National Australia Bank Ltd v Ganesh
[2016] VSC 738
•6 December 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 04098
| NATIONAL AUSTRALIA BANK LIMITED | Plaintiff |
| v | |
| ANANDAVAKKU GANESH | First Defendant |
| GANESH RADHAKRISHNAN | Second Defendant |
| GSQUARE GROUP PTY LTD | Third Defendant |
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JUDGE: | Mukhtar AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 June 2016 |
DATE OF JUDGMENT: | 6 December 2016 |
CASE MAY BE CITED AS: | NAB v Ganesh and others |
MEDIUM NEUTRAL CITATION: | [2016] VSC 738 |
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COURTS AND JUDGES ― Summary judgment application ― Multiple banking facilities and securities ― Substantial claims ― Litigants in person as defendants ― Unclear defence ― Some objective facts arousing matters to investigate or explain dealing ― Court’s unavoidable inquisitorial task in assessing prospects of success or desirability of matter proceeding to trial ― Summary judgment allowed partially
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PPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Segal | Gadens |
| For the Defendants | The first and second defendants in person |
HIS HONOUR:
Between July and August 2009, the first and second defendants (who are husband and wife) obtained from the National Australia Bank financial accommodation in the form of loans and facilities under six separate dealings. The third defendant Gsquare Group Pty Ltd of which they are both directors, was a guarantor in the fourth dealing. In the aggregate, the principal magnitude of the loans or financial accommodation was $1,425,500. The security for the loans included mortgages over three pieces of land: 24 Plumpton Avenue, Oak Park (the family home owned by the first and second defendants); 29 Glen Drive, Rye (owned by the first defendant); and 20 Marcia Avenue, Rye (owned by the third defendant).
Avoiding details for introductory purposes, the Bank’s case on this, an application for summary judgment, is that there were defaults under all six facilities by the borrowers in making due payments. By December 2012 there were multiple notices of default under the first to fifth facilities. In early 2013 the borrowers lodged a complaint with the Financial Ombudsman Service. In October 2013, the first and second defendants sold voluntarily their home at Oak Park, as mortgaged to the Bank, for $771,250. There was a dispute about the intended distribution of sale proceeds. In November 2014, the Bank commenced proceedings in this Court in which a Judge in the Practice Court on 4 December 2014 ordered that $722,734 of the proceeds of sale be paid to the Bank to repay or to close or to reduce the balance owing on the second, third, fourth and first facility.[1] The financial upshot was that, by that court order, the moneys owing under the first, third and fourth facilities were paid out completely. Remaining proceeds of $109,377.49 were applied, as allowed under the court order, in reduction of the debt owing under the second facility. That left a debit balance on that second facility of $26,081.81 as at 31 December 2014. The only security for moneys due on that second account was the Oak Park property, the sale of which meant that, after application of the proceeds under the court order, the $26,081.81 balance of moneys due under the second facility were unsecured. There was no guarantor of that debt.
[1]See order of Rush J, exhibit ‘EG-38’at CB355. That is the ordering of accounts in the judge’s order.
On 27 April 2015, the bank made a demand and issued a mortgage default notice under the sixth facility. It was over its limit of $360,000 by $46,745.82.
As at 18 April 2016, the total amount under the second facility was $31,321.53. The total amount owing under the fifth facility was $443,676.52. The total amount owing under the sixth facility was $404,119.70. Interest was accruing daily on these accounts at a rate of 4.6 per cent per annum.[2]
[2]See exhibit EG-40.
The bank has applied for summary judgment for moneys due under the second, fifth and sixth facilities and for possession of two properties mortgaged as security for the payment of moneys under those facilities. The properties are at 29 Glen Drive, Rye (owned by the first defendant) and 20 Marcia Avenue, Rye (owned by the third defendant, a guarantor). As at 22 June 2016 when this application was heard, the judgment sought as against the first and second defendants was the total of $886,751.88 being the addition of $33,346.94 under the second facility; with $447,151.88 under the fifth facility; and with $406,253.06 under the sixth facility. As against the third defendant, the judgment sought was for the sum of $447,151.88 under its mortgage and guarantee given as security for the fifth facility.[3]
[3]See para 6 - 9 of the affidavit of N Minassian, sworn 21 June 2016.
As is often the case in these recovery and mortgage enforcement cases, the Bank’s case was sought to be proved objectively by a substantial body of what can be called transactional documents (verified by a recoveries manager who was not personally involved in the dealings) such as the agreements or letters of agreement, antecedent letters of offer and acceptance, credit contracts and loan agreements, instruments of guarantee and mortgage, bank statements of account, loan draw down documents and other contemporaneous documents, default notices, and certificates of indebtedness under the loan facilities or securities. In this case, the Bank’s case has been presented with an orderly and paginated compilation of such documents and with one major exception, concerning the fifth facility, there seemed to be no controversy about them. For ease of reference, throughout this judgment I will use the notation ‘CB’ to mean the page number (which go from pp 13 to 397) of the 44 exhibits to the affidavit of the manager Edward Grieve sworn 18 April 2016.
