Pilpel Nominees Pty Ltd as trustee for the Pilpel Family Trust v Wellard Land Holdings (WA) Pty Ltd as trustee for the Wellard Land Holdings Unit Trust - [2018] WASC 268

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   PILPEL NOMINEES PTY LTD AS TRUSTEE FOR THE PILPEL FAMILY TRUST -v- WELLARD LAND HOLDINGS (WA) PTY LTD AS TRUSTEE FOR THE WELLARD LAND HOLDINGS UNIT TRUST [2018] WASC 268
CORAM:   MASTER SANDERSON
HEARD:   24 AUGUST 2018
DELIVERED          :   24 AUGUST 2018
PUBLISHED           :   29 AUGUST 2018
FILE NO/S:   CIV 1365 of 2018
BETWEEN:   PILPEL NOMINEES PTY LTD AS TRUSTEE FOR THE PILPEL FAMILY TRUST
Plaintiff
AND
WELLARD LAND HOLDINGS (WA) PTY LTD AS TRUSTEE FOR THE WELLARD LAND HOLDINGS UNIT TRUST
First Defendant
JOSEPH TILLI
Second Defendant
ANGELA TILLI
Third Defendant

Catchwords:

Mortgage action - wife not reading but signing security documents - Turns on own facts

Legislation:

Nil

Result:

Summary judgment entered for the plaintiff against the third defendant

Category: B

Representation:

Counsel:

Plaintiff	:	Mr M J Keating
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	Mr FJ Mestichelli

Solicitors:

Plaintiff	:	Valenti Lawyers
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	Corporate Counsel Lawyers

Case(s) referred to in decision(s):

Garcia v National Australia Bank Ltd (1998) 155 ALR 614
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Mavaddat v HSBC Bank Australia Ltd (2016) WASCA 94
Yerkey v Jones (1939) 63 CLR 649

MASTER SANDERSON:

