National Australia Bank Ltd v Voloshin

[2000] NSWSC 84

CITATION:	National Australia Bank Ltd v Voloshin [2000] NSWSC 84
CURRENT JURISDICTION:	Common Law
FILE NUMBER(S):	SC 11227/99
HEARING DATE(S):	16 February 2000
JUDGMENT DATE:	25 February 2000
PARTIES :	National Australia Bank Limited (Plaintiff) Roman Voloshin (Defendant)
JUDGMENT OF:	Master Harrison

COUNSEL :	Mr Steven Reeves (Plaintiff) Mr Michael Zammit (Defendant)
SOLICITORS:	Miss Frazis & Miss Johnson Mallesons Stephen Jaques (Plaintiff) Mr Peter Woods Peter Woods & Associates (Defendant)
CATCHWORDS:	Summary judgment - cross claim - SCR
LEGISLATION CITED:	Supreme Court Rules Trade Practices Act Fair Trading Act Australian Securities and Investments Commission Act
CASES CITED:	Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Dey v Victoria Railway Commissioners (1948-49) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 Gould & Anor v Vaggelas & Ors (1984-85) 157 CLR 215 Scott v Beneficial Corp (1996) 18 ATPR 53,301 Morwood & AnorChaemdata Pty Limited (1995) ATPR 40,827 Kerr on the Law of Fraud and Mistakes 7th ed (1952)
DECISION:	See para 22

10

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

FRIDAY, 25 FEBRUARY 2000

11227/99 - NATIONAL AUSTRALIA BANK LIMITED v
ROMAN VOLOSHIN

JUDGMENT (Summary judgment; cross claim)

1   MASTER: By notice of motion filed 5 November 1999 the plaintiff seeks that the defence be struck out pursuant to Part 26 r 1 of the Supreme Court Rules (SCR) and that the plaintiff be granted judgment against the defendant of the whole of the land comprised in Certificate of Title Folio Identifier 6/SP2570 known as Unit 6/18 Bradley Street Randwick in the State of New South Wales. Part 13 r 2 and Part 15 r 26 would appear to be the appropriate supreme court rules. By amended notice of motion filed 3 February 2000 the defendant seeks that he be granted leave to file and serve within 28 days an amended defence and cross claim. The plaintiff relied on the affidavits of Gregory Peter Hatter sworn 10 August 1999, 8 November 1999, 15 November 1999, 22 November 1999 and 15 February 2000. The defendant relied on the affidavit of Garry John Neave sworn 8 December 1999.

The law in relation to summary judgment

2   The relevant parts of Pt 13 r 2 (SCR) says:

“2(1) Where, on application by the plaintiff in relation to any claim for relief or any part of any claim for relief of the plaintiff -

(a) there is evidence of the facts on which the claim or part is based; and

(b) there is evidence given by the plaintiff or by some responsible person that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part, or no defence except as to the amount of any damages claimed,

the Court may, by order, on terms, give such judgment for the plaintiff on that claim or part as the nature of the case requires.

3   Part 15 r 26 provides:

“(1) Where a pleading -


(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or

(c) is otherwise an abuse of the process of the Court,

the Court may at any stage of the proceedings, on terms, order that the whole or any part of the pleadings be struck out.

(2) The Court may receive evidence on the hearing of an application for an order under subrule (1).”

4   In a recent decision Air Services Australia v Zarb (NSWSC unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted in Zarb.

5   In General Steel Barwick CJ, who heard the application alone stated:

“Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.”

6   Barwick CJ also said:

“It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; ‘so obviously untenable that it cannot possibly succeed’; ‘manifestly groundless’; ‘so manifestly faulty that it does not admit of argument’; ‘discloses a case which the Court is satisfied cannot succeed’; ‘under no possibility can there be a good cause of action’; be manifest that to allow them’ (the pleadings) ‘to stand would involve useless expense.”

7   In Webster Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602:

“The power to order summary judgment must be exercised with ‘exceptional caution’ and ‘should never be exercised unless it is clear that there is no real question to be tried.”’

8   According to Rolfe AJA in Zarb:

“The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241.”