The first and second defendants, who control the third corporate defendant, are litigants in person. A good part of the lengthy hearing was taken up with the Court looking to the many documents adduced into evidence by the Bank, to understand the common securities, and above all to elicit the precise grounds upon which the defendants were seeking to resist summary judgment. The first defendant Mrs Ganesh filed two affidavits in opposition to the application on behalf of other defendants.[4] Her affidavits are not clear, but from its contents and from what was said in court and the defence filed, it appears the controversy is only about the fifth dealing or facility yet she seeks to spread the controversy now to all of the dealings.
[4]Sworn 6 May and 16 May 2016.
The fifth facility was for $396,000 and according to the documents was for a refinance of a previous facility. The security under that fifth facility was fourfold: (i) a mortgage over the Oak Park property (which has been sold); (ii) a mortgage over 29 Glen Drive, Rye (which was already security under the fourth facility); and (iii) a guarantee from the third defendant with (iv) a supporting mortgage over 20 Marcia Avenue, Rye (which was already in existence as a security under the fourth facility).
The defendants say the fifth facility has been ‘fabricated’. Their defence says the fifth facility ‘…was never executed by the Defendants’; that it was ‘foisted’ on them and that ‘When the Plaintiff, which has fiduciary obligations to the Defendant, makes major changes to credit contract terms without proper disclosure and consent, the Defendants are not required to comply with obligations for any facilities covered by any securities listed in the alleged Fifth Agreement’. In court, I sought and then pressed for explanation of these conclusions. It was put in various ways, but as I construe their statements and materials, they contend adamantly that they were unaware of the alleged fifth facility under which several of the securities had been cross-collateralised by the plaintiff. They say they ‘categorically deny having Accepted the Fifth Agreement whatsoever’ and say that they signed contemporaneous documents in good faith believing that such documents were going to be used by the bank to set up an ‘off-set account, and for no other purpose’ to be connected with a pre-existing secured facility with the Bank.[5] I shall return to the question of an offset account later because there should be no doubt they sought such an account.
[5]See para 31 of the first defendant’s affidavit, 6 May 2016.
I was not sure, but it sounded like a plea of non est factum (which, with a heavy onus, requires them to show that the document signed was radically or fundamentally different from that which they thought they were signing) for, despite the language in their material, they are not saying they did not sign the documents for the fifth facility. They did sign. And they got a financial benefit, for their liability on the pre-existing facility was paid out. Their grievance is that the terms of the fifth facility, which they say was not accepted by them as such, meant that security given for the first, second, third and fourth facilities ended up becoming security for the fifth facility which was not something to which they had agreed and which, if enforced, would substantially enlarge their exposure and liability position to the Bank in a way which they had not agreed. They say they ‘have been pushed pillar to post by the Plaintiff’ and ‘The Defendants cannot comprehend how the Plaintiff is failing in their own compliance standards and have also chosen to blatantly lie in a sworn affidavit to the Supreme Court’.[6]
[6]See para 38 of the first defendant’s affidavit, 6 May 2016.
But, they seem to be going beyond the validity of the fifth dealing to say that the cross-collaterisation, as they describe it, under the fifth facility (the validity of which they deny) had the effect of changing their obligations under all other facilities without their consent and therefore they have not defaulted and did not owe any obligations to the Bank as of 23 April 2010.[7] But this perplexing position pays no regard to the fact that court orders, to which I have already referred, allowed for the application of moneys to those accounts in default. There is, it seems, no going back.
[7]See para 13 of the first defendant’s affidavit, 6 May 2016.
Applications for summary judgment can involve extensive facts and documentation. If there are facts to be investigated or tested by the rigours of trial, it is a strong reason to refuse such an application. Here, the Bank’s case was that the objective documented facts were unassailable: the borrowers, with financial experience, signed the contractual documents for the fifth facility and at law are bound. Subjective beliefs do not govern contractual relations; the moneys had been advanced and benefits conferred thereby; and the risk for which security was given has come home.
I was told the second defendant is an ex-employee of the Bank. Given the substantial amount of the claim and the relief, one would have expected the defendants to obtain legal representation. I encouraged it, to no avail. The Court had to press the borrowers in court in trying to go behind their assertions about wrongdoing by the Bank to understand their defence and its factual basis, and to assess the prospects of success for the purposes of s 63(1) of the Civil Procedure Act.
In Downes v Maxwell Richard Rhys and Co Pty Ltd,[8] the Victorian Court of Appeal made reference to the recognition by the High Court in Neil v Nott[9] that a frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy. The Court ends up, as happened here, practically having to act in an inquisitorial way. That unavoidably causes delay (as default interest is accruing), and caution. An analysis of the case made it unavoidable for the Court to reserve its decision and to now narrate in detail the course of the dealings between the parties and the circumstances, objectively at least, leading up to the creation of the fifth facility and the financial dealing which it secured. As a partial aid to the narrative, attached to this judgment is a reproduction of a table prepared by the Bank’s counsel to show, at a glance, the six dealings. The table identifies each of the six facilities, but not in chronological order. It is also incomplete in that it does not refer to another facility which is not sued on but which, as I will expose, plays an essential part in an examination of the case.
