Pepper Home Loans Pty Limited v Tonadale Pty Limited

[2008] NSWDC 10

CITATION:	Pepper Home Loans Pty Limited v Tonadale Pty Limited [2008] NSWDC 10
HEARING DATE(S):	31/1/08 and 12/2/08
JUDGMENT DATE:	15 February 2008
JURISDICTION:	Civil
JUDGMENT OF:	Rolfe DCJ
DECISION:	See Paragraph 35 of Judgment
CATCHWORDS:	Application for Summary Judgment - Claim based on indemnity provisions in sub-origination Deed - Misleading and incorrect representations - Reliance - Causation - Contributory Negligence - Negligence
LEGISLATION CITED:	Uniform Civil Procedure Rules Trade Practices Act 1974 (Cth)
CASES CITED:	General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Wardley Australia Limited v Western Australia (1992) 175CLR 514 at 533, 558. BP Refinery (Westport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 at 283 Argy & Anor v Blunts and Lane Cove Real Estate Pty Limited (trading as Blunts of Lane Cove) and Ors (1990) 94 ALR 719 at 744 Henjo Investments Pty Ltd v Collins Marrickville Pty Limited (1988) 79 ALR 83 at 96 Gould v Vaggelas (1984) 157 CLR 215
PARTIES:	Pepper Home Loans Pty Limited (Plaintiff) Tonadale Pty Limited (1st Defendant) Kelvin Mark Skeers (2nd Defendant)
FILE NUMBER(S):	6280/06
COUNSEL:	T D Castle for the Plaintiff P A Horvath for the 1st Defendant No appearance for 2nd Defendant

JUDGMENT

1 By Amended Notice of Motion filed in Court on 31 January 2008 the plaintiff, pursuant to Part 13 Rule 13.1 and 13.2 of the Uniform Civil Procedure Rules, applies for Summary judgment against the 1st Defendant, Tonadale Pty Limited (“Tonadale”) and for damages to be assessed and for costs. In order to succeed, the plaintiff bears the onus of establishing that there is no possibility of the defence succeeding: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 533, 558.

2 The plaintiff’s causes of action are pleaded in the Amended Statement of Claim dated 12 February 2008 which, by leave, was filed by facsimile transmission sent to my associate. The Defence to the Amended Statement of Claim is dated 12 February 2008 and it was also filed by leave by facsimile transmission sent to my associate.

3 The plaintiff is a provider of financial services and made loans to Mr Aj Biega.

4 Tonadale carried on the business of introducing customers to financial service providers including the plaintiff. The 2nd Defendant, Kelvin Mark Skeers, was a mortgage broker employed by Tonadale.

5 In the case of the 2nd Defendant, Mr Skeers, at the plaintiff’s request, the plaintiff’s application for summary judgment has been stood over until 21 March 2008.

6 In about August 2004 Mr Biega sought Mr Skeers’ assistance in obtaining finance to purchase the property at 10 Olive Pink Crescent Banks, ACT (the “Property”).

7 On 5 August 2004 Mr Skeers, on behalf of Tonadale, submitted a loan application to the plaintiff for its approval. As a result, the plaintiff advanced a first loan to Mr Biega of $356,025 so he could purchase the Property.

8 In about November 2005 Mr Biega approached Mr Skeers again, this time to inquire about refinancing the first loan on the Property.

9 On 23 November 2005 Mr Skeers, on behalf of Tonadale, submitted a second loan application to the plaintiff for its approval. As a result, the plaintiff advanced a second loan of $401,897 to Mr Biega. The second loan was used to extinguish the amount owing by Mr Biega to the plaintiff on the first loan.

10 Prior to the above transactions, the plaintiff and Tonadale were parties to a sub-origination deed (“Deed”) dated 28 February 2002. The Deed governed the introduction by Tonadale to the plaintiff of potential borrowers.