9   The defendant does not dispute the allegations in the statement of claim but pleads an equitable set-off. He does not dispute that he entered into the mortgage and that he is in default in making payments due under the mortgage. This issue raised by the plaintiff is a discrete point. The plaintiff submitted that the defendant, Mr Voloshin, has not suffered loss. Rather any losses suffered were by the company, Equity Mortgage Holdings Pty Limited (the company).

10   On the issue of loss, the plaintiff’s counsel referred to Gould & Anor v Vaggelas & Ors (1984-85) 157 CLR 215. At p 219 Gibbs CJ stated:

“The second question, whether the Goulds have established that they suffered damage because they acted in reliance on the false statements made by Vaggelas and, if so, what is the measure of their damage, is a more difficult one. The difficulty lies not in stating the legal principles which should be applied, but in applying those principles to the facts of the case. It is clear that it was not right to identify the Goulds with the company, Gould Holdings Pty Ltd (“Gould Holdings”), which the Goulds formed to make the purchase, notwithstanding that they were the sole shareholders. It is of course elementary to say, as was said in Prudential Assurance Co. Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at p 210, “that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and therefore, the person in whom the cause of action is vest”. Any loss suffered by Gould Holdings as a consequence of the fraud can be recovered only by the company itself. Even if the company had not commenced an action within the limitation period, its failure to enforce its own rights would not have enhanced the rights of the Goulds: see Prudential Assurance v Newman Industries (No 2). However, Holdings has suffered damage, and cannot recover damages which are merely a reflection of a loss suffered by the company, they may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company. That this is so is clear in principle, but if authority is needed, the judgment in Prudential Assurance v Newman Industries provides it.”

11   This principle has been applied in two Federal Court decisions Scott v Beneficial Corporation (1996) 18 ATPR 53,301 and Morwood & Anor v Chemdata Pty Limited (1995) ATPR 40,827 at p 40,837. It is uncontroversial. The defendant claims he is entitled to recover loss of funds he invested in the company. I accept that this is a novel proposition and one unlikely to succeed. If the company is successful in its action in the District Court to recover damages arising from the forged cheques, these damages would include the same sums of money as sought in these proceedings.
12 The cross claim raises two issues by way of equitable set-off. They are firstly that the Investor’s Choice Package Fee Agreement (the facility) and the mortgage upon which plaintiff relies is void as a consequence of misleading and deceptive conduct on the part of the plaintiff entitling the defendant to orders pursuant to ss 52 and 87 of the Trade Practices Act and similar provisions under ss 42 and 72 the Fair Trading Act and s 12GM of the Australian Securities and Investments Commission Act 1989 (para 17 to 23 of the cross claim); and secondly that the defendant is entitled to set off in extinguishing the principal sum claimed by the plaintiff as a consequence of the negligent acts of the plaintiff. (Paras 1 to 16 of the cross claim). For the purposes of this application, the plaintiff is prepared to accept that it owed a duty of care to the plaintiff and breached that duty of care. However these contentions will be disputed should there be any trial.

13   It is necessary to refer to some background facts. For the purposes of this application I have taken the plaintiff’s case at its highest. Once again, should this matter go to trial, these facts will be in dispute. On 30 June 1997 Mr Voloshin the defendant, suffered a cardiac arrest. In August/September 1997 he was paid out $600,000 under an insurance policy. He elected to use those funds to invest on the short term money market. To do so, he used a vehicle, Equity Mortgage Holdings Pty Limited (the company). The defendant was secretary and sole shareholder of the company. The sole director was a solicitor Mr Noel Dennis. Funds from the defendant’s personal account were lent to the company so that it could on lend those funds to borrowers. Unfortunately, from October 1997 to December 1998 cheques which were payable into the company account were altered by Mr Finnie so as to become payable to a company with a similar name called Equity Mortgage. At this stage it is not known how Mr Finnie obtained these cheques. Equity Mortgage was an entity controlled by Mr Finnie and had no relationship with Equity Mortgage Holdings Pty Limited. The bank deposited these badly altered cheques into the Equity Mortgage account. Mr Voloshin, on advice from the bank intended to use the funds from the loan to repay his mortgage. The moneys were to be transferred to the defendant’s personal account and used to pay the mortgage. The reason that the mortgage is in default is because the company did not receive the moneys due because the bank passed fraudulent cheques. As there were no funds transferred to Mr Voloshin’s loan account he defaulted in payment of his loan and now the bank seeks possession of his home.