[8](2014) 46 VR 283, 289.
[9]68 ALJR 509.
The primary fact, by which to commence, is that the borrowers were joint proprietors of land at 24 Plumpton Avenue, Oak Park. They were registered on 4 August 2003. On that that same date the Bank was registered as sole mortgagee.[10] The mortgage was dated 15 July 2003.[11]
[10]CB 40.
[11]CB 42.
The first facility
The origin of this facility was a letter from the Bank to Mrs Ganesh, the first defendant, dated 29 June 2009.[12] It came from the Glenroy branch as did all other correspondence in this case. The letter informed her that the Bank had approved the grant of a NAB Portfolio Facility to a limit of $500,000. This facility permitted operation under five sub-accounts. The borrowers both signed an acceptance of this offer on 7 July 2009.[13] The letter included the actual facility agreement called ‘NAB Portfolio Facility Agreement Details’. That too was signed on the same date by the borrowers.
[12]CB 14.
[13]CB 17.
The relevant terms of the facility need not be recited. What matters for present purposes is that the security for the borrowers’ obligations under this facility was the existing registered mortgage over the land at 24 Plumpton Avenue in Oak Park. A bank statement for this account in evidence shows drawing on this facility on the linked sub-accounts.[14]
[14]CB 33-38.
The second facility
By a letter dated 12 June 2009 the Bank offered the borrowers three sources of credit: an NAB Variable Rate Interest Only Home Loan for $119,500; an NAB Variable Rate Interest Only Home Loan for $25,000; and an NAB Variable Rate Interest Only Home Loan for $25,000.[15] This was accepted by the borrowers on 24 June 2009.[16] The credit contract for $119,500 is dated 18 June 2009. This was the second facility. It was a 30 year loan. There was an interest only period of five years from the settlement date. The loan was to be paid by monthly instalments. The security for this loan was the registered mortgage over the land at Plumpton Avenue in Oak Park. Bank statements in evidence show a drawdown of $119,500 on 30 June 2009.[17]
[15]CB 56.
[16]CB 58.
[17]CB 80.
The two other loans offered and accepted became the third and fourth facility.
The third facility
Under the written home loan agreement for this facility, the credit was for $25,000 on a loan term of 30 years, with an interest only period of five years. The security was the registered mortgage over the Plumpton Avenue property.[18] Bank statements in evidence show a drawdown of $25,000 on 30 June 2009.[19]
[18]CB 82.
[19]CB 103.
The fourth facility
Under the written home loan agreement for this facility, the credit was for $25,000 on a loan term of 30 years, with an interest only period of five years.[20] The security was the registered mortgage over the Plumpton Avenue property.
[20]CB 105
Thus, for the first four facilities, the only security was the mortgage over Plumpton Avenue.
The facilities after the fourth facility but before the fifth facility
On my examination of the documents, the facts concerning the making of the agreement for the controversial fifth facility cannot be understood without reference to the previous facilities that were granted by the Bank to the borrowers in August 2009 that brought in more securities over land. In the Bank’s affidavit evidence, the documents concerning much of that previous facility are described as contemporaneous documents. But I think they have a far greater importance than has been given to them. Furthermore, the facility that the Bank designates in this case as the sixth facility preceded the fifth facility in a way that causes confusion. On the documents, after the fourth facility, there were two facilities that preceded the fifth facility: one was the sixth facility as it has been called and the other of which is referred to as the ‘previous facility’. On a summary judgment application in which I am placing great reliance on objective and documented facts, close attention must be given to these two dealings that preceded the fifth facility.
By letter dated 5 August 2009 (that is, not long after the fourth facility) the Glenroy branch of the Bank offered the borrowers a NAB Variable Rate Interest Only Home Loan for $360,000.[21] As the second defendant Mr Radhakrishnan was an employee of the Bank, this letter of offer informed the borrowers that: ‘While you or any co-borrower are an employee of a National Australia Group company…you’ll receive all the benefits and concessions listed in the Employee’s Choice Policy on the NAB Intranet…’ At the hearing of this application Mrs Ganesh was intent on amplifying offset arrangements as part of their opposition to the claim. Reference is made in this letter of offer to such an arrangement in this way:
[21]CB-210.
NAB 100% Offset arrangement
As you have taken up the option of a NAB 100% Offset arrangement for your home loan(s), the following transaction account(s) will be included in a NAB 100% Offset arrangement. Please note that this option is only applicable while your home loan(s) have a variable interest rate.
NAB Variable Rate Interest Only Home Loan 89-740-5300
· NAB 100% Offset Account: TBA
As I understand it, in general terms an offset arrangement, or one species of it, permits a customer to offset interest earned on an account with the Bank against a liability for interest to the Bank on another account. I gather that there was a plan to offset rent received from property against interest payable on this account which, I would gather, means no income tax is payable on interest earned. Nothing turns on the operation of such an arrangement but as I shall explain later it seems to have a part to play on the amorphous attack being made on the validity of the fifth facility.
