Janaco Pty Ltd v Comande
[2013] VSC 4
•30 April 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2012 5931
| JANACO PTY LTD | Plaintiff |
| v | |
| ANTONIO COMANDE and VINCENZA COMANDE | Defendants |
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JUDGE: | LANSDOWNE AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 April 2013 | |
DATE OF JUDGMENT: | 30 April 2013 | |
CASE MAY BE CITED AS: | Janaco Pty Ltd v Comande and anor | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 4 | |
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PRACTICE AND PROCEDURE – application to set aside default judgment – appearance accepted for filing although application for default judgment already filed - no warning given to solicitor known to act for defendants - warning not required – judgment not irregularly entered – whether proposed defences of fraud by agent of plaintiff and special disadvantage arguable – defendants allege solicitor who certified witnessing of their signatures did not do so– whether impugns conscience of plaintiff – no evidence that plaintiff required compliance with its own requirements as to proof of identity of signatories – no evidence that plaintiff made sufficient enquiry as to capacity of defendants to repay – possible asset based lending - defences arguable – judgment set aside – whether defendants should as a condition be required to pay a portion of the judgment debt – that a matter for trial or later application - Supreme Court (General Civil Procedure) Rules 2005 rr 8.07, 21.07
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Bingham | Cornwall Stodart |
| For the Defendant | Mr J.D. Lowenstein | Melbourne Legal Chambers |
TABLE OF CONTENTS
Was the judgment regularly entered?............................................................................................ 1
Did the Prothonotary “revoke” the appearance after filing?................................................. 1
Was the entry of judgment in breach of good faith?................................................................ 3
Should the judgment be set aside, although regularly entered?.............................................. 5
Is there an arguable defence?...................................................................................................... 6
Amadio defence........................................................................................................................... 7
Alleged fraud at the hands of Mr Triantos................................................................................. 8
Alleged fraud at the hands of Mr Kotsifas.................................................................................. 9
The plaintiff’s case...................................................................................................................... 10
Is there an arguable defence against the plaintiff?................................................................. 14
Conclusion......................................................................................................................................... 18
Should the setting aside of the judgment be conditional?................................................... 19
Orders........................................................................................................................................... 20
HER HONOUR:
This is an application to set aside judgment for recovery of land and debt entered against the defendants in default of an appearance. The application was made by summons filed 21 December 2012, initially returnable 1 March 2013. The hearing of the application was adjourned on that day and on one further occasion to enable further affidavits to be filed. The application was heard on 11 April 2013.
The summons seeks that the judgment be set aside ex debito justitiae i.e. as a matter of justice because irregularly entered or, in the alternative, that the judgment be set aside in the Court’s discretion and the defendants given leave to defend.
Was the judgment regularly entered?
Did the Prothonotary “revoke” the appearance after filing?
Although this is not the heart of their case, the defendants have queried whether the judgment was regular having regard to the time and date of its entry, given that the Registry had accepted their Notice of Appearance. I will deal with that issue first.
It is undisputed that the writ was served on the defendants by service on their solicitor on 9 November 2012. Mr Merlo, their solicitor, says in his affidavit sworn 21 December 2012 that this was at approximately 12.30pm. Pursuant to Rule 8.04 of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”) the time for the filing of an appearance by the defendants was correctly stated in the writ as “not less than ten days after service”.
The defendants’ case is that an appearance was filed on their behalf on Wednesday 21 November 2012.[1] On any view, that is more than ten days after service on 9 November 2012. The defendants do not contend otherwise.
[1]Mr Merlo’s affidavit sworn 21 December 2012 at [4].
Rule 21.01 of the Rules permits a plaintiff to enter judgment in default of an appearance where the defendant does not file an appearance within the time limited for that step. The plaintiff’s case is that it sought judgment in default of appearance on Tuesday 20 November 2012 by filing the necessary documents and that judgment was entered that day.
Mr Merlo says[2] that his clerk was informed by the Registry on 22 November 2012, that the Court had “reversed” the filing of the appearance on the basis that the solicitors for the plaintiff had electronically filed an application for default judgment on 20 November 2012, which had not been shown on the Court file when the appearance was accepted. Counsel for the defendants queries whether there is any power in the Registry to “reverse” or “revoke” an appearance.
[2]Affidavit of Mario Merlo sworn 21 December 2012 at [5].
The documents on the Court file do not show any “reversal” or revocation of the appearance. They show the following documents all date stamped 20 November 2012:
1.Affidavit of Service deposing to service of the writ on the solicitors for the defendants at 3.15pm on 9 November 2012.