14   Mr Voloshin alleges that in about January 1998 the defendant/cross claimant approached Mr Hinwood for a loan of $125,000 for the purpose of purchasing a house in Chappel Street Victoria. The amount was for the balance of the purchase price. The defendant had already paid a deposit and wanted the amount of $125,000 until he received moneys from the finance business. The loans were due to be repaid to the company in January 1998. Mr Hinwood the personal account manager employed by the plaintiff, recommended to the defendant/cross claimant that he should obtain a loan of $425,000 to enable him to expand the finance business. At this time, Mr Hinwood said to the defendant/cross claimant that the cross claimant would commence receiving the repayments of loans and profits from the finance business from February 1998 and that the cross claimant would therefore be able to repay the facility of $25,000 (the representations).

15   At the time of the representations the defendant/cross claimant had, to the knowledge of Mr Hinwood, provided most of his personal funds to the finance business. Mr Hinwood also knew that the cross claimant had no other sufficient source of income other than the finance business to service and repay the Flexi Plus Mortgage Facility and discharge the mortgage.

16   In reply on the representations the defendant/cross claimant agreed to take a loan of $425,000 from the plaintiff and agreed to sign documents prepared by the plaintiff, namely documents to establish the Flexi Plus Mortgage Facility and the mortgage the subject of these proceedings.

17   The defendant/cross claimant would not have agreed to take a loan of $425,000 and execute documents relating to the Flexi Plus Mortgage Facility and the mortgage had he known that because of the fraud by Sydney Thomas Finnie, moneys from the finance business would not be available to him to pay the loan of $425,000 and discharge the mortgage.

18   It has been said in general terms that “fraud unravels all”. It “vitiates everything, even judgments and orders of the court”: Kerr on the Law of Fraud and Mistake 7th ed (1952) at 3. It has been said that:

“If a transaction has been originally founded on fraud, the original vice will continue to taint it, however long the negotiations may continue, or into whatever ramifications it may extend: Reynell v Sprye (1852) 1 DM G 660 at 697; Smith v Kay (1859) 7 HLC 750 at 775. Not only is the person who has committed the fraud precluded from deriving any benefit under it, but an innocent person is so likewise, unless there has been some consideration moving from himself: Scholefield v Templer (1859); Johns 155; 4 D & J 429; Tophamp v Duke of Portland (1863) 1 DJ & S 517 at 569 per Turner LJ; Morley v Lougham [1893] 1 Ch 736 at 757.”

19   It can be said that the fraud caused the defendant to be unable to make his mortgage payments. It is not known when or whether Mr Hinwood on behalf of the bank or the bank gained knowledge of the fraud. It is not known whether the bank obtained knowledge of the fraud and shortfall of funds in the company account prior to making representations to Mr Voloshin concerning the mortgage, the subject of these proceedings.

20   Once the facts are known, it may be argued that the bank acted unconscionably in inducing the defendant to enter into the mortgage. The defendant in his cross claim seeks that the mortgage be set aside. This relief is also available to the plaintiff under s 87 of the Trade Practices Act.

21   It is my view that it is at least arguable that the plaintiff’s conduct in seeking to enforce the mortgage is unconscionable with the consequence that the court will decline to permit the National Bank to enforce its legal rights. The bank was the one who accepted the forged cheques. The defendant has not pleaded unconscionable conduct and I give leave for him to do so. In addition it may be that the defendant has suffered some other type of damage other than the loss of the moneys he loaned the company. If no other damage is sought then paragraphs 1 to 16 of the cross claim which pleaded negligence ought to be struck out. It is my view that the defendant has an arguable cross claim. Also the success of this case depends on a matrix of facts, including whether the plaintiff knew that cheques were forged prior to the giving of the $425,000 mortgage. For these reasons the cross claim should not be struck out but needs to be amended. The notice of motion is dismissed. As this case involves fraud, it is not appropriate to strike out the defence nor is it appropriate to enter judgment for possession. Costs are discretionary. Costs should follow the event. The plaintiff is to pay the defendant’s costs.

22   The court orders that:

(1) The plaintiff’s notice of motion filed 5 November 1999 is dismissed.

(2) The plaintiff is to pay the defendant’s costs.

(3) The defendant is to file an amended defence and cross claim within 21 days.
**********

Last Modified: 09/25/2000