The credit contract for this loan is dated 10 August 2009.[22] This is what the Bank has called the sixth facility. It was accepted by the borrowers on 20 August 2009.[23] The credit amount was $360,000 of which $20,379.84 was expressed to be payable to the Bank for credit fees and charges and $339,620.16 was payable to the borrower or as the borrower could direct. There was an interest only period of five years and the loan was payable by monthly instalments. The security for the loan was a mortgage over land at 29 Glen Drive Rye. The Bank statements in evidence show that a loan drawdown of $339,620.16 occurred on 31 August 2009 with numerous debits including stamp duty and registration on a mortgage and transfer to make up the difference up to $360,000.[24] The statement of account, faithful to the offer, makes reference under ‘Account Details’ to ‘EMPLOYEE CHOICE 100% OFFSET H/LOAN INT ONLY IN AR’.[25] According to title searches in evidence[26] Mrs Ganesh became the sole proprietor of 29 Glen Drive Rye on 15 September 2009. The Bank was registered on title as mortgagee on the same date.
[22]CB 213-216.
[23]CB 212.
[24]CB 234.
[25]CB 234
[26]CB 154.
It appears then, that this sixth loan facility to the borrowers was to enable Mrs Ganesh to purchase the land at Glen Drive, Rye. I was told by her it was a rental property. I gather that the idea of the offset was as between interest payable by the borrowers on this loan and interest payable to them on a designated account in which rent was deposited. I should have been given clear evidence about this by them, or if not, by the Bank.
Soon after the borrowers accepted that so called sixth facility, on 30 August 2009 Mrs Ganesh as purchaser signed a contract of sale to purchase another piece of land at 20 Marcia Avenue in Rye.[27] The contract had a purchaser’s nominee clause. The contract was signed by the vendor on 31 August 2009. The stated price on the particulars of sale document is not clear but it looks like $440,000. A deposit of $21,000 was payable by 11 September 2009 and it looks like the balance was $428,000 on settlement, which was stated to be 25 November 2009.
[27]CB 396.
There is in evidence a letter from the Bank to the borrowers dated 13 November 2009 in which the Bank offered to grant them a NAB Variable Rate Interest Only Home Loan for $396,000.[28] The letter does not say anything about an offset arrangement. The borrowers signed their acceptance of the offer on 23 November 2009, I notice, in the presence of a solicitor in Glenroy.[29] The loan agreement states the amount of credit was $396,000 of which $22,819.84 was payable to the Bank for credit fees and charges, and $373,180.16 was payable to the borrowers or as directed. It was a 30 year loan payable by monthly instalments, with an interest only period of five years. The security for the loan was a guarantee for $396,000 given by the third defendant Gsquare Group Pty Ltd as supported by a mortgage over the land at 20 Marcia Avenue in Rye.[30] It can be concluded this was a loan to finance the acquisition of the Marcia Avenue property by Gsquare Group Pty Ltd as nominee purchaser. I will call this facility specially ‘the previous $396,000 facility’. It is account no. 16-390-4311 and the Bank statement says nothing about an offset.[31]
[28]CB 385.
[29]CB 387.
[30]CB 391.
[31]CB 393.
On 23 November 2009, the third defendant signed a mortgage by its directors, the borrowers.[32] The bank statement of this mortgage account shows on 30 November 2009 a loan drawdown and debits for conveyancing fees and charges (including stamp duty of $21,470) for a total of $396,000.[33] A title search in evidence shows that the third defendant was registered as sole proprietor of the land at Marcia Avenue in Rye on 2 January 2010. On that same day, the Bank was registered as mortgagee.[34]
[32]CB 192.
[33]CB 393.
[34]CB 190.
Pausing there, the position after the fourth facility and before the fifth facility can be restated as follows.
Between August and November 2009 Mrs Ganesh bought and mortgaged Glen Drive in Rye, and her company Gsquare Pty Ltd bought 20 Marcia Avenue in Rye. Mrs Ganesh mortgaged Glen Drive. The security for the money lent for Marcia Avenue was a guarantee and mortgage over that land from the third defendant. The principal borrowers liable for the debt on both facilities were Mrs Ganesh and her husband. They were also the principal borrowers liable on the four facilities in June and July 2009 for which their home in Oak Park was security for an exposure of $669,500. The Bank statements show there was an offset arrangement for the Glen Drive borrowing in place but no such arrangement for the Marcia Avenue borrowing (in which Gsquare Pty Ltd was the owner and mortgagee). It would have been helpful to know from the Bank if the absence of an offset arrangement for the Marcia Avenue borrowing was attributable to the landowner not being the first or second defendants, and to know if the Marcia Avenue property was a rental property.
I come now to the fifth facility.
The fifth facility
The origin of this facility was a letter dated 23 April 2010 from the Bank to the borrowers.[35] That letter offered them a NAB Variable Rate Interest Only Home Loan for $396,000 (the same amount as the existing previous $396,000 facility to finance Marcia Avenue). It was a 30 year loan, payable by monthly instalments, and the interest only period was four years.