2.A Search for Appearance.
3.An affidavit of Mr Potenza, solicitor for the plaintiff, deposing to non‑service of any appearance as at 20 November 2012, and seeking default judgment.
4.A sealed default judgment date stamped 20 November 2012 and bearing the time of 14.30.
All four of these documents bear the initials of the same person, although only the default judgment has a time on it.
The file also shows a Notice of Appearance which is dated 20 November 2012 but date stamped as filed on 21 November 2012 (consistent with the assertion of the solicitor for the defendant as to when it was filed). The time is said on that date stamp to have been 10.52am.
Accordingly, on the face of the documents on the Court file judgment was entered on Tuesday, 20 November 2012, as the plaintiff contends, which was prior to the filing of the Notice of Appearance conceded by the defendants to have been on Wednesday, 21 November 2012.
I accept the submission of the plaintiff that the Prothonotary does not have the power to reverse or revoke a Notice of Appearance once filed. The documents on the Court file do not show any attempt to do so, whatever may have been said. An appearance after judgment should not have been filed without leave of the Court (Rule 8.07 of the Rules), but given the intention of the defendants to seek to set aside the judgment that leave would undoubtedly have been given. If doubt remains, I will grant that leave now for then.
Was the entry of judgment in breach of good faith?
The defendants assert that the plaintiff “stole a march” on the defendants by failing to warn the solicitors for the defendants that it was about to seek default judgment. The defendants say the plaintiff well knew from prior correspondence between the solicitors (indeed from service on those solicitors) that the defendants were represented and intended to advance a positive defence.
Accepting that assertion for the purposes of this application, without determining it, it does not show in my view that the defendants are entitled to have the judgment set aside as irregular. The request for default judgment made on 20 November 2012 was prompt but not premature. There is reference in the commentary to r 21.07 in Civil Procedure Victoria to old authority that a judgment obtained in breach of good faith should or may be set aside as irregular. Counsel for the defendants has not, however, referred me to any recent authority where that has occurred, even where the Court has been critical of the plaintiff’s lack of courtesy in moving to seek default judgment quickly and without warning.
The defendants rely on French v Triple M Melbourne Pty Ltd[3] (“French”). In that case, Bongiorno J, as he then was, was very critical of the plaintiff’s haste, describing the entry of default judgment at “the earliest possible opportunity without warning against parties known to the plaintiff’s solicitor to be represented” as “precipitate and unwarranted”.[4] Nevertheless, he concluded that the judgment was regularly entered and the defendants were not entitled to have it set aside ex debito justitiae.[5] Bongiorno J did take the hasty entry of default judgment into account in the exercise of his discretion to set aside the default judgment regularly entered. The exercise of that discretion, however, ordinarily requires an arguable defence to be shown.
[3][2006] VSC 36.
[4]Ibid, at [23].
[5]Ibid, at [16].
There are further authorities relied upon by the plaintiff that also express that view or hold that there is no obligation on the solicitor for the plaintiff to warn the defendants that the plaintiff will seek default judgment. In Sargent v Veneris,[6] Beach J observed in dicta that there is no obligation upon a plaintiff’s solicitor to warn a defendant’s solicitor of his intention to enter judgment in default of appearance. His Honour upheld the judgment of the Master to set aside the judgment as entered irregularly, but on the basis of a failure to comply with a requirement of the Rules, commenting that if the solicitor for the plaintiff does enter judgment without warning the solicitor for the defendant then “in my opinion every step taken by the plaintiff in the proceedings must strictly comply with the rules”.[7]
[6]An unreported decision of Beach J, 20 December 1995, BC 9507179.
[7]Ibid, at 3.
In Starrs v Retrovision (WA) Limited,[8] it was specifically argued on behalf of the defendants seeking to set aside a default judgment that the judgment was irregular because they had not been warned that the plaintiff was about to seek it. Allanson J (with whom Pullin JA and Murphy JA agreed) examined a number of authorities on the point, including French, and concluded that the failure to warn did not make the entry of judgment irregular.[9] As in French, he concluded that the circumstances in which the judgment was entered were, however, relevant to the exercise of the discretion to set aside.
[8][2012] WAFCA 67.
[9]At [43].
What occurred here, on the evidence before me, at its highest was a failure to warn. There is no evidence of bad faith in the usual sense, for example acting contrary to an expressed intention or assurance given to the defendants. I am not satisfied on the authorities that there is any obligation to warn the solicitor for the defendant, nor that that alone constitutes bad faith. Accordingly, even if a defendant may be entitled as of right to have a judgment otherwise regular but entered in bad faith set aside, about which I express no opinion, this case is not in that category.
