Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd
[2020] VSC 582
•16 September 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
MORTGAGE RECOVERY LIST
S ECI 2019 05567
| ORMOND SUPERMARKET PTY LTD (ACN 163 510 512) | Plaintiff |
| v | |
| SARAR AUSTRALIA AND NZ PTY LTD (ACN 617 884 947) | First Defendant |
| MOHAMED JAMA HASHI | Second Defendant |
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JUDGE: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 July 2020 |
DATE OF JUDGMENT: | 16 September 2020 |
CASE MAY BE CITED AS: | Ormond Supermarket Pty Ltd v Sarar Australia and NZ Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 582 |
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PRACTICE AND PROCEDURE – Summary judgment – Plaintiff seeks summary judgment on claim – Civil Procedure Act 2010 (Vic) ss 61, 63 – Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 22 applied – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 – Whether defendants have real prospects of success – Summary judgment granted in part.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I Hristovski | Ronayne Owens Lawyers |
| The Defendants in person |
JUDICIAL REGISTRAR:
Introduction
This proceeding concerns claims by Ormond Supermarket Pty Ltd (ACN 163 510 512) (‘plaintiff’) seeking repayment of a debt incurred under a financing agreement with Sarar Australia and NZ Pty Ltd (ACN 617 884 947) (‘first defendant’) and enforcement of a mortgage granted by Mohamed Jama Hashi (‘second defendant’). The second defendant is the sole director, secretary and shareholder of the first defendant.
The loan agreement was for a short term loan of $97,000, which was entered into on 11 July 2017 and repayable on 26 November of that year (‘Loan Agreement’). To date, the defendants have not paid monies owing under the Loan Agreement.
As security for the loan, the second defendant gave the plaintiff a mortgage over his property situated in Rivette Street, Cragieburn VIC 3064, more particularly described in Certificate of Title Volume 11243 Folio 540 (‘Property’), registered on the title to the Property with dealing number AR688288P (‘Mortgage’).
In its statement of claim dated 9 December 2019 (‘SOC’), the plaintiff seeks an order for possession of the Property, payment of the sum of $317,839.88, interest and costs.
By summons filed by the plaintiff on 2 June 2020 (‘Application’), the plaintiff seeks that summary judgment be ordered in favour of the plaintiff against the defendants pursuant to ss 61 and 63 of the Civil Procedure Act 2010 (Vic) (‘CPA’), order 22 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’), or the inherent jurisdiction of the Court. Further or alternatively, the plaintiff seeks orders that the defendants’ defence of 1 April 2020 (‘Defence’) be struck out pursuant to r 23.02 of the Rules or within the Court’s inherent jurisdiction on the basis that it is embarrassing, alternatively that it fails to disclose a cause of action, and costs.[1]
[1]By orders made on the Court’s own motion, the Application was referred to me pursuant to r 84.04 of the Rules, for hearing and determination.
In the Defence, the defendants plead that they entered into the Loan Agreement under duress, did not have adequate opportunity to consider the terms of the relevant documentation, and denied all substantive allegations made by the plaintiff.
The second defendant also later filed an amended defence and a proposed counterclaim on 8 July 2020. In the proposed counterclaim the second defendant made a range of claims including: he was not given the opportunity to negotiate the terms of the Loan Agreement; he is not sophisticated in matters of business and English is his second language; and he did not receive legal advice on the nature of the documents he signed. The second defendant sought declarations that the terms of the documents are unfair and void, and that the plaintiff discharge the mortgage registered over the Property.
I note that the proposed amended defence and counterclaim (‘PADCC’) ought not to have been accepted by the Registry for filing, as no leave had been granted for its filing and the defendants were out of time to file it without leave. When making orders to give effect to this ruling, I will include an order that the PADCC be removed from the Court file. Rather than filing the PADCC, the defendants ought to have included it as an exhibit to their affidavits relied upon in opposition to the Application, as previous orders made by me had indicated. It was common ground at the hearing of the Application that the PADCC ought to be considered as the pleading the defendants would rely upon if summary judgment was not granted.
The plaintiff relies on the following affidavits sworn by Ricky Steven Rigoni, sole director of the plaintiff, in support of the Application:
(a) affidavit sworn 1 June 2016 (‘First Rigoni Affidavit’); and
(b) affidavit sworn 16 July 2020 (‘Second Rigoni Affidavit’).
The defendants rely on the affidavit of the second defendant affirmed 9 July 2020 (‘Hashi Affidavit’).
The plaintiff filed a written outline of submissions dated 17 July 2020 (‘Plaintiff’s Outline’). The defendants did not file or rely on any written outline of submissions.
For the following reasons, the Application will be granted, at least in part.
Procedural History
This proceeding was commenced by writ on 6 December 2019.
The defendants filed a defence on 2 April 2020. At the first directions hearing on 24 April 2020, I made orders for the defendants to provide a draft amended defence and any counterclaim (as they had said they intended to amend their Defence) by 15 May 2020.
At a further directions hearing on 22 May, I was informed that no draft amended pleading had been provided and that the plaintiff intended to file an application for summary judgment. I made orders for the conduct of that application, as follows:
(a) the plaintiff file such application by 29 May 2020, to be returnable for 31 July;
(b) the defendants file any affidavits in opposition by 3 July;
(c) the plaintiff file any affidavits in reply by 10 July;
(d) the plaintiff file an outline of submissions by 17 July;
(e) the defendants file an outline of submissions by 24 July; and
(f) the plaintiff file any submissions in reply by 29 July.
While there was some slippage in that timetable, it was minor and was accommodated by the parties.
Background
This dispute stems from the Loan Agreement entered into by the plaintiff and the defendants on 11 July 2017 for the sum of $97.000. Mr Rigoni deposed that in late June or early July 2017, he was contacted by Gary Nicholls, a finance broker acting on behalf of the defendants, who were seeking an urgent short term loan.[2] The first defendant was seeking funds to pay for a landlord guarantee for a retail lease it was entering into at Chadstone Shopping Centre, from which it would conduct a business, and the loan was needed on a short-term basis until Mr Nicholls could arrange a longer-term facility for the first defendant with RAMS/Westpac.[3]
[2]First Rigoni Affidavit, [8].
[3]First Rigoni Affidavit, [8]-[9].
An initial letter of offer was sent to Mr Nicholls on 7 July 2017, for a facility with a limit of $89,000 (‘First Letter of Offer’).[4] The loan amount included the amount needed for the lease guarantee, plus pre-paid interest and charges.[5] The First Letter of Offer was executed by the defendants on 9 July 2017, and returned to the plaintiff, via Mr Nicholls.[6] However, the second defendant had made amendments to the First Letter of Offer by increasing the limit of the facility, stating that more needed to be borrowed as the first defendant had lost the benefit of a discount of rental bond costs for failing to make an early advance to the landlord in Chadstone Shopping Centre.[7] Mr Rigoni sent an amended letter of offer (‘Second Letter of Offer’) to Mr Nicholls on 9 July, containing the new loan amount of $97,000.[8] The Second Letter of Offer was executed by the defendants on 9 July 2017, and sent to the plaintiff the following day.[9] Both letters of offer listed the second defendant as guarantor.[10] On 10 July 2017, Mr Rigoni sent the formal loan and security documents to Mr Nicholls, for execution by the defendants, which were in turn signed and returned to the plaintiff’s solicitors, Ronayne Owens Lawyers.[11]
[4]First Rigoni Affidavit, [11]; Exhibit RR-1, 4-10.