[35]CB 128.
This letter of offer explicitly referred to the creation of a ‘100% Offset arrangement’ and said:
As you have taken up the option of a NAB 100% Offset arrangement for your home loan(s), the following transaction account(s) will be included in a NAB 100% Offset arrangement. Please note that this option is only applicable while your home loan(s) have a variable interest rate.
NAB Variable Rate Interest Only Home Loan 17-282-8453
·NAB 100% Offset Account: TBA
The letter of offer also included a separate document called Credit Contract General Details – Home Loan[36] stating the terms of the offer and the provision of credit. It is also dated 23 April 2010 and appears to be signed by the same person as signed the letter of offer, Rajeev Dogra, Branch Manager, Glenroy. That credit contract included a separate document, Credit Contract General Terms clause 6.1 of which states: ‘The NAB 100% Offset arrangement (”arrangement”) is available on request for certain types of loan and deposit accounts’.[37] It is necessary that I refer to clause 6.2 and 6.3 as I try to make sense of this case (with my underlining):
[36]CB 131.
[37]CB 140.
6.2If at your request we agree to you participating in the arrangement, then:
(a)the arrangement only takes effect while your loan account has a variable interest rate;
(b)at any time, and even before the arrangement takes effect (while your loan account has a fixed interest rate):
(i)you may request to vary your participation in the arrangement;
(ii)either you or NAB may cancel the arrangement by giving reasonable notice to the other; and
(iii)if you are in default under this contract, we may cancel the arrangement immediately on giving you notice;
(c)your participating deposit account earns no interest, even if the total balance in any participating deposit account is greater than the applicable balance owing on the loan account. You should monitor the balances of your participating deposit account and loan account to ensure the best results for you.
6.3If a loan account is under an arrangement, you must nominate a deposit account to be linked to the loan account. When calculating your interest charges for a day, the balance owing on the loan account is taken to be reduced by the credit balance of your participating deposit account for that day. If the credit balance of your participating deposit account exceeds the balance owing on the loan account for a day, then no interest charges are payable for that day.
In short then, under such an arrangement, there has to be a nominated participating deposit account and a loan account. The interest earned on the deposit account is offset against the interest liability on the loan account.
There is a discrepancy in dates about which the borrowers raise an alarm as a part of their case that the fifth facility truly was not something to which they assented. The letter of offer and the contract were both dated 23 April 2010. But the standard form acceptance of that offer of credit was signed by the borrowers and dated 29 March 2010. That is odd. The person who signed the letter of offer for the Bank (not named) appears by the signature to be the same person who witnessed the signatures on the acceptance, namely, Rajeev Dogra, Branch Manager Glenroy. The principal deponent for the Bank, whose evidence is based on review of the file and not actively involvement at the time, believes the date on the acceptance was an error. Maybe it was. The borrowers do not positively say their acceptance preceded the offer, nor say what turns on that. The different date is a forensic part of their case that they did not know about this fifth facility until later disputations.
The security provisions in this home loan contract identified the following securities as having been taken, or were to be taken, as security [with my interpolations] –
(a) a registered mortgage over the land in Plumpton Avenue in Oak Park [this was not a security under the previous $396,000 facility];
(b) a registered mortgage over the land at 29 Glen Drive in Rye [this was not a security under the previous $396,000 facility]; and
(c) a guarantee and indemnity by the third defendant Gsquare Group Pty Ltd for $396,000 supported by a registered mortgage over its property at 20 Marcia Avenue in Rye [this was an existing security under the previous $396,000 facility].
The deponent of the affidavit in support of the Bank’s case, informing himself from the banks records and documents, says ‘…the funds advanced under the fifth agreement were used to payout and close a previous account in their names being account number 163904311…’[38] There is no evidence from the Bank’s manager or officer acting at the time to explain the origin of the dealing, given the controversy about it.
[38]Para 53(d).
The banking records and documents in evidence show the fifth facility was used to payout or close the account for the previous $396,000 facility. A Letter of Instruction signed by the borrowers on 28 April 2010 authorised a payout of the previous $396,000 facility deposit into the account for the fifth facility.[39] On the same date the borrowers signed a Business Purpose Declaration under the Consumer Credit Code for the loan under the fifth facility.[40] According to a Bank statement for the previous $396,000 facility[41] the account for that facility was closed on 4 May 2010 with a credit entry of $376,192.04 to give a zero balance. On a limit of $396,000 that left $19,767.16. That amount was credited to the account opened for the fifth facility.[42] On 3 May 2010 there was a loan drawdown into the fifth facility account of $395,960 which together with a debit of $40 for a company search brings the figure to exactly $396,000 being the credit under the fifth facility. That demonstrates, fiscally, the fifth facility was a payout of the previous $396,000 facility. It is noticeable that on the Bank statement for the fifth facility, the words appear: ‘As From 3 May 2010, Account Is In A 100% Offset Arrangement’.[43]
[39]CB 379.