11 In the Deed the plaintiff was referred to as the Originator and Tonadale was referred to as the Sub-Originator.

12 By Clause 11 of the Deed, Tonadale provided the plaintiff with the following indemnity:

“11. Sub originator’s indemnity

Indemnities

The Sub Originator agrees to indemnify and keep indemnified the Originator against, and must pay the Originator on demand the amount of, all losses, liabilities, costs (including any legal costs) expenses and damages incurred or arising in connection with:

(a) any breach by the Sub Originator or any Representative of the Sub Originator of their respective obligations under this document;

(b) any representation by the Sub Originator in or in connection with this document or any Application proving to be incorrect or misleading (whether by omission or otherwise);

(c) any Termination Event; and

(d) any default, negligence, act or omission of the Sub Originator or any Representative of the Sub Originator in the course of or related to this document or any Application.”

13 The plaintiff has pleaded various causes of action against Tonadale. Relevantly, the plaintiff claims that Tonadale is obliged to indemnify it under the Deed in respect of all losses, liabilities, costs, expenses and damages incurred as a consequence of representations made to the plaintiff by Tonadale when it submitted the loan applications to the plaintiff for the first loan and for the second loan. The representations are particularised in paragraphs 18 and 19 of the Further Amended Statement of Claim. The plaintiff also relies on the orders and judgment of Gyles, J made in the Federal Court of Australia in proceedings No. ACD 27/06 on 3 October 2007 and 9 October 2007.

14 The orders made in the Federal Court by Gyles J and his Honour’s reasons for judgment are located at Tabs 2 & 3 of Exhibit A. It is unnecessary to set them out. Briefly, the orders were made as a consequence of proceedings commenced by the Australian Securities and Investments Commission against Mr Skeers as 1st Defendant and Tonadale as 2nd Defendant. Tonadale was represented in the proceedings, accepted liability for the actions of Mr Skeers and consented to the relief granted.

15 In its Defence dated 12 February 2008 and through its counsel, Tonadale admitted that in connection with the first loan application and the second loan application it made representations to the plaintiff which have been proved to be incorrect. Because it was agreed that the representations were made and were incorrect, for convenience, I have set them out in Order 1 below.

16 In the context of the proceedings before this Court it is hardly surprising, in light of what occurred in the Federal Court of Australia, that Tonadale has made the admissions in relation to the plaintiff’s claim which I have referred to above. Further, it follows that the representations relied on by the plaintiff are within the provisions of Clause 11.1 (b) of the Deed.

17 The plaintiff alleges it has incurred losses, liabilities, costs, (including legal costs), expenses and damages as a consequence of the admitted representations. The plaintiff says that, leaving aside the quantification of its claim, the defendant has no defence to the plaintiff’s cause of action on the Deed. Therefore, if the plaintiff succeeds on its application, this means that the only matters requiring further determination by the Court will be as follows:

(a) Whether the plaintiff incurred losses in the amount of $92,878.79, being interest and fees charged to Mr Biega which the plaintiff repaid to him.

(b) Whether legal costs and disbursements amounting to $67,253.70 incurred by the plaintiff in the investigation conducted by ASIC are recoverable under the Deed.

(c) Whether legal costs incurred as a result of a dispute between the plaintiff and the ACT Consumer Law Centre acting on behalf of Mr Biega amounting to $12,547.43 are recoverable under the Deed.

18 In relation to category (a) the plaintiff accepts that, at the assessment hearing, it will be open to the defendant to contend, as pleaded in para 22 (a) (ii) of the Defence dated 12 February 2008, that no damages will flow insofar as they may have resulted from a commercial decision taken by the plaintiff to make a payment to Mr Biega or release him from contractual obligations where, prior to making such a decision, the plaintiff was under no legal obligation to make such payment or provide a release. In relation to category (b) and category (c), the plaintiff submits that all it will be required to do is to prove that the payments were made and that they are recoverable under the terms of Clause 11 of the Deed.

19 On the other hand, the defendant contends that there is a triable issue which goes to the heart of Tonadale’s liability to the plaintiff.

20 As I understood the submission, the triable issue identified by counsel for Tonadale was said to arise from a combination of paragraphs 6(a) and paragraph 22(a) (i) and (b) of the Defence dated 12 February 2008. (I interpolate here that paragraph 22(a) (ii) is not included because it goes to the quantification issue referred to in paragraph 18 of this judgment and which the plaintiff conceded can be raised at the assessment hearing).