[5]First Rigoni Affidavit, [10].
[6]First Rigoni Affidavit, [11]-[12].
[7]First Rigoni Affidavit, [11]-[12]; Exhibit RR-1, 11-12.
[8]First Rigoni Affidavit, [13]; Exhibit RR-1, 19.
[9]First Rigoni Affidavit, [14].
[10]First Rigoni Affidavit, [15(e)]; Exhibit RR-1, 4, 20.
[11]First Rigoni Affidavit, [16].
The way the Loan Agreement operated was the following. The sum was advanced on 11 July 2017, and was payable in full by 26 November of that year.[12] The interest rate on the funds advanced was 44% per annum, with a concessional rate of 40% if the first defendant was not in default of its obligations.[13] The Loan Agreement was executed on behalf of the first defendant by the second defendant.[14]
[12]Exhibit RR-1, 54.
[13]Exhibit RR-1, 54.
[14]Exhibit RR-1, 56.
Other relevant terms of the Loan Agreement included clauses 6 and 11, which required the first defendant to pay for the plaintiff’s legal fees and the costs in relation to the securities provided.[15]
[15]Exhibit RR-1, 32, 40.
It was a term of the Loan Agreement that security be provided for the loan, with three separate securities required. These were a general security agreement granted by the first defendant, a personal guarantee and indemnity provided by the second defendant (‘Guarantee’),[16] and a third registered mortgage over the Property (i.e. the Mortgage).[17]
[16]Exhibit RR-1, 57.
[17]Exhibit RR-1, 25, 55.
The Guarantee was also signed by the second defendant on 11 July 2017, the same day as the Loan Agreement.[18] It contained the usual clauses for a document of this type, including the second defendant guaranteeing the first defendant’s obligations to the plaintiff,[19] the second defendant agreeing to indemnify the plaintiff against any losses,[20] and guaranteeing payment of monies to the plaintiff if the first defendant did not meet its obligations.[21]
[18]Exhibit RR-1, 81.
[19]Exhibit RR-1, 63 (cl 2.1(b)).
[20]Exhibit RR-1, 67 (cl 6).
[21]Exhibit RR-1, 63 (cl 2.2).
On 11 July 2017, the Mortgage was also executed by the second defendant, along with a document that stated he understood the effect of the Mortgage and had sought independent legal advice on taking out the Mortgage (‘Mortgagor’s Representations’).[22] In addition, on this day the defendants executed the general security agreement and instructions for the plaintiff to pay the loan amount into an account with Westpac Banking Corporation Ltd held by the first defendant.[23]
[22]First Rigoni Affidavit, [20], [23]; Exhibit RR-1, 152-3, 158-9.
[23]First Rigoni Affidavit, [19]-[21]: Exhibit RR-1, 82-151, 154-5.
The signature of the second defendant on each of the Guarantee, Mortgage and Mortgagor’s Representations was witnessed by Antonio Cavoli, solicitor for the defendants.[24] The required verification of the identity of the second defendant was completed by Mr Cavoli.[25]
[24]First Rigoni Affidavit, [18], [20]; Exhibit RR-1, 81.
[25]First Rigoni Affidavit, [22]; Exhibit RR-1, 156-157.
The first defendant defaulted on its obligations under the Loan Agreement by not repaying the loan by 26 November 2017 (‘Default’).[26] On 9 September 2019, Mr Rigoni instructed his lawyers to send a notice of default to the defendants, demanding immediate repayment of the amount due as at that date, being $279,968.08 (‘Default Notice’).[27] An explanation as to the reason for the delay between the event of default and the notice of default being sent was not given to the Court. As at the time of hearing, the first and second defendants had not paid any of the monies owing to the plaintiff.
[26]First Rigoni Affidavit, [27].
[27]First Rigoni Affidavit, [28]; Exhibit RR-1, 183-5.
The second defendant deposed that he was unable to obtain legal advice for the present proceeding, as COVID-19 has severely affected his business.[28] The second defendant also deposed that he had a good defence to the plaintiff’s claims on the merits, based on the following:[29]
[28]Hashi Affidavit, [3].
[29]Hashi Affidavit, pp. 2-3 (a)-(i).
(a) he was seeking to set up a business in a shop at Chadstone Shopping Centre and had contacted ‘Gary Nicholson’ (i.e. Mr Nicholls)[30] from RAMS Business Brokers who had obtained finance for him for the fitout of the premises through a company related to the plaintiff. He did not have sufficient money to meet the lease guarantee and saw Mr Nicholls to get further money. Mr Nicholls was not able to increase the existing facility but arranged a short-term loan from the plaintiff for him;
[30]It is reasonable to infer that the person referred to by the second defendant as ‘Gary Nicholson’ is the same person referred to by Mr Rigoni as Gary Nicholls. From a copy of an email from Mr Nicholls to Mr Rigoni dated 9 July 2017, it is clear that his name is Gary Nicholls, not Nicholson: Exhibit RR-1, 11. I note that throughout the Hashi Affidavit, he is referred to as Gary Nicholson, however for accuracy and to avoid confusion I will refer to him as Gary Nicholls, even where the reference is based on the Hashi Affidavit. The same error occurs in the PADCC; again, I will refer to this person as Gary Nicholls.
(b) Mr Nicholls told him he would arrange to increase the home loan with the bank. I apprehend this to mean that the plan was for the short-term loan (or loans) that the defendants had entered into were going to be re-financed with Westpac, the first mortgagee. Mr Hashi says that he relied on Mr Nicholls advice that he could arrange bank refinance to enable the loan from the plaintiff to be repaid by its due date;
(c) he did not have the ability to make any repayments and the interest for the duration of the loan was added to the amount borrowed;
(d) English is his second language, he has difficulty understanding documents, and he did not understand the documents given to him;
(e) he was not advised to seek and was not provided with financial advice;
(f) he was asked to see a lawyer as he needed to sign the documents before a lawyer. He saw Mr Cavoli who asked him if he agreed to the terms and understood them, to which he replied ‘yes’, and he then signed the documents;
(g) he was not aware his family home would be affected if the loan was not repaid; and
(h) the plaintiff knew of his dire financial position at the time the loan was made.
In the PADCC, the second defendant admits that: he signed the Loan Agreement and the Guarantee; the first defendant was advanced the loan; and the defendants were unable to pay the funds owing under the Loan Agreement. The second defendant denies he is in default.[31]
[31]PADCC, [2], [5], [7]-[8], [13].