[40]CB 381.
[41]CB 393.
[42]CB 152, on 3 May 2010.
[43]CB 152.
What about security? On 28 April 2010 the borrowers as directors of Gsquare Group Pty Ltd signed a Bank document described as Continued Reliance and Extension of Security, described as being a notice as given pursuant to s 43(2) of the Consumer Credit Code.[44] That document gives express notice that ‘We confirm that each security detail below is a continuing security and I/we accept the extension of each such security detailed to my/our liability under the following credit contract or guarantee’. The security identified is the registered mortgage over the land at 20 Marcia Avenue in Rye which had been given under the previous $396,000 facility. By that action, the security under the previous $396,000 facility was made applicable to the security for the fifth facility.
[44]CB 374-5.
There is other contemporaneous documentation. In evidence is a ‘Letter of Instruction – Loan Drawdown’.[45] That document is an authority given by the borrowers to close the previous $396,000 facility and in effect disburse a total of $396,000 into the fifth facility. Again, this is all consistent with a payout arrangement. Another document was a ‘National 100% Offset Application’.[46] The document is hardly legible but doing the best I can it is an application dated 28 April 2010 signed by the borrowers in which they applied to participate in the National 100% Offset arrangement –
…to trim time and dollars off my/our National loan and potentially save tax by linking my/our savings and/or investment account. I/we acknowledge that the Offset Arrangement is governed by the terms and conditions relating to … Offset Arrangements as set out in the credit contract…[illegible].
The form identifies the borrowers by customer number. And it nominates their loan account to be included in the National 100% Offset as being the fifth facility, being account 083-262.[47]
[45]CB 379.
[46]CB 376.
[47]This is the BSB Number shown for the fifth facility in CB 152.
Thus as I follow the documentation (and this really should have been something fully explained on affidavit by the Bank rather than leaving it to the Court to have to do all the detective work) the fifth facility replaced the previous $396,000 facility as part of an arrangement to enable the borrowers to enjoy the benefits of the offset arrangements that were not in place under the previous $396,000 facility. But — this seems to be the general grievance of the borrowers — the fifth facility enlarged the security by including a taking additional security over Plumpton Avenue Oak Park and Glen Drive in Rye. What are the differences in burden? Under the previous $396,000 facility the total interest charges were $511,232 with 5 years interest only. The fifth facility had a 4 year interest only period, and total interest charges were $576,161. Under the previous $396,000 facility, the variable rate was 6.24% and the interest only period was 5 years. Under the fifth facility, the letter of offer said the ‘Current Employees Choice variable interest rate’ was 6.24% but as I read the contract it says the rate was 6.99% and the interest only period was 4 years.[48] Yet the Bank statements for their facility state the rate at 6.24% which increased to 6.49% after the commencement of the offset arrangement.[49]
[48]CB 131.
[49]CB 152.
From all these details, it is hard to know with any certainty for present purposes whether the fifth facility, as well as enlarging securities also imposed more onerous financial terms or interest rates and if so whether that was attributable to the offset arrangement as sought by the borrowers.
It is worth repeating, to follow the story, that in October 2013 the borrowers sold the secured property in Oak Park to meet their debts. On 4 December 2014, Rush J, as Judge sitting in the Practice Court, made the order for the distribution of funds to the first, second, third and fourth facilities. That distribution has occurred, with a shortfall on the second facility. The subject matter of that Court order is closed. What remains owing is the balance of the debt under the second facility, and the debt under the fifth and sixth facilities. A notice of default under the sixth facility was served in April 2015.[50] The indebtedness on these three remaining accounts is the subject of this summary judgment application. As at 21 June 2016 the remaining unsatisfied debt on the second facility is $33,346.94; on the fifth facility it is $447,151.88; and on the so called sixth facility (which on my narrative is the $360,000 loan to the borrowers to purchase Glen Drive in Rye) the debt is $406,253.06.[51]
[50]CB 302, 306.
[51]See affidavit of Nora Minnasian sworn 21 June 2016, para 10.
What are the defences?
A notice of defence and counterclaim was filed by the borrowers. The ‘Summary’ in that document commences by saying that the fifth facility was never executed by them, and they ‘Are not required to comply with obligations for the facilities covered by any securities listed in the alleged Fifth Agreement’. But, the remainder of the defence and the two affidavits in opposition do not say that the borrowers disavow actually signing the fifth facility. Their case seems to be that they were unaware of the fifth facility until they were furnished with details during the course of their complaint to the Financial Ombudsman Service. Their grievance seems to be that they were not aware of the ‘changed liability position’ under the fifth facility, that is, the enlargement of the security from those that were procured under the previous $396,000 facility. It is in that sense that they seek to impeach the validity of the fifth facility. More particularly, their defence states in paragraph 31(b) –
The Contemporaneous documents [i.e. the various documents I have identified as associated with the fifth facility] were all signed in ‘good faith under the belief and expectation that these documents were going to be used by the Plaintiff to set up an offset account and for no other purpose.
