to any potential trial, a complex issue regarding whether, or not, the defendants are the 'proper defendants' for the plaintiff to sue for its perceived damages, as the determination of this issue and the question surrounding it may subsequently dispose of the cause or matter or render unnecessary the trial or further trial of the cause or matter, should it be found that the plaintiff has no legal right to sue the defendants.

2. In stating the issue for determination in their written submissions, the defendants appear to either assume, or take to have been admitted, two facts:

   1.the plaintiff did not provide them with funds under the loan; and

   2.the credit contract has been terminated and the powers under the mortgage have been revoked.

   On that basis they pose the question for determination as 'whether, or not, the plaintiff has a right to sue the defendants for possession of the title'. 

3. In submissions in support of the application, dated 3 September 2014, the defendants say that if this application is granted they will seek leave to join Landgate to the action and seek to have the mortgage deemed void under s 214A of the Transfer of Land Act 1893 (WA).

4. They also identify the following as being issues that will need to be determined at trial if the application is decided in favour of the plaintiff:

   1.Fraud by the mortgage originator and/or by the plaintiff.

   2.'Fraud in the factum' in that the application for credit had been forged and contained false and misleading misrepresentations regarding the financial position of the defendants and forgery of their signatures.

   3.The fraudulent procurement of loan mortgage insurance by knowingly submitting false information.

   4.Fraudulent misrepresentation about which entity will be providing the funds and thereby resulting in the defendants granting a mortgage to the plaintiff.

   5.Loan origination fraud perpetrated by the loan originator either in its own right or as an agent of the plaintiff.

   6.Unconscionable conduct by the loan originator with the authority of the plaintiff.

   7.Undue influence by the loan originator with the authority of the plaintiff.

   8.'Transactional unjustness' and unconscionability under the National Credit Code and the Australian Securities and Investment Commission Act.

   9.Misleading and deceptive conduct by another party as agent of the plaintiff.

   10.False and misleading information sent by the plaintiff to the defendants on or about 4 April 2012, relating to other proceedings in this court:  CIV 1276 of 2012.

   11.The failure to issue a default notice before initiating proceedings.

   12.The wrongful initiation of proceedings.

   13.Damages in tort for deceit and fraud.

5. The defendants argue that the early determination of the separate issue would be very likely to resolve the matter entirely, because if the outcome is favourable to the plaintiff then the plaintiff 'would have confirmed its right to proceed to trial with its claim and the defendants will have to respond to that'.  If the outcome is favourable to the defendants, then the court would dismiss the plaintiff's claim, and order the plaintiff to remove the mortgage and to make fair restitution to the defendants.

The principles

1. Order 32 r 4 of the Rules of the Supreme Court provides that the court may order that any question or issue arising in a cause, whether of law or fact or partly of law and partly of fact, be tried separately before trial of the proceedings. The power under the rule is discretionary. Order 32 r 4 does not, itself, set out the factors relevant to the exercise of the discretion. But this does not mean that the discretion is at large. The court is to exercise its power in the context of, and by reference to, the rules. In particular, the court must have regard to O 1 r 4A and O 1 r4B of the Rules of the Supreme Court, and follow the course that best ensures the attainment of the objects set out in those rules.

2. The court should also have regard to the principles developed by judicial decision.  The matters found relevant or determinative in other cases assist the court to exercise discretions consistently, but do not detract from the broad discretion and the need to exercise it according to the justice of the case.

3. The authorities on the considerations relevant to O 32 r 4 have been collected and summarised conveniently by McKechnie J in Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47 [4]. Many of them preceded the introduction of the current system of case management. But the objects of case management are consistent with the considerations referred to in the earlier cases: see Landsdale Pty Ltd v Moore [2009] WASCA 176 [19] ‑ [21].

4. In Lansdale, Newnes JA said:

   The starting point is that ordinarily the trial of an action should include all issues arising in the action. The determination of an application for separate trials requires a careful balancing of the prospective advantages and disadvantages involved in separating the issues, bearing in mind the uncertainties inherent in litigation, and that, once embarked upon, it is a course from which it may be difficult and even impossible to retreat. It should only be embarked upon where its utility, economy and fairness to the parties is clearly made out [21].