There are in the PADCC a range of paragraphs which read as conclusionary assertions, rather than statements of material facts and particulars. These include a range of matters relied upon by the second defendant to allege that the Loan Agreement is unenforceable, which include:[32]
(a) the plaintiff has engaged in misleading and deceptive conduct within the meaning of s 12DC of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’), and s 18 of the Australian Consumer Law as contained in schedule 2 of the Competition and Consumer Act 2010 (Cth) (‘ACL’); and
(b) in relation to the Loan Agreement, the plaintiff failed to comply with the National Credit Code, which is Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth), (‘Code’). The defendants consider the conduct of the plaintiff was not in accordance with the Code in a range of ways, including: the interest rate and loan fees charged; assessments required of the Loan Agreement and Mortgage to determine whether it was suitable for the second defendant were not conducted; and notices of default were not issued to the second defendant in accordance with the Code.
[32]PADCC, [3].
Substantially the same allegations are made to say that the Guarantee is unenforceable.
However, the second defendant relies on additional allegations in this respect, including: the plaintiff ought to have known the second defendant could not make repayments on the loan; and the plaintiff was obliged to discern whether the second defendant obtained independent financial advice before signing the Guarantee.[33]
[33]PADCC, [5].
The second defendant also alleges in the alternative that it would be unconscionable for this Court to allow the Loan Agreement to become a long term agreement, relying on the decision of Justice Appelgarth in PSAL Ltd v Kellas-Sharpe.[34]
[34][2012] QSC 31 (‘PSAL Ltd’).
The Counterclaim does not go much further than I mentioned in the Introduction. The claims the second defendant makes in the Counterclaim include:
(a) the second defendant did not have an opportunity to discuss or negotiate the terms of the Loan Agreement with the plaintiff, causing a significant imbalance of power between the parties, which was not reasonably necessary to protect the plaintiff’s legitimate interests and would cause significant financial detriment to the second defendant if the Loan Agreement was enforced;
(b) the terms of the Loan Agreement are unfair within s 12BF of the ASIC Act and therefore unenforceable. It appears that the terms impugned by the second defendant in this way are the interest rate of 44% per annum and the weekly manager’s administrative fee of $550, charged monthly when the loan is in default;[35]
(c) further in the alternative, the circumstances of the second defendant result in him falling within the category of a ‘special disability’. These circumstances are largely the same as those listed in the Hashi Affidavit and include that English is his second language, he does not have significant income, he is a Somalian migrant, he does not have any assets of value other than the Property which is his family’s primary home and the family lives on Centrelink benefits;
(d) the plaintiff should have been aware of the circumstances in which the second defendant signed the Loan Agreement, including: the second defendant was in default on his second mortgage when he signed the Loan Agreement and other documentation; the effects of the documents were not explained to him by his lawyer; and no inquiries were made regarding whether the second defendant could service the loans he was signing up to.
[35]PADCC, [19(a), (b)].
The second defendant alleges that in all these circumstances it would be unconscionable to allow the plaintiff to enforce the Loan Agreement, Guarantee and Mortgage.
The second defendant seeks declarations that the terms of all the relevant documents are unfair and void, that it is unconscionable to enforce the Guarantee and Mortgage, and that the second defendant is discharged from further performance of the Mortgage, along with orders that the plaintiff discharges the Mortgage, and costs.
Applicable law
Summary judgment
I have previously summarised the principles applicable to summary judgment in Padella Pty Ltd v Elliott,[36] as adopted by Sloss J in Israfoods (2006) Ltd v J & D Consortium Pty Ltd.[37] For completeness I set these principles out below.
[36][2018] VSC 301, [19]-[28].
[37][2019] VSC 323, [41].
Section 61 of the CPA permits a plaintiff to make an application for summary judgment on the ground that the defendant’s defence or part of that defence has no real prospect of success. Section 62 of the CPA permits a defendant to make an application for summary judgment on the grounds that the plaintiff’s claim has no real prospects of success. Section 63 of the CPA provides (subject to s 64) that the Court may give summary judgment in a civil proceeding if it is satisfied that a claim, defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has ‘no real prospect of success’.
Section 64 of the CPA provides that:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a)it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
The Court of Appeal has set out the test to be applied in this context in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd.[38] Upon the present state of authority:
(a)The test for summary judgment under s 63 of the [CPA] is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)The test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c)It should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)At the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
[38](2013) 42 VR 27, 40 [35] (‘Lysaght’) (citations omitted).
Section 7(1) of the CPA sets out its overarching purpose, being to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. Section 9 of the CPA requires the Court to have regard to these purposes in making any order or giving any direction in a civil proceeding.
An application made pursuant to s 61 of the CPA is to be made in accordance with Part 2 of Order 22.[39]
[39]Rules, r 22.03.
Rule 22.04 of the Rules provides:
(1) An application shall be made by summons supported by an affidavit—
(a)verifying the facts on which the claim or the part of the claim to which the application relates is based; and
(b)stating that in the belief of the deponent the defence to the claim or the defence to the relevant part of the claim—
(i) has no real prospect of success; or
(ii)has no real prospect of success except as to the amount of the claim or as to the amount of the relevant part of the claim.
(2)Where a statement in a document tends to establish a fact within paragraph (1) and at the trial of the proceeding the document would be admissible by or under the Evidence (Miscellaneous Provisions) Act 1958, the Evidence Act 2008 or any other Act to verify the fact, the affidavit under paragraph (1) may set forth the statement.
(3)An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out and, having regard to all the circumstances, the Court considers that the statement ought to be permitted.
(4)The plaintiff shall serve the summons and a copy of the affidavit or affidavits and of any exhibit referred to in the affidavit or affidavits on the defendant not less than 14 days before the day for hearing named in the summons.
Rule 22.05 of the Rules provides:
(1)The defendant may show cause against the application by affidavit or otherwise to the satisfaction of the Court.
(2)An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out.
(3)Unless the Court otherwise orders, the defendant shall serve a copy of any affidavit and of any exhibit referred to in the affidavit or affidavits on the plaintiff not less than three days before the day for hearing named in the summons.
The requirements set out in Rules 22.04 and 22.05 were considered by the Court of Appeal in Daniel Simon Hausman and Lance Vincent Hodgkinson v Abigroup Contractors Pty Ltd.[40] Of the equivalent of what is now Rule 22.04 in relation to the affidavit in support of summary judgment, the Court of Appeal stated that what ‘must be verified are the facts necessary to establish a good cause of action’.[41] Once the plaintiff has established the elements of its cause of action, there is ‘something akin’ to a shifting of the evidential burden to the defendant.[42]
[40](2009) 29 VR 213; [2009] VSCA 288 (‘Hausman v Abigroup’).
[41]Hausman v Abigroup, [60].
[42]See footnote 13 in the reasons of the Court of Appeal in Hausman v Abigroup, where it was stated: ‘Whether there is in fact such a burden upon a plaintiff, once the prerequisites for summary judgment have been satisfied, is a difficult question. Rule [22.05] requires a defendant, who is the subject of an application, in proper form, for summary judgment, to “show cause” why such judgment should not be granted. It may be that this imposes upon a defendant an evidential burden, or something akin thereto’.