21 Paragraph 6(a) of the Amended Defence is as follows:

“6. As to paragraph 5B of the amended statement of claim, the first defendant:

a. Denies that any representation by the first defendant in connection with the first loan agreement or the second loan agreement was the cause of any loss, liability, costs (including legal costs) expense or damages which the plaintiff alleges to have suffered.”

22 Paragraph 22 of the Amended Defence is as follows:

“22. In further answer to paragraphs 5 5A and 5B of the amended statement of claim, the first defendant says that upon a proper construction of clause 11 of the Deed if, (which is not admitted) the Deed applies to the relevant transactions:

a. The first defendant is only obliged to indemnity the plaintiff in respect of such losses, liabilities, costs, expenses and damages which were not incurred either:


i. as a result of the negligence of the plaintiff; or

ii …..


b. The losses, liabilities, costs, expenses and damages, if they were in fact suffered, were suffered as a result of the plaintiff’s own neglect.

Particulars

i. Failure to follow its operational procedures with respect to the advancement of credit.

ii. Advancing credit despite inconsistencies and gaps in the documentation provided (more particularly identified in the letter from Consumer Law Centre dated 26 June 2006).

iii. Approving a re-finance with attendant and significant fees and charges when all that was required was an increase in the loan.

iv. Failure to do anything to independently assess the capacity or willingness of Biega to repay the proposed loan or to continue to pay interest on the loan.

v. Determining to repay to Biega or release Biega from liability to pay the interest and fees charged to Biega over the life of the First Loan and the Second Loan, as pleaded in paragraph 16 of the statement of claim.”

23 To the extent that it may have been faintly submitted on the first day of the hearing of the Amended Notice of Motion that the Court ought imply some sort of a term in Clause 11 of the Deed to the effect that the plaintiff could only rely on the indemnity if it had acted with reasonable care and skill, I reject the submission as it has no foundation in law. There is no basis at all for the implication of such a term and none of the criteria referred to in BP Refinery (Westport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 at 283 apply here.

24 As best as I could understand it, counsel for Tonadale seemed to be submitting that, although the representations were made by her client, the plaintiff’s losses were not caused by them. Such cause, so it would seem, was the plaintiff’s “own neglect” (Amended Defence, para 22(b)), or negligence or contributory negligence both of which were mentioned in argument. Conceptually, contributory negligence can have no role to play in this case. Rather, it seems to me that counsel for Tonadale was alluding to the question of reliance in the context of those cases where the Courts have decided, for example, that even where a representation is fraudulent, if the person to whom it was made does not rely on it, or it was not in fact an inducement, he does not have a case.

25 In the cases under the Trade Practices Act 1974 (Cth) the issue which Tonadale is agitating has been discussed. Argy & Anor v Blunts and Lane Cove Real Estate Pty Limited (trading as Blunts of Lane Cove) and Ors (1990) 94 ALR 719 at 744 is perhaps the high water mark. In that case Hill, J said:

“A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant. However, in my view, the present cannot be said to be that case.”

26 Hill, J referred to Henjo Investments Pty Ltd v Collins Marrickville Pty Limited (1988) 79 ALR 83 at 96 where Lockhart, J in turn referred to cases where the causal chain had not been broken even when the applicant had failed to take reasonable care of his own interests. Lockhart, J said:

“These decisions support the view that recovery under s 52 is founded by the applicant’s actual reliance upon the misleading or deceptive conduct of the respondent, although that conduct was not the only factor in the applicant’s decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity.”

27 The above cases are illustrative only and not directly on point because it has to be borne in mind that s 82 of the Trade Practices Act authorises the recovery of damages for loss suffered “by” the contravening conduct. In the present case, the Court is concerned with a broader category of damage being the plaintiff’s losses, etc “incurred or arising in connection with “the representations”.

28 In determining the matter, it is also helpful to bear in mind the principles which apply in an action for deceit. In Gould v Vaggelas (1984) 157 CLR 215, Wilson, J set out four principles which assist the Court in these proceedings:

“(1) Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.

(2) If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.

(3) The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.

(4) The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract.”

