National Australia Bank Limited v Zeene

[2015] NSWSC 608

Supreme Court

New South Wales

Medium Neutral Citation:	National Australia Bank Limited v Zeene [2015] NSWSC 608
Hearing dates:	18 August 2014
Date of orders:	22 May 2015
Decision date:	22 May 2015
Jurisdiction:	Common Law
Before:	Hidden J
Decision:	Third defendant granted leave to re-plead
Catchwords:	CIVIL PROCEDURE – application by 3rd defendant to file amended defence
Legislation Cited:	Contract Reviews Act 1980
Cases Cited:	Commercial Bank of Australia Ltd v Armadio (1982-83) 151 CLR 447
Category:	Principal judgment
Parties:	National Australia Bank Limited (plaintiff) Peter Elias Zeene (1st defendant) Cherylyn Tonia Zeene (a/k/a Cherylyn Tonia Dean) (2nd defendant) Eileen Dean (3rd defendant)
Representation:	Counsel: A Kaufman (plaintiff) R Lee (3rd defendant) Solicitors: Gadens Lawyers (plaintiff) Morgan Ardino & Co Solicitors (1st defendant) The People’s Solicitor (2nd defendant) Gounder & Associates Lawyers (3rd defendant)
File Number(s):	2014/74320

Judgment

1. The plaintiff, National Australia Bank Limited, has brought proceedings against the defendants for possession of mortgaged property and recovery of amounts outstanding under two loans. The three defendants are Peter Zeene, his wife, Cherylyn Zeene, and Mrs Zeene’s mother, Eileen Dean. In March 2011 the parties entered into two loan agreements, the first for $100,000 and the second for $1,150,000. Both loans were secured by mortgages over 3 home units at Woy Woy, owned by Mr and Mrs Zeene, and a property at Dulwich Hill owned by Mrs Zeene and Mrs Dean.

2. In April 2013, the Bank issued default notices in respect of both loan agreements. On 6 March 2014, Mr and Mrs Zeene sold one of the Woy Woy units. The proceeds were used to pay out the loan under the first agreement and reduce the amount owing under the second. On 11 March 2014, the Bank issued a statement of claim seeking possession of the remaining security properties and recovery of the outstanding debt.

3. Before me is a motion by Mrs Dean, the third defendant, for leave to file an amended defence. This aspect of the matter has a procedural history that is not necessary to recount, except to note that an earlier defence, filed on 19 May 2014, was struck out by Davies J on 9 July 2014. The present motion was filed in accordance with directions by his Honour on 31 July 2014.

4. Judgment has since been entered against Mrs Zeene, the second defendant, for the amount outstanding, pursuant to paragraph 4 of a consent judgment filed on 14 July 2014. The other paragraphs of that document relate to possession of the security properties, but that issue remains outstanding.

5. Attached to Mrs Dean’s motion is a draft amended defence. Counsel for the Bank, Mr Kaufman, submitted that leave to file it should be refused, arguing that the pleading is deficient in a number of respects. Firstly, he noted that the proposed amended defence does not admit paragraph 1 of the statement of claim, which asserts that the Bank “is a compony duly incorporated and entitled to sue in its corporate name.” The previous defence which Davies J struck out admitted that paragraph. Mr Kaufman referred to UCPR rule 12.6, dealing with the withdrawal of matters in a defence or subsequent pleading. Sub-rule (2) provides that “a party may not withdraw any admission, or any other matter that operates for the benefit of another party, except with the consent of the other party or by leave of the court.” By sub-rule (3) such a withdrawal is to be made “by filing a notice of withdrawal stating the extent of the withdrawal.” Mr Kaufman pointed out that sub-rule (3) had not been complied with and leave under sub-rule (2) had not been sought.

6. The proposed defence admits the two loan agreements and the mortgage over the Dulwich Hill property. It does not admit default or entitlement to possession of the property and recovery of the balance said to be owing. It is what is then pleaded which is in contention.

7. Paragraph 7 has 13 sub-paragraphs. In summary, it pleads that Mrs Dean was an 81 year old woman, a retired pensioner of limited means, who was deaf. She was totally dependent upon her daughter, Mrs Zeene, “for all her interactions with the outside world”, and was in a relationship of trust and confidence with her. The Dulwich Hill property was her home and primary asset. The loan agreements “represented an inherently improvident bargain” for her. She had no interest in the purpose of the loan, which was the “joint venture” of Mr and Mrs Zeene, and she received no benefit from the agreements. She did not seek or obtain independent financial and or legal advice before entering into them.

8. All this, it is claimed, the Bank knew or ought reasonably to have known. In particular, it is asserted that the Bank showed no interest in Mrs Dean’s ability to service the loan, and was aware of the relationship of trust and confidence between her and her daughter and her vulnerability to “duress” by her daughter. It is also alleged that the Bank failed to take any steps to ensure that Mrs Dean was made aware of the risks associated with the agreements.

9. Paragraph 8 pleads that by reason of these matters, the agreements were unjust in the circumstances relating to them at the time they were made. Paragraph 9 pleads that Mrs Dean was in a position of special disadvantage (including vulnerability to duress) at or about the time of the execution of the agreements, and that the Bank knew or ought to have known of that special disadvantage. Accordingly, it would be unfair and unconscionable for the Bank to be permitted to rely upon the agreements, and it should be precluded from doing so.

10. Paragraph 10 claims relief by way of an order that the agreements be set aside under the Contracts Review Act 1980 or under the general law. Alternatively, orders are sought declaring the agreements to be void or varying them in such manner as the court sees fit.