Of the equivalent of what is now Rule 22.05, the Court of the Appeal stated the following:[43]
63The defendant must satisfy the Court that, in respect of the claim to which the application for judgment relates, a question ought to be tried, or there ought for some other reason to be a trial of that claim. The Court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The Court will normally require an affidavit by, or on behalf of, the defendant before it will be satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially if under pressure of time, is perhaps not as high as that required in preparing for trial.
64.Nonetheless, the defendant is required to use reasonable diligence to put before the Court, albeit in a summary form, all the evidence relied on in the defence. In that regard, it would generally be regarded as an injustice to the plaintiff to introduce for the first time, on appeal, evidence which was readily available for the hearing of the application, but was not produced. An affidavit filed by the defendant may contain a statement of fact based on information and belief.
65.The authorities suggest that an affidavit in opposition to an application for summary judgment must provide sufficient particulars to enable the defence case to be properly understood. A bald denial that the defendant is indebted to the plaintiff will not suffice. The affidavit should, so far as practicable, deal specifically with the plaintiff’s claim and the facts set out in the supporting affidavit to establish that claim. It should state clearly and concisely what the defence is, and identify the facts relied upon in support of that defence.
[43]Hausman v Abigroup, [63]-[65] (citations omitted).
The Court of Appeal’s statement of the principles in Hausman v Abigroup, extracted in paragraph 44, above remain good law since the advent of the CPA.[44]
[44]Innovateq Australia Pty Ltd and Anor v Barnes and Ors [2016] VSC 618, [11] (Ierodiaconou AsJ), referring to Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2012] VSC 163 and to Portbury Development Pty Ltd v Ottedin Investments Pty Ltd and Ors [2012] VSC 490.
The Court of Appeal also stated in Hausman v Abigroup that:[45]
A judge faced with an application for summary judgment should not be required to trawl through the defendant’s material in an effort to see where there can be constructed from that material an answer to the plaintiff’s claim. It must be for the defendant to point to some material, whether legal or factual, that provides an arguable response to that claim. That is so even if it is the plaintiff who must ultimately discharge the burden of persuading the judge that there is no issue that warrants trial, and that summary judgment should therefore be granted.
[45]Hausman v Abigroup, [55].
Unrepresented litigants
The defendants are no longer represented by solicitors in this proceeding and are not represented by solicitors in respect of the Applications.
A notice of appearance was filed on behalf of the second defendant on 3 March 2020 by Starnet Legal. A notice of ceasing to act for the second defendant was filed by Starnet Legal on 31 March 2020.
On 2April 2020, a notice of appearance for the first defendant was filed by the second defendant, and the Defence was filed by the second defendant (for both defendants). It is stated in the ‘tram tracks’ of the Defence that the second defendant prepared the document, and it is very clear that it was not drawn by someone who is legally qualified.
At both directions hearings before the hearing of the Application, I urged the second defendant to obtain legal advice and explained to him that pursuant to the Rules, a company was required to have a solicitor act on its behalf in proceedings in this Court, unless leave was given to the contrary, and that therefore a solicitor was required to act for the first defendant.
At the hearing of the Application, the second defendant sought leave to appear on behalf of the first defendant, which was not opposed by the plaintiff.
The second defendant deposed that he had sought the services of Mr Alan McMonnies, solicitor, late the week before, who had agreed to assist him to prepare his affidavit and the PADCC but was otherwise unable to act in the proceeding.[46] The PADCC states at the end that it was prepared by Mr McMonnies, and it is signed by Mr McMonnies for the second defendant.
[46]Hashi Affidavit, [4]-[5].
There are principles which guide the hearing and determination of proceedings (including applications) which involve persons who are self-represented, which were recently summarised by Derham AsJ in Daher v Bell.[47] In that case, his Honour stated:[48]
It is the duty of the Court in relation to represented and unrepresented litigants alike to ensure that a hearing or trial is conducted fairly and in accordance with law. Procedural fairness is ‘an essential attribute of a court’s procedure’. What a judge must do to assist a litigant in person depends on the litigant, the nature of the case, and the litigant’s intelligence and understanding of the case. The judge cannot be the advocate of the self-represented litigant, for the role of the judge is fundamentally different to that of an advocate. The judge must maintain the reality and appearance of judicial neutrality at all times and to all parties. The assistance must be proportionate in the circumstances — it must ensure a fair trial and not afford an advantage to the self-represented litigant.
In the decision of the Court of Appeal in Roberts v Harkness,[49] which was applied in Doughty-Cowell v Kyriazis,[50] the Court made it clear that a litigant must have a reasonable opportunity of presenting his case. What amounts to a reasonable opportunity of presenting a case depends on the circumstances of the case, including the nature of the decision to be made, the nature and complexity of the issues in dispute, the nature and complexity of the submissions which the party wishes to advance, the significance to that party of an adverse decision (‘what is at stake’) and the competing demands on the time and resources of the court or tribunal.[51]
[47][2020] VSC 346.
[48]Daher v Bell [2020] VSC 346, [8]-[9].
[49](2018) 57 VR 334 (‘Roberts’).
[50][2018] VSCA 216 [63]-[64].
[51]Roberts, 337-55 [8]-[49].
I respectfully adopt his Honour’s summary and have sought to apply these principles in this case.
The defendants have had ample opportunity to obtain legal advice and/or representation. They have clearly had some advice and assistance, as set out above, including with the preparation of the PADCC. Nonetheless, they were not represented by solicitors or counsel at the hearing of the Application, and therefore at the directions hearings beforehand and at the hearing itself, I explained the steps which they had to follow and what test they needed to meet in order to resist summary judgment, and followed the principles referred to in paragraph 53 above.
Submissions
The plaintiff’s claim is a simple one, which is that it is entitled to the monies allegedly owed under the Loan Agreement and to enforcement of the Guarantee and Mortgage. The defendants raised a range of defences to this claim, as referred to above. I will deal with the plaintiff’s submissions, before turning to the defendants.
Plaintiff’s submissions
The plaintiff began its submissions by detailing the terms of the Loan Agreement, Guarantee and other relevant documents. In the plaintiff’s submission, the Loan Agreement, Guarantee, Mortgage, general securities agreement, the Mortgagor’s Representations and the direction to the plaintiff as to payment of the advance constitute the entire agreement between the parties.[52]
[52]Plaintiff’s Outline, [6].
The plaintiff submitted that the second defendant acknowledged signing the agreements, and that he and the first defendant were advised at all times by Mr Nicholls and Mr Cavoli.[53] As such, the defendants were aware of their obligations under the relevant documentation, and these had been explained to them.
[53]Plaintiff’s Outline, [6]-[7].
The plaintiff’s case is not complex. It is simply that failure to repay the loaned amount is a breach of the Loan Agreement, and that under the terms of the Loan Agreement and Guarantee the plaintiff is entitled to payment of those funds by the defendants, and to enforce its securities, including the Mortgage.[54]
[54]Plaintiff’s Outline, [9].