In the absence of bad faith, I do not consider the expression “stole a march” to be either helpful or accurate. It implies an obligation to warn when on the authorities there is no such obligation. The solicitors for the plaintiff acted promptly; the solicitor for the defendants did not.
Should the judgment be set aside, although regularly entered?
The real question on this application is whether the judgment should be set aside in the exercise of the Court’s discretion. The exercise of this discretion ordinarily requires that the defendant demonstrate a prompt application to set aside; an acceptable explanation as to why appearance was not entered; a defence on the merits; and a consideration of any prejudice that setting the judgment aside would cause the plaintiff.
Here the solicitors for the defendants became aware of the judgment on 21 November 2012 and immediately sought the consent of the plaintiff to have it set aside. Correspondence followed for about a month and the application was filed on 21 December 2012. In all the circumstances I consider the application to have been sufficiently prompt. It was not suggested otherwise by the plaintiff.
In relation to explanation for failure to file an appearance within time, the solicitor for the defendants does not expressly in his affidavit concede it was his responsibility, but there is no reason for the failure to file in time advanced that is attributable to the defendants themselves. Accordingly, I proceed on the basis that the failure was due to the solicitor. Counsel for the defendants says that that error should not be visited upon the defendants themselves. In the circumstances of this case, where the filing of an appearance was only shortly outside the required timeframe I accept that submission, provided of course the other preconditions for the exercise of the discretion are sufficiently met.
As to prejudice, the plaintiff says that there is prejudice because it is not receiving any interest on the moneys advanced nor repayment of the principal for investment elsewhere.
The plaintiff obtained a valuation of the property at the time of the advance in December 2010, which valued the property at $770,000, most of which ($620,000) was in respect of the value of the land. Default judgment was obtained in November 2012 in the sum of $376,052.52 together with $5,172 for interest and $3,310 for costs. On the basis of comparison of those figures, it would appear that there is sufficient equity in the property to meet all outstanding sums if judgment is set aside but the plaintiff nevertheless succeeds at trial, even on the basis that there would be some further time and expense before trial. Accordingly, I do not consider the current prejudice to be sufficient to outweigh other factors if they tend towards the setting aside default judgment.
Is there an arguable defence?
The determination of this application really turns on whether or not there is an arguable defence on the merits advanced by the defendants. I am satisfied that if such defence is shown, the other factors to be considered in the exercise of my discretion favour, or do not tend against, setting aside the judgment.
The defendants need not show on this application that their proffered defence or defences are bound to succeed. It is sufficient if they show they have a prima facie or arguable defence or defences. Further, it is not permissible for the Court to seek to resolve disputed questions of fact on an application to set aside.[10] For that reason it is not appropriate to consider the detailed questions of fact the plaintiff says are not answered by the defendants’ affidavits, or the questions of credibility that the plaintiff says arise from a comparison of what the defendants say on oath in these proceedings with what they may have said in the proceedings they took in the County Court against their daughter. Nor do I consider inferences that may be said to arise from what occurred between the parties after entry into the transaction. All these matters are for determination at a later point in time if the judgment is set aside. I focus in this application on entry into the transaction, because that is the foundation of the defences sought to be advanced by the defendants.
[10]See Lauv Sitic Australia Commodity Trading Pty Ltd [1999] VSCA 34.
The defendants say that they wish to advance two defences:
1.Fraud at the hands of the agents of the plaintiff (being the broker Mr Triantos or the solicitor who certified he witnessed their signature on various documents, Mr Kotsifas).
2.An Amadio[11] type defence of special disadvantage.
[11]Commercial Bank of Australia Ltd v Amadio and anor (1982-1983) 151 CLR 447
Amadio defence
In relation to the special disadvantage defence, the defendants say they have limited English language skills and thought that the transaction concerned a smaller amount, being a refinance of an existing loan of $166,000, which was to be refinanced in connection with financial difficulties being experienced by their son Giuseppe (Joe) and their daughter Gelsomina (Jasmine). They say they knew they were giving security for this smaller amount, but believed they were not themselves the borrowers. They say that they believed these things on the basis of what they had been told by Joe and Jasmine.[12]
[12]Affidavit of Antonio Comande sworn 25 February 2013 at [5] and [27], [11]-[15] and [22], [27], [28] and [32].