Thus as I perceived it, they are saying that they did not ask for a refinance or altered arrangements to payout the previous $396,000 facility. All they wanted, and thought they were getting, was an offset account, and they signed up for the fifth facility believing that was what they were signing up for. Yet, they expostulate, they are now being sued under a fifth facility that replaced the previous $396,000 facility. The allegations of dishonesty and wrongful conduct seem attributable to the ‘foisting’ of an agreement which enlarged their security obligations.
But their defence goes further than the parameters of the fifth facility. They contend that the unenforceable fifth nullifies the first, second, third, fourth and sixth facilities, and all claims made by the Bank for facilities covered by the securities in the fifth facility are not payable. They ask for the entire settlement funds from the sale of 24 Plumpton Avenue to be returned to them and interest payments to be returned. And they ask that the previous $396,000 facility over Marcia Avenue be restored with only Marcia Avenue as security.
How and in what way their grievance about the fifth facility somehow relieves them from other burdens under all other facilities is not at all clear to me, particularly as, in the events that have occurred, the borrowers have already voluntarily sold their Oak Park property to meet the debts they could not service, and the Court order has been made permitting the Bank to apply the proceeds to pay out indebtedness under the first, second (partially), third and fourth facilities. I think it is preposterous to contend that their challenge to the fifth facility collaterally nullifies all other facilities and securities. There is no challenge to the lawfulness of those other facilities. Obligations were unmistakeably incurred; benefits have been conferred; defaults have occurred; and, as I would emphasize, Court orders have been made for distribution of funds from a voluntary sale. Accounts have been closed. The question on this application is whether there is a case to be investigated or the prospects of success of their challenge about the legal enforceability of the fifth facility in circumstances where that facility gave them the interest offset they were looking for, and paid out the previous $396,000 facility for which they were liable to the Bank anyway.
The facts as I have exposed them from the documents concerning the fifth facility show that the previous $396,000 facility was not set up with a 100% offset arrangement, but the fifth facility was so set up as from 3 May 2010.[52] Thus, there is a convergence of the facts when the borrowers say they wanted an offset arrangement. That much is clear. There is also sufficient from the documents to show that a 100% offset arrangement required a special account to be set up, and, I can only suppose, that is what explains the necessity to create the fifth facility and close the previous $396,000 facility. And when the borrowers say they thought they were signing documents believing them to be documents to set up the offset arrangement, there is plausibility to that; but it may only be part of the story. At law, it is not the subjective beliefs or understandings of the parties that govern their contractual relations, and, absent some vitiating element they are bound by the documents they sign.[53]
[52]CB 152.
[53]See Toll v Alphapharm (2004) 219 CLR 165.
Whilst the borrowers freely cast aspersions on the Bank’s integrity, equally plausible is the possibility that this was not a case at all of a bank officer at the Glenroy branch acting improperly, but looking to arrange for the borrowers to obtain an offset arrangement but not being able to do that unless a new account was opened necessarily in accordance with offset arrangements. The question in this peculiar case is whether that was done in circumstances which avoided, or obscured, or overlooked, revealing to the borrowers that this would require a new account with altered terms and moreover, requiring additional securities, even though the enlarged securities were there already for existing indebtedness anyway. It may be ― I do not know ― that the slightly higher interest rate and the additional security were explicable as a consequence of the offset arrangement.
Whatever the inadequacies of the borrower’s materials, what is no less troubling is the absence of verifying or explanatory evidence about the provenance of the fifth facility from the Bank as moving party and the offset arrangement. The affidavit evidence in support is sworn by a manager who, like me, is stating or seeing transactional facts according to the documents. This can be unsafe. It is certainly incomplete. In the face of the case put by the borrowers, whatever its imperfections presently, there is no evidence from the Glenroy management or other knowledgeable persons to explain the circumstances leading to the creation of the fifth facility in the light of the pre-existing facility for $396,000 and more importantly to explain the additional securities.
In apparent recognition of the evidentiary state of affairs, Mr Segal, counsel for the Bank told the Court at the hearing that, as counsel, he was willing to make the following offer on the day for the purposes and only for the purposes of this summary judgment application. Counsel said the Bank would concede that the fifth facility debt is secured only by the Marcia Avenue property; that is, not secured over the Glen Drive property as well. As for the addition of security over the Oak Park land for the fifth facility, counsel said that security was already realised in satisfaction of liabilities under other facilities by Court order and was spent anyway. This special offer by the Bank meant that the proceeds of sale from Glen Drive under the so called sixth facility would only apply to meeting liabilities under that facility and would not be applied to liabilities under the fifth facility. Thus, it was submitted as part of this special offer, any question about being misled or mistaken about the fifth facility and the enlarged security is of no consequence.