29 In the proceedings in this Court, the plaintiff relied on the evidence of Mr Begnall and Mr Briggs. In Mr Begnall’s affidavit sworn on 21 November 2007 he said he was an underwriter employed by the plaintiff at the relevant time. His job included the responsibility of assessing home loans. He set out in his affidavit the practice he adopted and the procedure he followed. His evidence was that, following such procedure and relying on the loan application documentation, he recommended that the first loan to Mr Biega be approved and that is what occurred. Mr Begnall was cross-examined at some length by counsel for Tonadale. In cross-examination Mr Begnall reinforced the evidence he gave in his affidavit. Moreover, for example, he denied that he would have recommended the loan even if the Mr Biega’s true employment details had been known to him or if Mr Begnall’s real position concerning ownership of computer equipment and art equipment had been known to him.

30 Mr Begnall was an impressive witness. He was unshaken in cross-examination and I accept his evidence completely.

31 In Mr Briggs’ affidavit sworn on 21 November 2007 he said he has been employed by the plaintiff for some time and has been the underwriting manager since January 2005. He is responsible for supervising underwriters. This role includes assessing loan applications. Mr Briggs identified the procedure followed in processing a loan application and said he approved Mr Biega’s application for the second loan. Mr Briggs said that, in doing so, he relied on the information provided in the loan application documentation.

32 Mr Briggs was also cross-examined and maintained steadfastly that he would not have approved the loan if he had known Mr Biega was unemployed and not receiving any income. Mr Briggs was also an impressive witness who was unshaken in cross-examination and I accept his evidence in its entirety.

33 Having heard the evidence of Mr Begnall and Mr Briggs, I am comfortably satisfied that the plaintiff followed its operational procedures in deciding to make both loans to Mr Biega and in doing so, it relied on the information provided by Tonadale. In this respect, there is no evidence whatsoever of the plaintiff having departed from its guidelines. In fact, Mr Briggs said that the loan applications “were processed in accordance with (the plaintiff’s) Credit Manual” (paragraph 9 of his affidavit) and his evidence about this remained unchallenged.

34 In these proceedings, there is not a skerrick of evidence which would support a submission that the plaintiff behaved negligently in protecting its own interests let alone being so negligent such that the Court would conclude that, somehow or other, the plaintiff did not rely on the defendant’s misrepresentations in making the loans to Mr Biega and suffering the losses it claims. Nor is there any evidence to support a submission that the causal chain had somehow been broken by the plaintiff’s actions so as to relieve Tonadale of liability. Finally, there is no hint of any evidence to demonstrate that before the plaintiff provided the loans or either of them it knew of other facts which would demonstrate that the representations were untrue and could not be relied on.

35 In the result, the Court is comfortably satisfied that, on liability, the defendant has no defence and there is no possibility of the defence that has been pleaded succeeding. The relevant part of the defence should be struck out and judgment entered for the plaintiff. Accordingly, the Court makes the following orders:

1. Order pursuant to Uniform Civil Procedure Rule 13.1 that the First Defendant indemnify the Plaintiff pursuant to clause 11.1(b) of the Sub-Origination Deed entered into between the Plaintiff and First Defendant on or about 28 February 2002 (Deed), for the Plaintiff’s losses, liabilities, costs (including legal costs), expenses and damages (if any) incurred or arising in connection with the following representations made by the First Defendant to the Plaintiff which have been proved to be incorrect:


(a) Representing to the Plaintiff between mid-July to 5 August 2004 that the First Defendant had been informed by Mr Biega that he had an income of $75,000 per annum, when in fact Mr Biega had not informed the First Defendant of this matter.

(b) Representing to the Plaintiff between mid-July to 5 August 2004 that the First Defendant had been informed by Mr Biega that he had full-time employment, when in fact Mr Biega had not informed the First Defendant of this matter.

(c) Representing to the Plaintiff between mid-July to 5 August 2004 that the First Defendant had been informed by Mr Biega that he owned furniture that he estimated as being worth $100,000, when in fact Mr Biega had not informed the First Defendant of this matter.

(d) Representing to the Plaintiff between mid-July to 5 August 2004 that the First Defendant had been informed by Mr Biega that he owned computer and art equipment which he estimated as being worth $40,000, when in fact Mr Biega had not informed the First Defendant of this matter.