In answer to my enquiry as to how these matters, assuming for the purposes of this application that they are correct, impugn the conscience of the plaintiff so as to establish a defence as against the plaintiff, counsel for the defendants says that the plaintiff failed to check the capacity of the defendants to service the loan. Had enquiry been made it would have been apparent to the plaintiff that the defendants as pensioners had no such capacity.
Alleged fraud at the hands of Mr Triantos
In relation to the proposed defence of fraud, the defendants on oath say that the broker, Mr Triantos, was not their agent. In their draft defence, they plead that the broker was the agent of the plaintiff.[13] They have not, however, given any evidence to support this assertion. Giuseppe/Joe says in his affidavit sworn 25 February 2013 that Mr Triantos was his broker,[14] but he too thought the loan was for $166,000 and that he was the borrower, although his parents’ home was the security. Inconsistently with this evidence, Giuseppe Comande says in his later affidavit sworn 5 April 2013 that Mr Triantos was engaged by his sister, Gelsomina Comande.[15]
[13]Draft defence and counterclaim exhibited as part of MM-7 to Mr Merlo’s affidavit sworn 21 December 2012, at [5].
[14]At [5].
[15]At [5].
It can be observed then that at its highest the defendants’ evidence (as opposed to their proposed pleading) is that Mr Triantos was engaged by someone other than themselves but on their side of the transaction. The documents that emanated from the plaintiff’s solicitors to Mr Triantos all contain assertions that he is the agent of the borrower.[16] Further, the defendants appear to have signed an authority[17] directed to Express Money Service, the business operated by Mr Triantos, in which they request him to arrange on their behalf a loan i.e. on the face of this document they appointed him as their agent. Mr Triantos himself deposes that he was engaged by the defendants to assist them with refinancing a loan over their property to raise funds to on lend to Joe.[18]
[16]See, for example, the letter of offer which is JC-3 to the affidavit of Jacques Cooper sworn 27 February 2013.
[17]JC-32 to the affidavit of Mr Cooper.
[18]Affidavit re- sworn 13 March 2013.
Accordingly, I am not satisfied on the evidence in this application that the defendants will be able to establish that Mr Triantos was the plaintiff’s agent, nor that any fraud he committed could be otherwise imputed to the plaintiff.
In any event, it is not entirely clear to me on the evidence of the defendants and their submissions what fraud if any is alleged to have been committed by Mr Triantos. As Mr Triantos deposes that he was present when the defendants signed the mortgage in the presence of the solicitor witness Mr Kotsifas,[19] and the defendants deny that they have ever met Mr Kotsifas or that he witnessed their signatures on the mortgage, I will assume for the purpose of this application that it is said by them that Mr Triantos was a party to the fraud they allege against Mr Kotsifas. That would constitute an arguable cause of action against Mr Triantos, but, in the absence of evidence imputing any such fraud to the plaintiff, not an arguable defence against the plaintiff.
[19]Ibid, at [5].
I am not satisfied that any proposed defence of fraud at the hands of Mr Triantos is an arguable defence as against the plaintiff.
Alleged fraud at the hands of Mr Kotsifas
In relation to the solicitor, Mr Kotsifas, the defendants unequivocally say on oath that they have never met Mr Kotsifas.[20] They say that there were only three people in the room when they signed documents, being themselves and Mr Triantos. Accordingly, they say Mr Kotsifas could not have witnessed their signatures on various documents (including the mortgage) nor given them advice as to the nature of the transaction as the face of the documents suggest.
[20]Affidavits of Antonio Comande sworn 25 February 2013 , 13 March 2013 and 5 April 2013 at [26], [9] and [7] respectively. His evidence is supported by that of Guiseppe Comande in his affidavits sworn 25 February 2013 and 5 April 2013 at [7]-[11] and [4] respectively.
There is no affidavit from Mr Kotsifas himself in this application. The solicitor for the plaintiff exhibits a letter from his firm to Mr Kotsifas seeking an affidavit from him as to the circumstances surrounding the execution of the mortgage, and Mr Kotsifas’s reply by letter. That letter is to the effect that Mr Kotsifas received a call from Mr Triantos stating that he had clients with him; that Mr Kotsifas then attended the offices of Express Money Service where the mortgage documents were executed in his presence by the defendants; and that they appeared to understand his explanation as to the nature of the transaction.[21]
[21]Exhibits GP-4 and GP-5 to the affidavit of Gino Potenza sworn 8 March 2013.