The plaintiff did, however, make detailed submissions refuting various allegations in the second defendant’s affidavit/PADCC. The plaintiff grouped these into seven allegations, and I will deal with the plaintiff’s submissions on each of these in turn.
The defendants’ first allegation is that the plaintiff did not comply with the requirements of the Code.[55] In the plaintiff’s submission, the Code is not applicable to the Loan Agreement as the Code only applies to consumer credit, and the first defendant does not fall within the definition of ‘debtor’ in the Code, which is a natural person or strata corporation.[56]
[55]Plaintiff’s Outline, [12].
[56]Plaintiff’s Outline, [12].
The defendants’ second allegation is that the plaintiff engaged in misleading and deceptive conduct within the meaning of s 12DC of the ASIC Act. In the plaintiff’s submission, there is no basis for the allegation on the evidence nor is it particularised.[57]
[57]Plaintiff’s Outline, [13].
The defendants’ third allegation is that the second defendant was unaware of the Mortgage documents and their terms. The plaintiff submitted that the two letters of offer, and the Loan Agreement made it clear that a mortgage was required over the Property.[58] This was also clear from the Mortgage itself. The plaintiff also stated that the second defendant admitted to obtaining legal advice with respect to the transactions.[59]
[58]Plaintiff’s Outline, [14].
[59]Plaintiff’s Outline, [16].
The defendants’ fourth allegation is that the second defendant did not get financial advice, nor was he advised to do so, that he never had any capacity to pay the loan and that he was in difficult financial circumstances when entering into the loan which is something the plaintiff was aware of. The plaintiff submitted that it was not aware of the second defendant being in a difficult financial position at the time the Loan Agreement was entered into.[60] The plaintiff again noted that the defendants were being advised by Mr Nicholls, a finance broker, and that the plaintiff was not under any obligation to ensure the defendants were advised by professionals before entering into a commercial loan transaction.[61]
[60]Plaintiff’s Outline, [18].
[61]Plaintiff’s Outline, [20].
The defendants’ fifth allegation is that it is unconscionable for the short term loan taken out by the defendants to become a long term loan, in accordance with PSAL Ltd.[62] The plaintiff submitted that the facts of PSAL Ltd were not similar to the present case, and rejected the contention that there was an attempt to turn the short term loan in the Loan Agreement into a long term loan.[63] The plaintiff says that the matters quoted in paragraph 16 of the PADCC are not a stand-alone cause of action as is proposed to be pleaded.[64]
[62][2012] QSC 31.
[63]Plaintiff’s Outline, [21]-[23].
[64]Plaintiff’s Outline, [21].
The defendants’ sixth allegation is that the terms of the Loan Agreement were unfair within the meaning of s 12BF of the ASIC Act. The plaintiff noted that s 12BG provides that a contract is unfair if it would cause imbalance in the parties’ rights and obligations, it is not reasonably necessary to protect the rights of the party it advantages, and it would cause detriment to a party if it were relied on.[65]
[65]Plaintiff’s Outline, [24].
The plaintiff submitted that in determining whether a term is unfair, the Court needs to consider the contract as a whole and the clarity of the impugned term.[66] The plaintiff submitted that, in this case, the terms of the Loan Agreement were clear, and the terms dealing with interest rates were based on the commercial realities of short term borrowing.[67] The plaintiff also reiterated that the second defendant had obtained, or had the opportunity to obtain, legal advice with respect to the Loan Agreement.[68]
[66]Plaintiff’s Outline, [25].
[67]Plaintiff’s Outline, [25]-[26].
[68]Plaintiff’s Outline, [29].
The defendants’ seventh allegation is that the circumstances in which the Loan Agreement and Mortgage were executed were unconscionable within the meaning of s 12CB of the ASIC Act and at common law. This was disputed by the plaintiff, who submitted that the second defendant had an opportunity to alter the Loan Agreement’s terms, that he availed himself of this opportunity, and admitted he had been advised to seek legal advice.[69] The plaintiff further submitted that it was not reasonably foreseeable that the first defendant could not service the loan, the terms of which were set out in the Loan Agreement and Mortgage.[70]
[69]Plaintiff’s Outline, [30]-[32].
[70]Plaintiff’s Outline, [35]-[37].
In the plaintiff’s concluding submission, the evidence in the Hashi Affidavit does not establish that the Defence or the PADCC have any real prospects of success.[71]
[71]Plaintiff’s Outline, [38].
Defendants’ submissions
The second defendant made oral submissions on behalf of both defendants. In so doing, he made a number of submissions in respect of which there was no evidence at all before the Court.
The second defendant submitted that this whole transaction was some sort of strategic plan by the plaintiff and Mr Nicholls, they knew his English and writing was not good, they knew he was illiterate, they gave him false promises, and the plaintiff had told Mr Nicholls he had to have a company. When he needed the money for the lease guarantee they knew he was starting a business. He says that the plaintiff organised the loan with pre-paid interest because it knew he could not pay.
The second defendant said that the plaintiff and Mr Nicholls set him up so that they could charge him all this interest. The second defendant submitted that, if he knew that they were charging him 40% interest or taking a mortgage, then he would be crazy to sign. He said that they tricked him, and that the incentive for doing so was the interest charged. The second defendant said that Mr Rigoni and Mr Nicholls are friends, that they set this up to take advantage of him and rip him off, and to take his house. He said that this was his family home and he had a wife and eight children to support.
The second defendant submitted that nothing was clearly explained to him and there was no explanation of the interest rate. He said that he only spent about 20 minutes with Mr Cavoli.
The second defendant said that he should have an opportunity to defend the proceeding because he has been misled, that there should be a mediation, and that he should have a chance to get another lawyer who can properly draft the documentation. The second defendant asked that there should be no summary judgment.
The second defendant said that he is prepared to pay the $97,000 but not all the additional interest, and that the plaintiff should have brought the case earlier.
Plaintiff’s reply submissions
In reply, the plaintiff submitted that there was nothing to suggest that anything was misleading – the documents were all very clear.
The plaintiff submitted that the conspiracy allegation was outright refuted. There was no evidence to suggest anything of the sort and this is a very serious allegation to make, particularly with no evidence.
The plaintiff submitted that it did not know who advised the second defendant to operate his business through a company, but it is hardly unusual. It is also hardly unusual for a director of a sole director/shareholder company to guarantee a business loan to the company.
The plaintiff says that the second defendant admits the principal amount of $97,000 and that at the least he should repay that. Counsel for the plaintiff submitted that it is open to the Court to give judgment on the principal and reserve the balance of the interest and fees, however Counsel’s instructions were to press for the full amount.
In response, the second defendant said that if the plaintiff is asking for the principal then he would need adequate time to get finance so it could not take his house.
Consideration
Claim to payment of the principal amount of $97,000
In my view, the plaintiff has made out its cause of action. It has substantiated the existence of the Loan Agreement, the Guarantee and the Mortgage; it has substantiated the Default; and it has established its entitlement to repayment of the loan and to enforcement of the Mortgage, including a right to possession of the Property. These matters are all established in the First Rigoni Affidavit, as set out above.
