Performance Health (Aust) Pty Ltd v Cross

[2013] VCC 1793

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-12-04272

PERFORMANCE HEALTH (AUST) PTY LTD	Plaintiff
v.
LAURA CROSS & ORS	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	21 November 2013
DATE OF JUDGMENT:	22 November 2013
CASE MAY BE CITED AS:	Performance Health (Aust) Pty Ltd v. Cross & Ors
MEDIUM NEUTRAL CITATION:	[2013] VCC 1793

REASONS FOR JUDGMENT

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Catchwords:              Practice and procedure – Application to set aside default judgment – Married woman executing loan and mortgage documents at husband’s request – Whether arguable defence on the merits.    

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P. Marzella	Tasio Poulos Lambros & Co
For the Defendant	Mr A. Strauch	B2B Lawyers

HIS HONOUR:

1Laura Cross seeks to have a default judgment entered against her set aside. On 13 April 2012, Ms Cross executed documents including a loan agreement with the plaintiff, and mortgages in respect of properties she owned at Mentone and Mordialloc to secure the loan advances.

2In this proceeding, the plaintiff claimed against Ms Cross, her husband Dwayne Cross and two companies of which he was a director, the sum of $750,000 as the advances pursuant to the Deed of Loan and interest on that sum. Against Ms Cross, the plaintiff further claimed possession of the properties at Mentone and Mordialloc.

3On 28 February 2013, judgment was entered in default of appearance against Mr and Ms Cross and one of the corporate defendant. On 3 September 2013, the judgment was amended to include judgment against Ms Cross for possession of the two properties.

4On 12 September 2013, the plaintiff issued a warrant of possession. The warrant is due to be executed by the Sheriff at any time after 22 November 2013. The application by Ms Cross to set aside judgment was made by summons issued on 14 November 2013.

Reason judgment was allowed to be entered

5Ms Cross, in an affidavit in support of her application, swears that, “I am not aware of having been served with any court documents in this proceeding, and I was not aware of this legal proceeding until after judgment in default of defence had been entered against me”. This was on about 18 March 2013 when Ms Cross said that she received a letter from the plaintiff’s solicitors “advising that a judgment had been entered against me”.

6Ms Cross had been served with the Writ in accordance with an order for substituted service. The order was made in reliance upon five affidavits deposing to the fact that service had been attempted upon her at her home in Mordialloc (one of the mortgaged properties), and at a furniture store in Dandenong South where she worked as the manager. The affidavit material suggested that Ms Cross had deliberately avoided service.

7The Writ and the order for substituted service were served upon Ms Cross by the documents being placed in an envelope addressed to Ms Cross and left for her both at the Mordialloc address and at her place of employment. Although the affidavits supporting the application for substituted service were listed on the order for substituted service and these affidavits and the affidavit of service of the Writ were on the court file, their contents were not addressed by Ms Cross in her affidavit in support of the present application.

8No explanation was offered by Ms Cross for not making an application to set aside the judgment when she became aware in March 2013 that judgment had been entered against her. Ms Cross said that her husband had told her that, at a meeting he had with representatives of the plaintiff on 2 October 2013, he was told that the plaintiff would “hold off on any further action against Dwayne and I in relation to my properties until further notice...by the end of the month”. The Sheriff’s Office gave notice on 21 October 2013 that she and her husband must vacate the Mordialloc property.

Whether Ms Cross has an arguable defence

9Ms Cross asserts that she has a defence on the merits arising from the circumstances in which she executed the mortgages and the other documents relating to the transaction. In her affidavit in support of the application, Ms Cross deposes to the following matters:

a.in early April 2013, Ms Cross was told by her husband that he needed money for the business he conducted through the fourth defendant;

b.soon after, Mr Cross told her that he could borrow money from Mr Tom Karas. She said, “I don’t recall the exact sum”;

c.Mr Cross said that for him to get the loan, Ms Cross “would have to sign a caveat over my properties at...Mordialloc and...Mentone”;

d.Ms Cross said, “I was very concerned. I asked Dwayne and he told me that I couldn’t sell the properties without Karas’ permission, but he stressed to me that Karas could never take our homes”;

e.Ms Cross received loan documents by email from her husband. She said she was “very anxious at the number of documents”;

f.Ms Cross said her husband told her that, “these were loan documents and that it was only a caveat that would be going on my properties”;