If the contest on this application was between the defendants and Mr Kotsifas, I would prefer their evidence, because it is sworn, and his is not. The defendants need to show that they have an arguable defence as against the plaintiff, however, not just an arguable claim against Mr Kotsifas. There is nothing in the evidence in the defendants’ case to suggest that Mr Kotsifas was the agent of the plaintiff. The question is, accordingly, whether the defendants have shown an arguable basis to otherwise impute to the plaintiff any wrongdoing at the hands of Mr Kotsifas.
The plaintiff’s case
The plaintiff relies on the following matters in relation to all the proferred defences. First, the defendants do not deny signing the primary documents, being the acceptance of the letter of offer from the solicitors for the plaintiff to Mr Jerry Triantos dated 8 December 2010 and the mortgage which apparently bears their signatures and the signature of Mr Kotsifas who has signed as witness. On their face, these documents evidence a loan to the defendants as borrowers in the sum of $366,000 for a term of one year at a specified interest rate.
As to the purpose of the loan, the letter of offer states:
Funds to be on-lent at 10.5% or higher pursuant to an agreement between Mortgagors and Comande Developments Pty Ltd.
The rate of interest there specified, 10.5%, was higher than the non default interest rate the defendants were to be charged by the plaintiff, which was 10.25%. That is, the plaintiff’s case is that the loan was to the defendants as borrowers, and secured by mortgage over their property, but the purpose was for them to on‑lend it to their son’s company, Comande Developments Pty Ltd and at a higher rate of interest. Counsel for the plaintiff makes the point that this, on its face, is a business transaction and so consistent with the statement in the letter of offer that the loan was not for personal, domestic or household purposes.
The plaintiff also relies on the fact that the defendants had engaged in three prior mortgages over their property from 2004. These transactions were a mortgage to Perpetual Trustees Victoria Limited, which was discharged when a new mortgage to National Australia Bank was registered on 5 October 2006, which in turn was discharged when a new mortgage to the Bank of Western Australia Limited (“BankWest”) was registered on 4 August 2010. Mr Comande snr acknowledges in his first affidavit that the property was mortgaged in 2006 to the National Australia Bank as security for a loan to be utilised by the defendants’ son Joe, and again in 2010 for a further loan, which he says was for their daughter, and a re-finance of the existing NAB loan, for Joe. He says that his understanding was that the total loan thus secured was for $166,000. He gives no evidence about the 2004 mortgage to Perpetual Trustees.
The plaintiff says that these previous transactions undermine the defendants’ proposed Amadio defence, because they show a familiarity with utilising their property as security for loans they then on lent to their children. Further, the plaintiff says that even if the judgment in its favour is to be set aside, this should be on the basis that the defendants pay the amount paid to discharge the existing loan to BankWest at the time of the refinance, which was $171,593.40.[22]
[22]Affidavit of Gino Potenza, sworn 8 March 2013, at [7].
In relation to the purpose of the loan, the plaintiff also relies on a document headed “Loan Agreement” dated 14 December 2010 which was provided to the solicitors for the plaintiff, at their request, prior to settlement of the advance to evidence the on-loan between the defendants and Comande Developments Pty Ltd. The loan agreement on its face sets out a loan in the sum of $366,000 (i.e. the same amount as the loan by the plaintiff to the defendants) for 12 months at an interest rate of 11.5% from the defendants to Comande Developments to be secured over a property at Sydney Road, Campbellfield.
The Loan Agreement appears to bear the signatures of the defendants and another signature against the descriptor “Comande Developments”.[23] There is no evidence as to whose signature that is. The defendants’ son Joe swears that Comande Developments Pty Ltd is his company[24] and in that same affidavit deposes that a signature on the letter of offer from the plaintiffs to the defendant next to the descriptor “For and on behalf of Comande Developments Pty Ltd” is not his.[25] He does not, however, give any evidence as to the signature on the Loan Agreement, apparently between his company and his parents. In any event, there is no evidence to suggest that the plaintiff or its solicitors were aware that the signature for the company on the letter of offer was false, if it is, or that the signature of any of the parties on the Loan Agreement as between the defendants and Comande Developments Pty Ltd were false, if they are.
[23]JC-35 to the affidavit of Jacques Cooper, sworn 27 February 2013.
[24]Affidavit sworn 5 April 2013, at [4(c)].
[25]Ibid, at [6].