As set out by the Court of Appeal in Hausman v Abigroup , what must be verified by the plaintiff are “the facts necessary to establish a good cause of action”.[72] Once the plaintiff has done so, there is “something akin” to a shifting of the evidential burden to the defendants.[73] This means that the defendants must satisfy the Court that there is a question which ought to be tried or there ought for some other reason to be a trial of that claim. The defendants are required to put before the Court, albeit in a summary form, all the evidence relied on in their Defence, and the PADCC given that they wish to rely on that. Bald denials will not suffice.[74]
[72]Hausman v Abigroup, [60].
[73]Hausman v Abigroup, [53] n 13.
[74]Hausman v Abigroup, [63]-[65].
In determining the Application, I have considered all issues raised by the defendants whether in the Defence, the PADCC, the Hashi Affidavit and the oral submissions made by the second defendant, to consider whether they have any real prospect of success. I have not confined myself to what is pleaded. I have sought to discern from all the material relied upon by the defendants whether there is a defence or counterclaim that is capable of being properly pleaded and run. I have taken this approach without undue emphasis on proper form as the defendants are self-represented. For example, the plaintiff complains that the Hashi Affidavit contains no or no sufficient factual matters to support the PADCC. However, the second defendant deposes that he has read the PADCC, that Mr McMonnies explained its contents to him, and he agrees with the facts upon which it is founded.[75] Therefore, I will treat the PADCC as being within the Hashi Affidavit.
[75]Hashi Affidavit, [7].
In saying this, however, I must point out that a number of the submissions made by the second defendant as to conspiracy and the conduct of Mr Nicholls, Mr Rigoni and the plaintiff were made without any evidentiary foundation. Whether self-represented or not, such submissions ought not be made without evidence as that is scandalous, and I do not accept them.
In my view, and subject to paragraphs 112 to 124 below, the defendants have no real prospect of success in defending the plaintiff’s claims.
First, any defence or counterclaim based on the Code applying to the Loan Agreement, Guarantee or Mortgage has no real prospect of success.
The Code applies to contracts which are ‘credit contracts’ within the meaning of the Code.[76] Section 5(1) of the Code sets out the provision of credit to which the Code applies. Section 5(1) is set out below (emphasis added):
[76]Code, s 4.
5(1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of precontractual obligations) is proposed to be entered into:
(a)the debtor is a natural person or a strata corporation; and
(b)the credit is provided or intended to be provided wholly or predominantly:
(i)for personal, domestic or household purposes; or
(ii)to purchase, renovate or improve residential property for investment purposes; or
(iii)to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
(c)a charge is or may be made for providing the credit; and
(d)the credit provider provides the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction.
Section 204 of the Code defines ‘strata corporation’ to mean:
(a)a body corporate incorporated in relation to land subdivided wholly or mainly for residential purposes under a law of this or some other jurisdiction providing for strata, cluster, precinct or other subdivision of land; or
(b)a body corporate whose issued shares confer a right to occupy land for residential purposes.
Relevantly, the application of the Code turns on the identity of the debtor and the purpose of the provision of credit.
The first defendant is identified as the borrower under the Loan Agreement. It is a company registered in Victoria, has an Australian Company Number (‘ACN’), and is regulated by the Corporations Act 2001 (Cth) (amongst other things).[77] A strata corporation created in Victoria must be called ‘Owners corporation 1 –Plan No [the relevant plan number]’,[78] and a strata corporation created in Victoria is not a corporation within the meaning of the Corporations Act 2001 (Cth) and consequently does not have an ACN.[79]
[77]Exhibit RR-1, 1.
[78]Subdivision (Procedures) Regulations 2000 (Vic), reg 57(1) and (2).
[79]Subdivision Act 1988 (Vic), s 29.
It is readily apparent that the provisions of s 5(1) are cumulative,[80] such that for the contract to be a credit contract within the meaning of the Code and for the Code to apply, the debtor must be a natural person or a strata corporation. The first defendant is neither of these. Therefore, the Code does not apply to the Loan Agreement.
[80]Code, s 5(1).
For a guarantee to be regulated by the Code, the guarantee must secure obligations under a credit contract that itself is regulated by the Code.[81]
[81]Code, s 8.
Here, in entering into the Guarantee, the second defendant guaranteed the first defendant’s obligations under the Loan Agreement.
For a mortgage to be regulated by the Code, the mortgage must secure obligations under a credit contract or guarantee that is itself regulated by the Code.[82]
[82]Code, s 7.
Unless the Loan Agreement is a credit contract regulated by the Code, then the Guarantee is not regulated by it either. Unless the Loan Agreement or the Guarantee are regulated by the Code, then the Mortgage is not regulated by it either.
The Code does not apply to the Loan Agreement, the Guarantee or the Mortgage. Therefore, there is no real prospect of the defence succeeding in this regard.
Second, any defence based on misleading or deceptive conduct, or conduct likely to mislead or deceive, has no real prospect of success.
While the second defendant has deposed that he agrees “with the facts upon which [the PADCC] is founded”,[83] nowhere in the PADCC or the Hashi Affidavit are all of the necessary facts set out. Rather, as I mentioned above, in many respects the PADCC does not plead material facts but rather makes conclusionary allegations. To the extent that it does plead any material facts (for example, in paragraph 24), these are not backed by any evidence.
[83]See paragraph 83 above and Hashi Affidavit, [7].
In particular, the claim that the plaintiff engaged in misleading and deceptive conduct is a bald assertion to that effect and a general reference to the counterclaim, without setting out what conduct is said to have been misleading or deceptive. There are simply no facts set out to ground such a claim.
As set out in paragraph 28(a) above, the second defendant relies on both s 12DC of the ASIC Act and s 18 of the ACL as the statutory basis for his misleading and deceptive conduct claim. I note for completeness that the ACL does not apply to the supply of a financial service or a financial product.[84] As the Loan Agreement is a financial product for the purposes of the ASIC Act, it is excluded from the operation of the ACL.[85]
[84]ACL, s 131A.
[85]ACL, s 131A.
Third, the claim that the plaintiff’s conduct in seeking to enforce the Guarantee and Mortgage against the second defendant is unconscionable within the common law and in contravention of s 12CB of the ASIC Act has no real prospect of success.
There is no evidence to support the pleading that the plaintiff knew or ought to have known of the matters relied upon in the PADCC to allege that the second defendant was under a special disability. Those matters are: he is a migrant from Somalia; English is his second language; he has no substantial income; he supports his wife and eight children by Centrelink benefit; he is unsophisticated in matters of business and finance; and he has no assets of any value other than the Property, which is his family home.[86]
[86]PADCC, [24].
The evidence is that he had at least one business, a shop, and he had obviously been active in that business, as is evidenced by him entering into a lease for premises at Chadstone Shopping Centre.
