Ranmor Finance Pty Ltd v Dworjanyn
[2010] VSC 334
•13 August 2010
| g | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 09368 of 2009
| RANMOR FINANCE PTY LTD | Plaintiff |
| v | |
| PETER EUGENE DWORJANYN and NATALIE DWORJANYN | Defendants |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 April, 6 May 2010 | |
DATE OF JUDGMENT: | 13 August 2010 | |
CASE MAY BE CITED AS: | Ranmor Finance Pty Ltd v Dworjanyn and Anor | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 334 | |
EQUITY ― Rectification ― Mortgage ― Distinction between common and unilateral mistake ― Availability of alternative contractual relief ― Applicable principles
CONSUMER CREDIT ― Applicability of Code ― Whether debtors were “ordinarily resident” in jurisdiction ― Purpose of credit ― Enforceability of credit contract and mortgage
PRACTICE AND PROCEDURE ― Application for summary judgment ― Meritorious claim ― Some matters to be investigated ― Conditional leave to defend
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W Stark | Hayes Lawyers |
| For the Defendants | Mr D C Turner | TF Grundy, Lawyer |
HIS HONOUR:
The plaintiff has applied for summary judgment on the ground that the defendants have no defence. The defendants are husband and wife. The plaintiff lent them $287,560 to enable them to “top up” their borrowings from a bank to buy a property in Toorak. The loan was repayable in three months, and had to be secured. The plaintiff was led to believe that Mrs Dworjanyn would be the sole purchaser, and therefore she would be the sole mortgagor, and that is how documents were prepared. But both defendants became transferees and registered proprietors of the land. A mortgage over the property given as security for the plaintiff’s loan showed only the name of the second defendant as mortgagor. The plaintiff says that was a mutual mistake. It seeks summarily to rectify the mortgage to include the first defendant, and seeks payment of the debt (with interest) and possession of the land against both defendants.
Defences have been filed, but they say very little that is meaningful. They do not dispute positively that they have defaulted in repayment. They contend first, that rectification of the mortgage is not justified, and secondly the Consumer Credit Code and the Consumer Credit (Victoria) Act 1995 (neither of which were pleaded) applied anyway to render these proceedings as wrongly instituted, and moreover, that mortgage and the credit contract are unenforceable because of the 36% (and 72% default) interest rate charged by the plaintiff. They submitted there were difficult and substantial questions of law to be resolved, making the case inappropriate for summary determination.
The case is not uncomplicated. There was one and a half days of argument. I have suggested an early trial, but the plaintiff presses for summary judgment as it has been waiting since March 2008 for repayment of the moneys lent. It says the Code does not apply and asks the Court to view with scepticism the whole of the defendants’ case.
At the outset I should say the equity or the merits of the case definitely favour the plaintiff, in a way I shall expose. Lenders might say that some borrowers who are well informed and able to conserve their interests can shrewdly call in aid the Code to disarm a lender. I have my real doubts about the defendants’ case, but questions arising under the Code can be tricky. The evidence could have been clearer in a case that seems to turn on precise facts.
I have come to the conclusion that I should not summarily order rectification and possession of land. But such are my misgivings about the defendants’ case, I also conclude there is no injustice or apparent hardship in granting leave to defend on condition that the defendants pay into Court the whole amount of the principal due under the loan ($287,560) or security for that amount, but not the interest.[1] To understand those two conclusions, I need to recite the facts in greater detail.
The facts
[1]For conditional leave, see rule 22.06(1) (c).