The plaintiff also relies on a large number of documents apparently signed by the defendants and by Mr Triantos or Mr Kotsifas to the effect that the defendants understood the nature of the transaction, that Mr Triantos was their agent, and that Mr Kotsifas had witnessed their signatures on various documents including the mortgage and had explained the transaction to them without the assistance of an interpreter. These documents are:
an acknowledgement apparently signed by the defendants in the presence of Mr Triantos confirming that they signed the mortgage in the presence of Mr Kotsifas (JT-1);
a document headed “Acknowledgement of Mortgagor” addressed to the plaintiff and apparently signed by the defendants in the presence of Mr Kotsifas confirming that they understand the transaction, have received relevant documents and have engaged an independent solicitor on their behalf before whom they will execute the security (JC‑6);
a document headed “Mortgagor Certificate of Witness” apparently signed by Mr Kotsifas certifying that he has explained the transaction to “the signatory” a copy of which document is signed by each of the defendants (JC‑7);
a document headed “Mortgagor Acknowledgement and Waiver” being a document addressed to the plaintiff, apparently signed by each of the defendants in front of Mr Kotsifas acknowledging the following:
3.I acknowledge that I have been notified that only a limited assessment has been made by you of my ability to repay the financial accommodation documented in the Mortgage (Security)/Guarantee and associated documentation.
4.Although advised to consult an accountant in order to discuss the financial risks I am assuming in this matter as Mortgagor/Guarantor, I have of my own free will decided not to consult an accountant to explain the Mortgage (Security)/Guarantee and associated documentation to me and the associated financial risks involved in executing such documentation and in the application of the financial accommodation for the purpose of (left blank).
and that the signatory understands the effect of the transaction and was not placed under any undue influence or pressure to execute the security documents (JC‑8).
The plaintiff also relies on
· a document headed “Declaration under the National Consumer Credit Protection Act 2009” (sic) (JC‑9) apparently signed by the defendants asserting that the credit is for business purposes or investment purposes other than investment in residential property;
· a statutory declaration signed by each defendant as mortgagor apparently before Mr Kotsifas for the purposes of the Sale of Land Act 1962 (JC‑10); and
· a document headed “Appointment to act as finance broker to negotiate loan as sole and exclusively mandate agent”, apparently signed by each of the defendants before Mr Triantos (JC‑32). This document is expressed to be a request on behalf of the defendants to Mr Triantos to arrange a loan in the sum of $366,000 for 12 months at 10.25% interest. It states in the body of the document that “Particulars relating to my financial position and to the property are attached”. The second half of the document is separately signed and is expressed to be an authority to deduct fees from the $366,000 for a loan to Comande Developments “against” a property with the same address as the property expressed as the security in the Loan Agreement as between the defendants and Comande Developments.
On the basis of these matters, the plaintiff says that even if the defendants have a good cause of action or causes of action as against their son Joe, Mr Triantos, Mr Kotsifas or one or more of them (as the defendants contend)[26] or as against their daughter (the defendants have already taken proceedings against her), they have no good defence as against the plaintiff and accordingly the judgment should not be set aside.
[26]Affidavit of Antonio Comande sworn 25 February 2013 at [34].
Is there an arguable defence against the plaintiff?
As indicated in the course of argument at the hearing, I approach the consideration of the proposed defences on the basis that the defendants must show an arguable defence by reason of the misrepresentations or wrongdoing of others or their misapprehension as to the nature of the transaction as against the plaintiff. In Amadio an elderly couple with limited English signed a mortgage over their property at the request of their son and for the benefit of his company, on the basis that he told them the mortgage was for a particular amount and limited time, when in fact the mortgage was not so limited and contained a guarantee of the whole of the company’s indebtedness to the bank. Thus far the facts resemble the facts in this case. The High Court held by majority that the mortgage and guarantee should be set aside, but in reaching that conclusion it was not sufficient that the mortgagors were under a special disability or disadvantage – what was also essential was that this special disadvantage was “sufficiently evident” to the other party to make it unconscionable for it to accept the weaker party’s assent to the transaction, without ensuring that that weaker party obtained independent advice.[27]
[27]Op cit, at p474 per Deane J. See also Mason J at p462 and Wilson J at p469.
Thus what must be shown here by the defendants is not just that they have an arguable case that they were under a special disadvantage and misunderstood the transaction; but that, at least on the evidence before me, arguably the plaintiff knew or ought to have known of that special disadvantage and did not take adequate steps to ensure they received independent advice.
The plaintiff relies on the apparent independent advice provided by Mr Kotsifas, as proved by the many documents on which the plaintiff relies. Notwithstanding the multiplicity of these documents, I have concluded that the defendants have, on the material before me, an arguable or prima facie defence or defences against the plaintiff’s claim for possession and as against the claim for debt in respect of the full amount outstanding on the loan.