g.some days later, Ms Cross went together with her husband to “see his lawyers to sign the loan documents”. Ms Cross asked the lawyer she saw, “what these documents meant because I didn’t understand, and she told me essentially that it meant that I couldn’t sell my homes without prior agreement from Performance Health”;

h.Ms Cross said that:

i.she “was led to believe that whilst what I was signing would allow Karas to have caveats on my properties, these would not actually be lodged on my properties”;

ii.she believed that she “could not sell [the properties] without permission from Karas, but that he would not be able to take my properties”;

iii.she was “not informed of the true nature of the transaction, nor understood that I was a named borrower [or] that there was a mortgage”;

iv.she “was not afforded, nor did I obtain independent legal advice”;

v.she “did not benefit from the transaction”.

10Ms Cross said that during 2012 she received information which suggested that the nature of the transaction was different from what she said she had believed. The further information was:

a.documents from a government department in April 2012 that “caveats had been put on my properties”;

b.a phone call from her bank manager in June 2012 that she had signed a
“second mortgage” with Performance Health;

c.a letter from the plaintiff’s solicitors in July 2012 that she must repay $750,000 as she had not paid interest on the loan.

11Ms Cross said she was again reassured by her husband that he had spoken to Mr Karas and that he had to “go through the motions” and “they should meet to discuss the matter”.

12An affidavit in opposition to the application was sworn by Shane Charter, a director of the plaintiff. The affidavit exhibited:

a.a loan agreement dated 13 April 2012 signed by Ms Cross and witnessed by Ms Marianne Ross. In the loan agreement, Ms Cross is listed in the Schedule (which Ms Cross initialled in four places) as a “borrower” together with her husband and the two companies. The Schedule notes the “principal sum” as $750,000 to be provided “by two advances”, the first of $250,000 and the second of $500,000, and that the “security” was the two properties;

b.a statutory declaration executed by Ms Cross before the solicitor Ms Ross on 19 April 2012;

c.a mortgage in repect of the Mordialloc and Mentone properties signed by Ms Cross and witnessed by Ms Ross;

13The statutory declaration by Ms Cross, declares as follows:

“1.I am one of the Borrowers named in the Financial Accommodation Agreement and Mortgage documents dated the same date as this declaration in favour of the lender relating to the Security described in the Financial Accommodation Agreement (‘Transaction Documents’).

2.I have received independent legal advice regarding the Transaction Documents.

3.After receiving that advice I have freely and voluntarily signed the Transaction Documents.”

14Ms Cross’ counsel, Mr Strauch, submitted that as Ms Cross was in a “special relationship” as regards her husband, the onus was upon the lender to satisfy the court that she had entered the transaction freely and had understood the consequences of signing the transaction documents. Mr Strauch submitted that equity would intervene to prevent the lender from enforcing the loan agreement or the mortgage against Ms Cross.

15Mr Strauch submitted that the statutory declaration was simply another document that Ms Cross had signed without reading, and should carry far less weight than if the lender had required a certificate to be provided by the solicitor. In the circumstances, unless Ms Cross’ defence was regarded as “completely incredulous” the judgment should be set aside and the matter should go forward to trial.

16Mr Marzella of counsel for the plaintiff relied upon the fact that, in relation to Ms Cross’ employment, she was the store manager and had, until 2 July 2013, been a director of two companies whose principal place of business was the address of the furniture store. The first company was the shareholder of the second and Ms Cross had, until recently, been a shareholder in the first company.

17Further, Mr Charter’s affidavit exhibited a report of the liquidators of the third defendant, Paper Chase Touring and Entertainment Pty Ltd, to creditors dated 12 September 2013. The report referred to “a number of voidable transactions” by the company “including the disbursement of GST refunds”. The report stated that “Mrs Cross received substantial payments from the company”. The report stated that solicitors had been instructed to demand “recovery of these uncommercial transactions”.

18Mr Marzella submitted that the matters deposed to by Ms Cross did not amount to an arguable defence and that equity would not intervene in the circumstances of the present case. Mr Marzella referred to the decision of the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395 (“Garcia”) at paragraph 24 where the majority (Gaudron, McHugh, Gummow and Hayne JJ) referred to what Dixon J said in Yerkey v Jones (1939) 63 CLR 649 (“Yerkey v Jones”).