(e) Representing to the Plaintiff between mid-July to 5 August 2004 that the First Defendant had been informed by Mr Biega that Hussey and Hussey were his accountants, when in fact Mr Biega had not informed the First Defendant of this matter.

(f) Representing to the Plaintiff on or about 23 November 2005 that the First Defendant had been informed by Mr Biega that he had an income of $10,000 per month, when in fact Mr Biega had not informed the First Defendant of this matter.

(g) Representing to the Plaintiff on or about 23 November 2005 that the First Defendant had been informed by Mr Biega that he was in full-time employment when in fact Mr Biega had not informed the First Defendant of this matter.

(h) Representing to the Plaintiff on or about 23 November 2005 that the First Defendant had been informed by Mr Biega that he owned furniture that he estimated as being worth $120,000, when in fact Mr Biega had not informed the First Defendant of this matter.

(i) Representing to the Plaintiff on or about 23 November 2005 that the First Defendant had been informed by Mr Biega that he owned antiques and memorabilia which he estimated as being worth $100,000, when in fact Mr Biega had not informed the First Defendant of this matter.

(j) Representing to the Plaintiff on or about 23 November 2005 that the First Defendant had been informed by Mr Biega that Hussey and Hussey were his accountants, when in fact Mr Biega had not informed the First Defendant of this matter.


2. Order pursuant to Uniform Civil Procedure Rule 13.2 that, as between the plaintiff and the first defendant, damages be assessed.

3. Order pursuant to Uniform Civil Procedure Rule 14.28 (1) (a) that the defences advanced by the first defendant in relation to any claim of negligence or contributory negligence in relation to the plaintiff’s decision to make the First Loan or the Second Loan (being the matters raised in paragraphs 6(c), 22(a)(i) and 22(b) of the First Defendant’s defence to the amended statement of claim) be struck out.

4. Order that, at the assessment hearing, the following issues are to be determined – consequent upon Orders 1, 2 and 3 hereof:


(a) whether the plaintiff incurred the loss and damage referred to in the paragraphs (i) – (iii) of the particulars to paragraph 16 of the amended statement of claim dated 12 February 2008 and the amount of such loss and damage;

(b) whether the amounts in (a) above fall within the meaning of “losses, liabilities, costs (including legal costs), expenses and damages” in clause 11.1(b) of the Deed; and

(c) whether the payments referred to in particulars (i) – (iii) of paragraph 16 of the amended statement of claim were incurred or arose in connection with the representations made by the first defendant to the plaintiff as set out in order 1 above.

5. Direct that evidence on the matters set out at paragraph 4 be served in accordance with the following timetable:


(a) the plaintiff to serve any affidavits on which it intends to rely by 28 February 2008;

(b) the first defendant to serve any affidavits on which it intends to rely by 17 March 2008;


6. Stand over for further directions in the Commercial List on 21 March 2008 with a view to fixing a hearing date for the assessment of damages.

7. Order the plaintiff to pay the costs of the first defendant thrown away as a consequence of the grant of leave on 12/2/08 to file and serve an amended statement of claim, such costs to be agreed or assessed on the ordinary basis.

8. Order that the remaining costs of the Plaintiff’s Amended Notice of Motion (being those costs not already the subject of the order made by His Honour Judge Donovan QC on 23 November 2007) be costs in the cause.

9. Vacate the order made by His Honour Judge Rein SC on 13 November 2007 which required the plaintiff to give discovery to the first defendant of documents identified by paragraphs 4 and 6 of the first defendant’s list of categories dated 25 June 2007.

10. Stand over before the Commercial List Judge on 21 March 2008 the plaintiff’s amended notice of motion filed on 31 January 2008 in so far as it applies to the second defendant.

11. Order the second defendant to show cause on 21 March 2008 as to why his defence should not be struck out by reason of his failure to comply with earlier orders of the Court and his non-appearance on 31 January 2008.

12. Liberty to apply on 3 days notice.

13. Usual Default Order.

14. Order the plaintiff to notify the second defendant in writing of these orders within 7 days.

15. Direct that the exhibit be returned.

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