The defendants say that Mr Kotsifas did not give them any advice and did not witness their signatures on any documents, including the mortgage. In my view, for the purposes of this application that absence of advice and failure to properly witness their signatures can be prima facie imputed to the plaintiff because there is nothing in the evidence before me to show that the plaintiff, through its solicitors, complied with its own requirements in respect of identification of the borrowers by Mr Kotsifas. In the absence of proof of identification, the plaintiff could not have been satisfied according to its own requirements that the independent advice had been given and the mortgage properly witnessed.
The plaintiff’s requirement as to proof of identity is specified as requirement 10 in a letter dated 14 December 2010 from the solicitors for the plaintiff to Mr Triantos, which letter enclosed the documents for execution by the defendants. The requirement is expressed to relate to the two Certificates of Witness (which presumably on execution are the documents exhibited as JC-7). The requirement states:
Please note that the only acceptable form of identification is personal knowledge of witness; driver licence; passport or other photographic identification. Please also ensure that a legible copy of the document evidencing identity is returned together with the mortgage documents. (bolding in the original)
None of the documents in evidence witnessed by Mr Kotsifas or signed by him bear on their face a statement as to how he identified the defendants and the evidence does not contain any document evidencing their identity.
When I put this to counsel for the plaintiff, he submitted that in the absence of proof of identity the plaintiff could legitimately assume that Mr Kotsifas knew the defendants personally, because the plaintiff was entitled to assume that a solicitor would act properly and the only instance in which a document evidencing identity would not be required is personal knowledge. I think this is too long a bow to be drawn. The letter of 14 December 2010 from the plaintiff’s solicitor was quite explicit, as is the pro forma Mortgagor Certificate of Witness. That document required the witness to set out his or her means of identifying the signatory to the mortgage and complete and enclose “Copies of ID”. The means is not completed on either Certificate exhibited as JC-7 and nor are any ID documents in evidence.
In my view the apparent failure of the plaintiff to ensure that the defendants’ identity was proved to the witness means that the plaintiff cannot, on this application, rely on the defendants having obtained independent advice, so as to defeat any claim that it took unconscientious advantage of the defendants’ special disadvantage in entering the transaction. The next question becomes, is it arguable that the plaintiff was sufficiently on notice of that special disadvantage to mean that the Amadio defence is arguable?
In my view, is it arguable on the evidence before me that the plaintiff should have been aware that the defendants relied on their son (or perhaps both children) for an explanation of the transaction. The plaintiff was certainly aware that the stated purpose of the loan was to be on lent to a company, which on the defendants’ evidence was controlled by their son. That fact (assuming that evidence to be correct) would have been evident if a company search had been undertaken. Although there was on the face of the transaction some benefit to the defendants, being refinance of the existing loan, that loan was for less than half of what was now to be lent, and the difference in the interest rate to be paid by the defendants and that to be charged by them was not substantial.
Further, on the evidence before me there was no enquiry made by the plaintiff as to the defendants’ capacity to repay the loan, other than valuation of their property which was to be the security and the obtaining of the Loan Agreement between Comande Developments Pty Ltd and the defendants. No documents or other communications passing between the broker Mr Triantos and the plaintiff are in evidence before the plaintiff’s letter of offer of 8 December 2010 to Mr Triantos. If there were such documents or communications, they may on discovery cast more light on what the plaintiff did know or ought to have known about the defendants and the purpose of the transaction.
Critically for the purposes of this application, there is no evidence of any financial information requested of the defendants as to their capacity to repay other than by sale of their home or by exercising any remedies they had under the Loan Agreement. Further, that document itself should have occasioned some concern and so more enquiries. It does not show any involvement by a solicitor; it describes the borrower by a business name rather than as an individual or a company which can be sued; it contains no detailed terms as to repayment and security as would be usual in a commercial loan; nor does not contain any express charge over the property or obligation to enter into a mortgage.
In particular, there is no evidence of any enquiry by the plaintiff as to the ownership of Comande Developments, which on the defendants’ evidence would have revealed a company owned by the defendants’ son (which as indicated should have caused more concern, not less); as to ownership of the security that entity was apparently to give under the Loan Agreement between it and the defendants; nor as to the value of the entity’s equity in that security, if indeed it was the registered proprietor.