19Dixon J distinguished the case where a husband exercised “actual undue influence” over his wife to a case “in which there is no undue influence but there is a failure to explain adequately and accurately the surety transaction which the husband seeks to have the husband enter for the immediate economic benefit not of the wife but of the husband” (Garcia at paragraph 23).

20At pages 685 to 686 of Yerkey v Jones, Dixon J said that in the latter type of case:

“If the creditor takes adequate steps to inform her and reasonably supposes that she has an adequate comprehension of the obligations she is undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or, indeed, the significance of what she is doing, cannot, I think, in itself give her an equity to set it aside, notwithstanding that at an earlier stage the creditor relied upon her husband to obtain her consent to enter into the obligation of surety. The creditor may have done enough by superintending himself the execution of the document and by attempting to assure himself by means of questions or explanation that she knows to what she is committing herself. The sufficiency of this must depend on circumstances, as, for example, the ramifications and complexities of the transaction, the amount of deception practised by the husband upon his wife and the intelligence and business understanding of the woman. But, if the wife has been in receipt of the advice of a stranger whom the creditor believes on reasonable grounds to be competent, independent and disinterested, then the circumstances would need to be very exceptional before the creditor could be held bound by any equity which otherwise might arise from the husband's conduct and his wife's actual failure to understand the transaction”.

21In Garcia, the majority at paragraph 42, stated their conclusion as follows:

“What then of the present case? The trial judge found that the appellant did not understand the purport or effect of the transaction. She knew it was a guarantee but she thought it was a guarantee of limited overdraft accommodation to be applied only in the purchase of gold. Nor did she understand that her obligations under the guarantee were secured by the mortgage which she had given over her home. It being found that the bank took no step to explain the transaction to her and knew of no independent advice to her about it (there having been no such independent advice) the conclusion that the appellant was entitled to succeed in her claim to set the transaction aside was inevitable if she was a volunteer”.

Conclusions

22Ms Cross failed to address the material exhibited to Mr Charter’s affidavit. She stated what her “belief” or “understanding” was of various matters at the time she executed the transaction documents. She does not, however, set out the detail of conversations which led her to hold those beliefs. She does not say what she observed of the documents as she executed them. She did not refer at all to the statutory declaration. The declaration cannot be dismissed as simply another document she signed with others, without any understanding of the terms of the document or the declaration as to the accuracy of its contents that she was required to make.

23Further, the reason given as to why judgment was allowed to be given lacks some credibility in the absence of any attempt to address the circumstances in which the order for substituted service was made and the manner in which the Writ and order were served. The application to set aside judgment was only made after the Sheriff notified Ms Cross that she must vacate her property, notwithstanding that Ms Cross’ understanding of the transaction had been challenged by the information she received from April 2012.

24However, it cannot in my view be stated that the proposed defence is “fanciful”. There are contested facts which can only satisfactorily be resolved at trial. Accordingly, I propose to make the following orders:

a.The judgment entered against the first defendant on 28 February 2013, as amended on 3 September 2013, shall be set aside.

b.The setting aside of judgment shall be conditional upon the first defendant, by 6 December 2013, paying to the plaintiff the costs ordered in paragraph 10 hereof in the total sum of $5,674.70.

c.The proceeding be set down for trial as a cause before His Honour Judge Anderson sitting alone on 21 January 2014 (estimate 1-2 days).

d.The plaintiff must pay the setting down for trial fee by 19 December 2013.

e.By 6 December 2013, the first defendant must file and serve her defence and any counterclaim.

f.By 20 December 2013, the plaintiff must file and serve any reply and defence to counterclaim.

g.Any request for further and better particulars of the defence and counterclaim or the reply and defence to counterclaim must be made as soon as practicable after delivery of the document so that there is reasonable time for the other party to respond prior to the trial.

h.The parties shall prepare a Court Book which should include the pleadings, the affidavits filed on the application to set aside judgment and any further documents the parties consider should be included.

i.There shall be no further interlocutory steps without the leave of the Court although any reasonable request by one party that the other party provide discovery of a document should be complied with as soon as practicable.

j.The first defendant must pay the plaintiff’s costs thrown away by the entry of judgment fixed at $1,924.70 and the costs of the first defendant’s summons filed 14 November 2013, including the hearings on 21 and 22 November 2013, fixed at $3,750.

k.Reserve liberty to apply.

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Certificate

I certify that these 8 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 22 November 2013.

Dated: 22 November 2013

Catherine Kusiak

Associate to His Honour Judge Anderson