On reflection, I am unwilling to allow the Court to be involved in making judgment under a form of bargaining in this way. The Court is determining legal rights and obligations according to the law affecting the relationship as alleged by the Bank, and sought to be proved. The special offer by counsel leaves unattended the question of the proper legal source of the obligation to pay the debt, as distinct from the security. For as long as there is a controversy about the phenomenon of the fifth facility, by which facility is the Court to assess the question of default and the amount of the debt? I accept, it is not unknown for Court orders to be fashioned with undertakings or conditions in order to give effect to particular relief or remedy to meet a controversy or to do equity. But in my view, on principle, the Court ought not grant summary judgment for debt or obligation for as long as there is a question to be tried about the agreement under which the debt or obligation arises.
I find it hard to assess the prospects of success to impugning the fifth facility on the current state of the evidence. Lysaght[54] has determined that the test for summary judgment under s 63 of the Civil Procedure Act is whether the respondent has a ‘real’ as opposed to a fanciful prospect of success, and adherence to statutory text means oblivion to the ‘old’ test of whether the defence was hopeless or bound to fail. But, Lysaght adds, the power to terminate should not be exercised unless it is clear that there is no question to be tried. To that I would add that s 64 of the Act recognises in its own way that even if there is no real prospect of success, the nature of the dispute is such that ‘only a full hearing on the merits is appropriate’. That brings into thinking the conception of refusing summary judgment, in the interests of justice, if there is a case to be investigated.
[54]Lysaght Building Solutions v Blanalko (2013) 42 VR 27, [34].
The courts have to deal, through to trial, with strong cases and weak cases. In my judgment the controversy about the fifth facility ought not to be determined summarily ― not on the state of the incomplete evidence before me. There is no proper explanation about the provenance of the fifth facility; the offset arrangements; and the addition of the extra securities. Having cast its case the way it has, faithful to the facilities and the securities apparently in place, it is no solution for the Bank to ask the Court to give summary judgment based on an adaptation on the effect or enforceability of the agreement. It may be that at trial, depending on the evidence, if a Court finds that that the fifth facility was not enforceable, but the borrowers have gained a financial benefit in the closure of the previous facility, then remedial orders will have to be fashioned to meet the situation that the borrowers have obtained a benefit by a payout of the previous $396,000 facility for which they are accountable and for which they agreed to give security over Marcia Avenue and which, as I understand their case, they seek to have reinstated. But remedial orders will have to be made by the trial process, and not summarily.
But, that is not the end of the application. I take a different view for the claim concerning the remaining amount due under the second facility and the remedy under the so called sixth facility. As was submitted for the Bank, I think the sixth facility stands divorced from any dispute about the fifth facility. The evidence is plain that the borrowers have defaulted and the security over Glen Drive is enforceable independently under the sixth facility. I think the borrowers have no basis to undo collaterally their other obligations to the Bank outside the fifth facility even if it can be shown the fifth facility is impeachable or adjustable in some way. The same can be said for the remaining debt under the second facility, secured by the mortgage over Plumpton Avenue which has been sold. That liability has already precipitated and although the security is spent, I see no injustice in completing the recovery so far and ordering summary judgment for the amount remaining due under the second facility.
Accordingly I propose to grant partially the application for summary judgment. I propose to order the Bank recover possession of the land at 29 Glen Drive in Rye under its registered mortgage,[55] and pay the Bank moneys secured under the so called sixth facility. In addition, I propose to order that the first and second defendants pay the debt remaining under the second facility, which is now unsecured.
[55]CB 154, 156.
To enable a final computation of debt without recalling the parties, I would be willing to receive from the Bank updated certificates of indebtedness for those facilities (to be also sent contemporaneously to the borrowers) as previously given under the memorandum of common provisions.
ATTACHMENT TO JUDGMENT
| No. | Type of facility | Account No. | Date of Agreement | Amount/ Limit | Current Balance 21 June 2016 |
| 1 | Portfolio facility (First Facility)[56] [EG13] [CLOSED] | 89-498-2372 (included sub‑linked accounts) | 7 July 2009 | $500,000 | Nil |
| 2 | Variable Rate Interest Only Home Loan (Second Facility)[57] [EG55] | 89-477-0636 | 24 June 2009 | $119,500 | $33,346.94 (unsecured) |
| 3 | Fixed Rate Interest Only Loan (Third Facility)[58] [EG81] [CLOSED] | 89-477-0724 | 24 June 2009 | $25,000 | Nil |
| 4 | Fixed Rate Interest Only Loan (Fourth Facility)[59] [EG104] [CLOSED] | 89-477-0783 | 24 June 2009 | $25,000 | Nil |
| 5 | Variable Rate Interest Only Home Loan (Fifth Facility)[60] [EG127] | 17-282-8453 | 23 April 2010 | $396,000 | $447,151.88 |
| 6 | Variable Rate Interest Only Home Loan (Sixth Facility)[61] [EG209] | 89-740-5300 | 20 August 2009 | $360,000 | $406,253.06 |
[56] Facility 6 in the 2014 Trust Application.
[57] Facility 2 in the 2014 Trust Application.
[58] Facility 3 in the 2014 Trust Application.
[59] Facility 4 in the 2014 Trust Application.
[60] Facility 5 in the 2014 Trust Application.
[61] Facility 1 in the 2014 Trust Application.
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