Thus, as far as the plaintiff knew on the face of the document, the defendants may have had no real remedy against Comande Developments in the event of default by it, and so no real prospect of complying with their loan from the plaintiff other than by their own means, about which nothing, on the evidence before me, was known, other than their ownership of a property. The plaintiff knew from the valuation obtained by it or supplied to it before its letter of offer[28] that that property was a three bedroom dwelling in a residential area and so could reasonably have assumed it was the defendants’ home.
[28]JC-37
In the absence of proper enquiry by the plaintiff lender as to the defendants’ capacity to repay the loan other than by sale of what the plaintiff knew or could reasonably have assumed was their home, the issue of unconscionability by virtue of asset based lending could be said to arise as in Elkofairi v Permanent Trustee Co Ltd[29] (“Elkofairi”).
[29][2002] NSWCA 413
The plaintiff relies on the indefeasibility of the mortgage once registered. In my view, if there is an arguable defence based on Amadio then the judgment should be set aside notwithstanding these usual principles of indefeasibility. The mortgage was set aside in Amadio itself. Further, if it is subsequently established that what the defendants say is correct, and Mr Kotsifas was not present when they signed the mortgage, and there is some basis for imputing knowledge of that omission to the plaintiff, then that may constitute a separate basis for attack on the mortgage, consistently with Australian Guarantee Corporation Ltd v De Jager.[30]
[30][1984] VR 483
Conclusion
I conclude that the defendants have shown a prima facie or arguable defence as against the plaintiff and there are no factors that otherwise tend against setting aside the judgment, subject to the plaintiff’s submission that setting aside should be conditional, which I discuss below. As indicated earlier, the authorities show that entry of default judgment without warning to a solicitor known to act for the defendant can also be a factor to be taken into account in setting aside a judgment, although the judgment is regularly entered. In the particular circumstances of this case it is not necessary to consider that factor further.
Should the setting aside of the judgment be conditional?
The plaintiff contends that even if an arguable defence is shown, setting aside the judgment should be conditional on the defendants paying to the plaintiff that amount of the debt that constituted a benefit to them, being at least the pay out figure of the BankWest loan ($171,593.40) together with the sum of $3000 received by them personally on settlement.
There is force in this submission. In Elkofairi the Court held that although the transaction as a whole was unconscionable, because the borrower received some benefit in the form of refinance of the existing mortgage, she could obtain the relief she sought of setting aside the transaction only on payment to the lender of that benefit. Further, on the defendants’ own case, they knew that the purpose of the documents they were signing was to give security over their home in respect of a loan, although they thought it was only to refinance the existing BankWest loan.
I have given the plaintiff’s submission considerable thought. There is no express power in r21.07 to set aside a judgment on terms, but the commentary in Civil Procedure Victoria gives examples as to where this has been done. Further, the rule does give express power to vary a default judgment, as well as set it aside.
On balance, I have concluded that if the defendants are to be required to pay any portion of the debt, that should only be determined following trial, when all the evidence is given, or at the very least by virtue of specific application directed to that end, which perhaps should only be made after further elucidation of the facts by way of discovery. I do not express any concluded view as to whether or not further elucidation of the facts by way of discovery would be appropriate before any application for summary judgment as to part of the debt.
I have reached this conclusion principally because the Court of Appeal was strongly of the view in Lau[31] that an application to set aside default judgment is not the occasion for detailed determination of the facts as against the defendant. The discussion in that case focused on findings by the judge at first instance as to the strength of the proposed defence, where that finding was arrived at by assessment of the defendant’s credibility. The plaintiff’s submission here is different, and relates to the gaining of a benefit or whether or not the defence is as to the whole of the debt. Nevertheless, in my view Lau is still an applicable caution against too great an entry into the field of final determination on an application to set aside default judgment. Any judgment, even as to part of the debt, would necessarily at this stage be on the basis of partial examination only of the facts relating to the transaction.
[31]Lau v Citic Australia Commodity Trading Pty Ltd [1999] VSCA 34
I am also concerned that the plaintiff’s submission was not the subject of detailed argument as it would be if judgment for a lesser amount was at the heart of the application before the Court. There is also the concern that the matters alleged against Mr Kotsifas are very serious, and may require exploration at trial. These matters affect the plaintiff at least to the extent that it failed (on the evidence before me) to require compliance with its own requirements of the independent legal advisor.
For these reasons I will set aside the whole of the judgment without condition as to payment of a portion of the claimed debt.
Orders
I will require the parties to prepare a minute of orders to reflect these reasons and will hear them further as to the form of the orders and costs if required.
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