Further, there is no basis for the alternative allegation that the absence of information about the second defendant’s financial circumstances put the plaintiff on notice that he lacked the capacity to meet the repayment obligations and interest rate and administration fee without having to sell the Property, and that he was not the principal servicer of the loan and if the first defendant failed to do so the second defendant would be unable to.[87]
[87]PADCC, [29].
Mr Rigoni deposes that in May 2017 a company related to the plaintiff arranged a separate loan to the first defendant, which was advanced for the purpose of funding fitout and stock for the first defendant’s clothing business (‘May 2017 Loan’).[88] He says that the same securities were offered by the defendants for the May 2017 Loan as for the Loan Agreement, save that the mortgage for the May 2017 Loan was a second ranking mortgage[89] (the mortgage for the Loan Agreement was a third ranking mortgage). Mr Rigoni deposes that the loan offer, loan agreement and security documents for the May 2017 Loan were executed by the second defendant, and he obtained independent legal advice in respect of those documents, with the lenders in that instance being provided with a legal advice certificate.[90] He says that the plaintiff relied upon the entry by the defendants into the documents relating to the May 2017 Loan and upon them having obtained legal advice in respect of them, in assessing and approving the Loan Agreement.[91] I note that the legal advice certificate in respect of the May 2017 Loan has been completed and signed by Mr Cavoli, and the second defendant has signed a section of it stating that the information contained in the certificate (i.e. that he had received legal advice and had the terms of the loan agreement, guarantee and mortgage explained to him).[92]
[88]Second Rigoni Affidavit, [6(a)].
[89]Second Rigoni Affidavit, [6(b)].
[90]Second Rigoni Affidavit, [6(c)].
[91]Second Rigoni Affidavit, [6(d)].
[92]Exhibit RR-2, 62-63.
The plaintiff was entitled to rely on the Mortgagor’s Representations (which included that he had been advised to obtain legal advice before signing the Mortgage and had had an opportunity to do so, that he understood the terms of the Mortgage, and that he had signed the Mortgage freely and voluntarily), in particular where there was a certificate of independent legal advice provided in respect of a very similar transaction entered into about two months previously.
Fourth, I do not accept the second defendant’s evidence that he was not aware that the Property would be affected if the loan was not repaid. This is completely inconsistent with the documents, and it is also inconsistent with the pleading in the counterclaim that he was advised that he would need to sign a loan agreement and give a guarantee and mortgage,[93] as well as the admissions in the defence that he signed the Guarantee and the Mortgage.[94]
[93]PADCC, [25(d)].
[94]PADCC, [5], [9].
Fifth, I accept the plaintiff’s submission that it was under no obligation to ensure that the defendants sought financial or legal advice. In any event, it is at least in part inconsistent with the evidence. At all times the defendants’ dealings with the plaintiff were through the defendants’ own finance broker – true it is that there is no evidence as to whether Mr Nicholls provided them with financial advice, nonetheless, the defendants at least had some assistance by someone assumedly knowledgeable in financial matters. According to the second defendant, he did not obtain substantive legal advice from Mr Cavoli, but he clearly had the opportunity to do so.
Sixth, the second defendant’s reliance on PSAL Ltd is not clear. There is a lengthy quote in the PADCC, ostensibly from the judgment in PSAL Ltd, with some parts underlined. I have reviewed the judgment and the passage in the PADCC is not a direct quote from the judgment. Rather, it appears to be a summary or commentary on the judgment, and the source for that is not given. Further, it is left to the reader of the PADCC to attempt to discern what it is from PSAL Ltd that the second defendant seeks to rely upon. Apart from anything else, this is an unsatisfactory way to plead. I accept the plaintiff’s submission that PSAL Ltd does not establish a separate or stand-alone cause of action, but rather may feed into allegations concerning unconscionability. I have dealt with unconscionability above.
I do not accept the defendants’ submissions as described in paragraphs 71 to 74 above. In particular, I do not accept:
(a) the colourful assertions of a conspiracy or an intention to ‘rip off’ the defendants by charging high interest rates and risking his house;
(b) the assertion that the plaintiff told Mr Nicholls the second defendant had to have a company. First, this is hearsay. Second, even if it was the case, it cannot be in reference to this transaction, as the first defendant was registered on 10 March 2017,[95] several months prior to the first defendant seeking a loan from the plaintiff;
[95]Exhibit RR-1, 1.
(c) the assertion that the plaintiff organised the loan with pre-paid interest because it knew he could not pay. There was simply no evidence to support this;
(d) the assertion that the plaintiff knew at the time of entering into this transaction that he could not pay because the May 2017 Loan was in default.[96] Mr Rigoni deposes that the May 2017 Loan was not in default when the Loan Agreement was entered into. He deposes that the plaintiff would not have approved the loan or made the advance under the Loan Agreement if the May 2017 had been in default at that time;[97] and
(e) that summary judgment should be refused so that the defendants can get another lawyer to properly draft the documentation. They have had ample opportunity to obtain legal advice and assistance, and indeed have done so, in drafting the PADCC.
[96]PADCC, [25(b)].
[97]Second Rigoni Affidavit, [6(a), (f)].
For all these reasons, the plaintiff is entitled to summary judgment for possession of the Property and for repayment of, at a minimum, the principal amount of $97,000. I deal with the question of interest below.
However, I am not yet persuaded that the second defendant’s proposed counterclaim based on the Loan Agreement containing unfair terms such that the terms which are alleged to be unfair are void has no real prospect of success. Those alleged unfair terms are the interest rate of 44% per annum and the mortgage manager’s weekly administrative fee of $550 while the loan is in default. Although this allegation is contained in the proposed counterclaim, they have an obvious flow on effect in respect of the defence.
Section 12BF(1) of the ASIC Act relevantly provides that a term of a small business contract is void if the term is unfair; the contract is a standard form contract; and the contract is a financial product.
Here, the Loan Agreement is a financial product.
Section 12BF(4) of the ASIC Act provides that a contract is a small business contract if at the time it is entered into at least one party to it is a business that employees fewer than 20 persons; and either the upfront price payable under the contract does not exceed $300,000 of the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
Since interest payable under a credit contract is excluded when working out the upfront price payable,[98] that aspect of s 12BF(4) is met. However, there is no evidence as to whether the plaintiff or first defendant employed fewer than 20 persons as at July 2017.
[98]ASIC Act, s 12BF(6).
Section 12BK(2) of the ASIC Act sets out factors which a court must take into account when determining whether a contract is a standard form contract. These include whether:
(a) one of the parties has all or most of the bargaining power relating to the transaction;
(b) the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
(c) another party was, in effect, required either to accept or reject the terms of the contract (other than certain excluded terms) in the form in which they were presented;
(d) another party was given an effective opportunity to negotiate the terms of the contract (other than certain excluded terms); and
(e) the terms of the contract (other than certain excluded terms) take into account the specific characteristics of another party or the particular transaction.