This was the plaintiff's application for summary judgment. It was brought against the third defendant, judgment already having been obtained by the plaintiff against the first and second defendants. At the conclusion of the hearing I indicated I would enter judgment for the plaintiff and publish my reasons at a later date. These are those reasons.
The plaintiff's claim against the third defendant was based on three documents. A loan agreement dated 15 December 2018, a mortgage dated 10 January 2018 over a property situated at 10 Cameron Court, Willetton and a deed of forbearance dated 16 August 2013. The relevant facts were not in dispute.
The third defendant signed the loan agreement as guarantor for a loan from the plaintiff to the first defendant. Pursuant to the loan agreement, the third defendant executed the mortgage. The deed later effected a forbearance period. Part of the funds borrowed were used to discharge encumbrances registered against the Willetton property. On or about 27 July 2018, the plaintiff sent the third defendant a notice of demand setting out the amount that she then owed pursuant to the mortgage and demanding payment within seven days. In order to forebear the plaintiff from enforcing the mortgage, the third defendant signed the deed. Contrary to the express terms of the deed, the third defendant failed to deliver up vacant possession of the property.
As I have indicated, these facts were not controversial. Moreover, the plaintiff complied with the requirements of O 14. The statement of claim was verified by an affidavit and the plaintiff, through its agent, stated a belief there was no defence of the action. Accordingly, the evidentiary onus ‑ but not the legal onus - shifted to the third defendant. She was obliged to show there was a serious question to be tried and in doing so, in the quaint and antiquated language of the cases, she had to condescend upon particulars.
The third defendant relied on an affidavit she swore on 17 July 2018. The matter's relevant to the defence she sought to raise are found in pars 4 ‑ 9 of that affidavit. Those paragraphs read as follows:
4.On or about 15 December 2016 my husband Joseph Tilli told me to sign a document which he brought home. When I asked what it was about he said it was a document in relation to the house and was of no concern to me and I just needed to sign it which I did without reading it or making any further enquiry. I did this because I trust my husband implicitly. Having said that, if he had told me the true terms of the loan he was asking me to sign for, I would have refused to sign the document as the terms of the proposed loan were both uncommercial and erroneous, in my opinion.
5.I was unaware they had been refinancing the house and increasing the borrowings threefold to what it was and that I was guaranteeing the performance of the loan and putting my house at further risk.
6.On or around the 16 August 2017 my husband brought home a further document for me to sign. I now know that this document was a Deed of Forbearance. Once again, I asked what it was and what it was for and he said it is to do with the house loan and just to sign it, which I did without reading it. Even had I read the document I am not conversant with this legal writing and would not have understood the contents of it in any event. I trusted my husband as he dealt with all financial matters. I had no reason not to sign it when he presented me with the signature page.
7.I say that I was never advised or requested to seek independent legal advice in relation to the documents mentioned in paragraphs 4 and 7 above from either my husband or the Plaintiff.
8.I have never met the lender or the finance broker or the solicitor acting for the lender nor have I had any discussion with them. I trusted my husband that he had used good judgement and that what I signed would not put me in harm's way.
9.I have now had the opportunity to have the Loan Documents and Deed of Forbearance explained to me by my lawyer. If l knew then what I know now, I would have never signed these documents.
As counsel for the plaintiff noted in par 10 of his written submissions, the leading cases on equitable principles applicable to enforcing mortgage‑backed guarantees given by wives over the debts of their husbands are Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395. Those principles were considered by the Court of Appeal in Mavaddat v HSBC Bank Australia Ltd (2016) WASCA 94. In the course of his judgment, Mitchell J outlined the relevant principles in pars 38 ‑ 41 as follows:
38 The principles stated by Dixon J in Yerkey were adopted and applied by the plurality in Garcia v National Australia Bank Ltd. Each case concerned a guarantee given by a wife to a husband's creditor, without recompense, secured by a mortgage of her property. In each case the wife sought relief in equity on the ground that it would be unconscionable for the creditor to take the benefit of the transaction.
39 These decisions identify two circumstances in which it will be unconscionable for the creditor to enforce such a guarantee and security.
40 The first circumstance is where the husband exercises actual undue influence over his wife who, without recompense and lacking economic or other power, guarantees her husband's debts other than by the exercise of free will.
41 The second circumstance is where the wife misunderstands or does not appreciate the effect of the document or the nature of the transaction, from which she obtains no gain. In such a case it will be unconscionable for the creditor to enforce the transaction against the wife when it has not explained the transaction to her and does not know that a third party has done so.
In this case there was no question of there being actual undue influence. The third defendant does not make that allegation. Moreover, it is not sufficient to establish actual undue influence that the third defendant did not read the documents because her husband told her it was unnecessary to do so. In Mavaddat, Mitchell J put the position this way:
73 The mere fact that Mrs Mavaddat reposed complete trust and confidence in Mr Mavaddat cannot arguably justify a conclusion that he exercised the actual undue influence required for the first limb of Yerkey. Her signing of documents requested by Mr Mavaddat without further inquiry was an exercise of her free choice, and not the result of an overborne will. She was not arguably deluded, coerced or overborne. Her approach to the married couple's financial affairs merely reflects the not uncommon practice of one married partner leaving financial decisions to the other. Such a practice, and the trust and confidence between married partners which it reflects, provides a rationale for the principles in Yerkey but does not suffice to establish actual undue influence.
That then leaves the so‑called second limb. In Garcia v National Australia Bank Ltd (1998) 155 ALR 614 [31], the majority described the basis of the second limb as follows:
31.The principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jonesbegins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:
(a)in fact the surety did not understand the purport and effect of the transaction;
(b)the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);
(c)the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d)the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
It is to be noted that for the third defendant to succeed under the second limb, she needs to establish all three of the matters referred to by the majority. However, it is clear in this case the third defendant was not a volunteer. Part of the loan funds were used to discharge a mortgage over the Willetton property. That being so, there is no basis upon which a case can be established under the second limb.
Counsel for the third defendant in his oral submissions made some reference to there being a duty on the part of the plaintiff to establish that the third defendant knew and understood the terms of the documents she was signing. With respect to counsel, no case references were made to ground that submission. It is not sufficient for the third defendant to simply refer to some underlying sense of unfairness without referencing the facts to the principles established by the cases. Beyond what was contained in the third defendant's affidavit, there was no material which would justify a finding and there was in this case a serious question to be tried.
The plaintiff required leave to bring this application out of time. The delay in bringing the application is explained by the affidavit filed in support of the application. No point on this delay question was taken by counsel for the third defendant. Accordingly, I extended time to bring this application and entered judgment for the plaintiff.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DG
ASSOCIATE TO MASTER SANDERSON
28 AUGUST 2018