5. It is necessary to consider whether the issues for separate determination can be clearly stated and finally answered without the court having to resolve complex contested issues of fact. Unless an issue can be clearly defined and determined in isolation, the objectives of case flow management are unlikely to be met. If the issue will require extensive evidence, may result in an appeal, and may not finally determine the outcome of the case, it is unlikely that there will be real savings in time and cost. 

The mortgage

1. While it is not always helpful to isolate a single factor, in this particular case there is an issue which, in my opinion, is crucial.

2. The plaintiff is the holder of a registered mortgage. Under s 68 of the Transfer of Land Act, except in case of fraud, it holds that interest in the land subject only to such encumbrances as may be notified on the registered certificate of title. Even if there is a question regarding the enforceability of the loan agreement, the result of registration of the mortgage is that the plaintiff/mortgagee's charge over the property entitles it to exercise its powers under the mortgage. The defendants appear to recognise this in foreshadowing the claim under s 214A of the Transfer of Land Act.

3. The point, for present purposes, is this: if the trial of the preliminary issue is to resolve the matter entirely, allegations of fraud and misrepresentation cannot be separated for later determination.  It is difficult to estimate the extent of the factual issues that will have to be addressed when the defendants' case has not yet been pleaded.  But as I currently understand their case, the defendants allege that the plaintiff obtained its registered interest as a result of fraud ‑ either its own fraud, or fraud of an agent that can be brought home to the plaintiff.  Alternatively, the defendants may seek to establish in personam rights against the plaintiff under which they are entitled to a remedy which binds the plaintiff to give up its registered interest.  On either basis, the preliminary trial will inevitably require findings on complex and contested questions of fact.  Those questions are not suitable for a preliminary hearing.

Other factors

1. There are other factors which, in my opinion, weigh against setting down the trial of a preliminary issue.

2. First, there is the difficulty in stating the preliminary issue.  While it may be capable of more precise formulation than what has been done to date, I am presently unsure of the scope of the issue.

3. Second, the primary matter which the defendants want the court to determine appears to call for the plaintiff to establish all of the facts on which it claims that the defendants are indebted to it for the amount claimed.  That is, the plaintiff will be required to prove the whole of its case except the events of default.  The issue, as stated in the defendants' submissions, will also require the court to determine whether the defendants have effectively terminated the credit contract and mortgage.  If the question of fraud is added to that mix, it is difficult to identify any real saving in splitting the issues over two trials. 

4. Third, the defendants' case has not been pleaded, and the defendants' position is that they should not be required to plead until the preliminary issue has been decided.  They persisted in that stance even though I advised them of the difficulties it would pose for this application.  I have attempted to identify and summarise the claims the defendants are making from the various applications and affidavits they have filed.  My summary may well be open to dispute.

5. In Nyoni v Patterson [2012] WASCA 171, Pullin JA said:

   [C]lear and precise pleadings are necessary because they form a permanent record of the issues and questions raised in the action and decided so as to prevent future litigation upon matters already adjudicated upon between the litigants: Opperman v The State of Western Australia [2011] WASC 25 [38] (EM Heenan J) [37].

6. My assessment of this case is that a preliminary determination would only be productive of more disputes, unless the matters in issue between the parties had been clearly stated.  The nature of the allegations made by the defendants only emphasises the need for them to be clearly recorded.

7. Fourth, the defendants have said in the course of interlocutory proceedings that they propose to bring a counterclaim, and may bring third party proceedings.  Neither of those things has yet been done.  The trial of a preliminary question - even if the result is favourable to the defendants - will leave significant questions of fact and law still to be decided.

8. Fifth, the court should consider the possibility of an appeal from the interlocutory decision, and the further delay and expense this would bring. 

9. Sixth, I am not satisfied that a determination of a separate question would be likely to lead to settlement of all outstanding issues.  In their written submissions, the defendants say they remain open to receiving a reasonable offer of settlement.  The way in which this action has been conducted to date does not instil confidence that an offer of settlement would be made or accepted.

10. Last, on the evidence and other material before the court it is difficult to make an informed assessment about the scope and likely length of the trial of the action as a whole, as against the scope and length of the issues the subject of the application for a trial of preliminary issues:  see Landsdale[12], [26]. The plaintiff has attempted to do such an assessment. On the material now before me, I strongly doubt there would be any appreciable saving of time or costs.

Conclusion

1. This is not a proper case for separate determination of any issues.  The application is dismissed.