11. In addition, paragraph 11 claims that the plaintiff failed to follow its policies and procedures, knowing the special situation of Mrs Dean.

12. Mr Kaufman referred to the pleading in paragraph 7 of Mrs Dean’s age and deafness, her limited means and the fact that the home was her primary asset: sub-paragraphs (i), (iv) and (vii), and of her dependant and vulnerable relationship with Mrs Zeene, together with the Bank’s awareness of that relationship: sub paragraphs (ii), (ix), (x) and (xi). He submitted that it is unclear how these matters are alleged to result in the agreements and the mortgage being unjust in the circumstances at the time they were entered into. He noted that the document is silent as to how Mrs Dean’s relationship with her daughter bore upon her becoming a party to the agreements and the mortgage, and how is it alleged that the Bank was, or ought to have been, aware of any such issue.

13. As to other matters pleaded in paragraph 7, Mr Kaufman argued that they were not maintainable on the evidence. Copies of the loan agreements, the mortgage and accompanying documentation are annexed to the affidavit of his instructing solicitor, Mrs Anna Chochula, sworn 18 August 2014. As to the pleading in paragraph 7 that the agreements were an improvident bargain for Mrs Dean, and that she had no interest in the purpose of the loans and received no benefit from them: sub-paragraphs (iii), (v) and (xi), he noted a Direction to Pay and Undertaking, signed by the three defendants, which directed that over $1,000,000 from the advanced funds was to be paid to the Westpac Banking Corporation. While it is not clear on the evidence before me, I understand this to have been for the purpose of discharging a pre-existing mortgage on the Dulwich Hill property. This appears from an exchange between Davies J and Mrs Dean’s solicitor, Ms Gounder, on 9 July 2014.

14. As to the allegation that the Bank failed to take any steps to ensure that Mrs Dean was aware of the risks associated with the agreements: sub-paragraph (xiii), he referred to a section in each of the agreements headed “Acceptance by Customer”, which contained an acknowledgement by the defendants that the loan was secured and a declaration that they understood that the secured property would be at risk in the event of default. In addition, the mortgage signed by Mrs Dean and her daughter contained an acknowledgment of having received, read and understood a copy of it before signing it, and an understanding of its purpose as security for repayment of the amount owing under the loans. Further, all three defendants signed certificates confirming they had read the mortgage documents and the loan agreements, and that they understood their nature and effect and the consequence of any breach, and acknowledging that the Bank had given them the opportunity to obtain independent legal advice before signing the documents.

15. As to paragraph 9, alleging unconscionable conduct on the part of the Bank, Mr Kaufman referred to the examination by Deane J of the long standing equitable jurisdiction to relieve against unconscionable dealing in Commercial Bank of Australia Ltd v Amadio (1982-83) 151 CLR 447. His Honour said (at 474):

1. “The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. “

16. Mr Kaufman argued that paragraph 9 does not plead the elements of the basis for a relief expounded in this passage, alleging no more than that Mrs Dean was in a position of special disadvantage of which the Bank was, or ought to have been, aware.

17. As to the relief sought in paragraph 10, Mr Kaufman pointed out that this should be subject of a cross-claim against the Bank. Mr Kaufman noted that Mrs Dean had not sought to file such a cross-claim. As to Paragraph 11, he submitted the bold assertion that the Bank had failed to follow its policies and procedures, knowing Mrs Dean’s special situation, does not give rise to any arguable defence.

18. In answer to questions by Davies J when the matter was before him on 9 July 2014, Ms Gounder said that her client’s defence was that she was an elderly woman with a severe hearing impairment, that she did not get independent legal advice and the Bank’s documents did not show her that she was supposed to, that she did not benefit from what was a joint venture of the other two defendants, and that it was never explained to her properly that her property “might possibly be taken off her.” Ms Gounder characterised her as effectively a guarantor, saying that she was only helping Mr and Mrs Zeene and that they would “get her home back.”

19. Before me Mrs Dean was represented by Mr Lee of counsel, who sketched her defence in a similar way. He said that Mrs Dean had “some disability”, and that the Bank, aware of this and aware that she did not get independent legal advice, proceeded to lend the money. In doing so, he said, the Bank did not follow its own policies. Mrs Dean was not in a position to be aware of what was actually occurring and, being deaf, had to rely on her daughter to give her all the information she required. Relying on her daughter, she signed the documentation at the points where her signature was required. It is these matters, he said, which are addressed in paragraph 7 of the proposed amended defence.

20. Mr Lee did not address the pleading deficiencies identified by Mr Kaufman. I accept Mr Kaufman’s admissions about those deficiencies, and I would not grant leave to file the proposed amended defence. However, I have come to the conclusion that Mrs Dean should be allowed one further opportunity to plead her case. I have done so only after careful consideration, given that two unsuccessful attempts at the pleading have been made. I am also mindful of the delay in the progress of this matter (to which, I acknowledge, I have contributed by my own delay in delivering this judgment). I trust that Mrs Dean’s legal advisors will also give careful consideration to the merit of Mrs Dean’s case, in the light of the matters of evidence also referred to by Mr Kaufman.

21. I propose that Mrs Dean should be allowed a period of about a month in which to re-plead. If the withdrawal of her earlier admission of par 1 of the statement of claim is to be maintained, r 12.6 would also have to be complied with during that period. I shall direct that the matter should be placed in the possession list on a date shortly after the expiration of that period. I shall consult the parties about the formal orders to be made.

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Decision last updated: 22 May 2015