In this instance, there is no specific allegation in the PADCC that the Loan Agreement is a standard form contract within the meaning of the ASIC Act, however the PADCC does plead matters such as the defendants not having had an opportunity to negotiate the terms of the Loan Agreement.[99] It is tolerably clear that such allegations are referable to an unstated allegation that the Loan Agreement is a standard form contract, particularly given that they appear in the section of the PADCC dealing with the unfair terms allegation.
[99]See PADCC, [20], [21].
That the PADCC is defective in that it does not expressly plead that the Loan Agreement is a standard form contract does not mean that summary judgment should be granted. I am required to consider whether this defect in the PADCC could be cured by way of an amendment. A court applying the test for summary judgment ought to consider whether any defect in the pleadings can be cured by amendment, but should not permit a pleading amendment which would itself have no real prospects of success.[100] In this instance, provided there is a proper basis for the unfair terms allegation, an amendment would be permissible.
[100]Mandie v Memart Nominees Pty Ltd [2016] VSCA 4, [42], [43], [46].
The plaintiff relies on the fact that the defendants changed the amount to be borrowed to say that the defendants had an effective opportunity to negotiate the terms of the Loan Agreement. True it is that the defendants’ assertion is contradicted by the plaintiff’s evidence in this regard, as the defendants made the change via their changes to the First Letter of Offer. However, I am not convinced that the defendants changing the amount to be borrowed, which the plaintiff agreed to, evidences the defendants having an effective opportunity to negotiate the terms of the Loan Agreement. In effect, they were negotiating the upfront price (a term to which s 12BF of the ASIC Act does not apply). After all, it is usually the borrower who sets out how much they want to borrow. Further, changing this aspect of the Letter of Offer may not necessarily go to whether all matters in the contract, or any matter other than the loan amount, were negotiable.
I also note that s 12BK(1) of the ASIC Act provides that if a party alleges that a contract is a standard form contract, it is presumed to be so unless another party to the proceeding proves otherwise. In this instance then, the onus rests on the plaintiff.
Section 12BG of the ASIC Act provides that a term of a relevant contract is unfair if it:
(a) would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
(b) is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) would cause detriment to a party if it were to be applied or relied upon.
The PADCC is not clear in how it is said that the interest rate of 44% per annum and the administrative fee are unfair. It may not be just the interest rate itself, for example, but the term allowing for interest to be charged monthly and capitalised, so that the loan amount increases exponentially once it is in default and no payments are made, that makes it unfair within the meaning of s 12BG of the ASIC Act. Further, there are no clear allegations of material facts made which go to the matters set out in s 12BG: rather, there are just conclusionary allegations that the terms go to these matters. It is possible that amendments to the PADCC may deal with this, but at this stage I am not in a position to assess whether such amendments have a proper basis, as the evidence provided by the defendants does not assist. However, I note the rebuttable presumption in s 12BG(4) of the ASIC Act, which provides that a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise. In this respect, the onus is on the plaintiff to show this. Even so, the defendants would be required to make out the other elements described in paragraph 122 above.
If a term of a small business contract is found to be unfair within the meaning of the ASIC Act, it is that term which is void. The contract continues to bind the parties if it is capable of operating without the unfair term.[101] In this instance, a defence or counterclaim based on the unfair contract terms provisions of the ASIC Act is highly unlikely to have any effect on the defendants’ obligations in respect of the principal amount.
[101]ASIC Act, s 12BF(2).
Interest
The Default Notice was not sent to the defendants until 9 September 2019. As noted in paragraph 25 above, there was no explanation before the Court for the delay between the Default and the sending of the Default Notice. There is no evidence of any earlier default notices being sent.
In submissions, the defendants complain that the plaintiff should have brought its case earlier. While an answer to this is that the defendants should have repaid the loan earlier, it does trouble me that there was such a lengthy unexplained period between the Default and the Default Notice. This raises the question of whether interest should be awarded pursuant to the Loan Agreement, or pursuant to sections 58 and/or 60 of the Supreme Court Act 1986 (Vic), by reference to the Penalty Interest Act 1983 (Vic). It also raises the question of the period for which interest should be awarded. Further, it raises the question of whether summary judgment should be ordered for any amount above the principal amount of $97,000.
The plaintiff claims payment of the amount of $317,839.88 in the SOC. Presumably, this is calculated by reference to the principal of $97,000 plus interest at 44% per annum along with fees and charges. I base this presumption on the following.
Mr Rigoni exhibits to his first affidavit what he describes as a certificate pursuant to clause 31(10) of the Mortgage confirming the amount owing as at 29 May 2020.[102] That is a document entitled ‘statement of account’ and is dated 29 May 2020, and signed by Mr Rigoni. The amount said to be owing at that date is $409,977.64. It comprises the principal amount of $97,000; monthly manager’s administration fee of $1,906.67; interest calculated monthly at 44% per annum; mortgage insurance; and legal fees.
[102]First Rigoni Affidavit, [29]; Exhibit RR-1, 186-187.
I take the reference by Mr Rigoni to clause 31(10) of the Mortgage as being a reference to Memorandum of Common Provisions No. AA689 (‘MCP’), which is the memorandum referred to in the Mortgage. Clause 31(10) of the MCP provides that a certificate purporting to be signed by the mortgagee or any of its solicitors, directors, secretaries, managers or other duly authorised officers stating, inter alia, the moneys secured at any date, shall be prima facie evidence that fact.[103] This is one of the provisions of the MCP relied upon by the plaintiff in the SOC.[104]
[103]Exhibit RR-1, 178.
[104]SOC, [14(h)].
In addition to the amount of $317,839.88 as at 4 December 2019, the date to which the plaintiff calculated money owing in the SOC, the plaintiff claims interest on that amount at the rate per annum specified in the Loan Agreement (being 44% per annum), such interest being calculated monthly and debited monthly in advance and capitalised on the balance outstanding from time to time. That balance includes the monthly administrative fee and any other fees/charges debited to the account, such that those amounts are also capitalised.
The plaintiff also claims interest on the judgment sum (being the $317,839.88 plus interest from then until judgment calculated as set out in the previous paragraph) at the rate set out in the Loan Agreement, being 44% per annum.
Alternatively, the plaintiff claims interest pursuant to statute on the total amount owing.
I should indicate that I do not consider that there was any relevant delay between the Default Notice and commencing the proceeding.
This question of interest was raised briefly towards the end of the hearing, and seemingly on the run. I have not had the benefit of full submissions on it. In fairness to the parties, they should be given an opportunity to consider this further and to file any affidavits or submissions they wish to rely upon, which should address the question of the interest rate and the period for which interest should be awarded.
Conclusion
For the reasons set out above, the Application will be granted and there will be summary judgment for the plaintiff entitling the plaintiff to possession of the Property and payment of the sum of $97,000.
For the reasons set out in paragraphs 112 to 124, 126, and 134 above, I will need to hear further from the parties as to whether there should be summary judgment in respect of the balance of the claim, the interest rate to be applied and the period for which it is to be applied. The proceeding will be listed for 9 October 2020 at 10.30am, to hear from the parties on these matters and on the form of orders, and costs.
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