A director of the plaintiff, Mark O’Donnell, swears that on 8 June 2007 the first defendant telephoned him to seek a two month loan. An e-mail to him of that date said–
As per our phone conversation our plans have significantly changed
We will not proceed with Sorrento
However we have found another property in to Toorak
The price is about $2.5 million
I want to make a conditional offer for this property
I would need your help with $60,000.00 to help me secure this property
The commonwealth bank has given the initial ok to 80% of asking price…
…
I am personally owed approx $160,000.00 which should be repaid in while with 2 weeks and I have another amount of over $100,000.00 that has some chance of being repaid within that time period (4 weeks) otherwise I will sell one of the apartments (I have offers for 1104 for around $800,000.00)
…
Of the money borrowed $20,000.00 will be used as an initial deposit and the balance of personnal/busines (sic) costs
I would need the money until november or if we sell the apartments you would be repaid on settlement (whichever comes first)
If you are ready to assist I would like to proceed immediately
I will be back in Melbourne in the first week of July
The e-mail refers to apartments. Before 2007, the defendants had purchased two units at “Como” in River Street, South Yarra. Unit 1104 was bought in June 2005 and appears to have been an investment property. The evidence shows that correspondence and a tax invoice from their conveyancing solicitor for that purchase was sent to the defendants’ address in Hong Kong. They do not say when they bought Unit 1101. Judging from the correspondence put in evidence by the defendants, Unit 1101 was being rented out by them at a monthly rental of $2,600 certainly as at September 2007.[2]
[2]See exhibit PED 5.
The e-mail also refers to not proceeding with Sorrento, but Toorak instead. Mr Dworjanyn gave to Mr O’Donnell part of his pre-existing loan application to the ANZ Bank to buy a property in Sorrento for $1.225 million. That document, dated 18 March 2007, contained a declaration from both defendants under the Consumer Credit Code that the credit to be provided by the ANZ Bank was to be applied for investment purposes, thus taking the loan outside the Code. The plaintiff is not in the business of consumer lending and this document was put in evidence to show the plaintiff was led to think the Toorak acquisition would also be for investment purposes, or at least not for immediate residential purposes. The facts concerning the purpose of the loan and a borrower’s place of residency are essential to attract the application of the Code as I will show later.
In June 2007, Natalie Dworjanyn signed a contract to purchase No. 2, 43 St Georges Road, Toorak for $2,750,000. The words “And or Nominee” appear next to her signature in the contract of sale. The standard form contract names only her as purchaser. It states an address for her in Hong Kong. The extract of the contract as produced does not show it, but it is said that settlement was due on 15 October 2007. It seems this was subsequently extended to December 2007.
Mr Dworjanyn says that the Toorak property “was bought in my wife’s name initially as I was in Hong Kong at the time” but he adds “…with the intention that we use this as our home as it was convenient for the girls who were attending St Catherine’s School in the neighbouring street.” There is no evidence that he told that to the plaintiff at the time he sought the loan.
The defendants sold Unit 1104 in September 2007 for $760,000. Again, the correspondence from their conveyancing solicitor for that deal was sent to the defendants in Hong Kong. They then had to arrange the finance to purchase the Toorak property and to refinance the loan over Unit 1101. Come 24 October 2007, the defendants’ solicitor sent to them, to the same address in Hong Kong, various documents to add the first defendant as a co‑purchaser of the Toorak land, including a nomination form and a transfer of land. The second defendant says her husband became joint purchaser on about 24 October 2007, but the first defendant says nothing about it. The defendants do not produce any of those documents. They do not say they told the plaintiff that Mr Dworjanyn was to become co-purchaser. There is no evidence the plaintiff knew. Counsel for the defendants says it was careless for the plaintiff or its solicitors not to enquire.
From the Commonwealth Bank, the defendants borrowed $675,000 to refinance Unit 1101 and $2,200,000 to purchase the Toorak property. I cannot tell definitely (yet it is pertinent to know) if the loan from the Bank was subject to the Code. There is in evidence an unsigned standard form “Consumer Credit Contract Schedule”[3] which gives a lot of information but says borrowers for investment purposes are not covered by the Code. What matters though is that both defendants gave the Bank a mortgage over the Toorak property.
[3]Exhibit PED 7,
It appears that the top‑up loan sought from the plaintiff increased to $287,560. On about 3 December 2007 the plaintiff sent a letter of offer to the defendants’ broker in South Australia stating that it would consider a loan for $287,560 for a term of three months at a rate of 48% per annum (default rate of 72% per annum) over the security of the Toorak property. The letter said that the plaintiff required amongst other things the execution of mortgage documents and required the letter of offer to be initialled by the defendants. It also sought security over Unit 1101 in 7 River Street, South Yarra. The letter named both defendants, and their initials appear alongside their names.
On 6 December 2007 the plaintiff sent documents to the defendants by courier to Hong Kong for signature. One of those documents was an “Agreement for Loan and Acknowledgement of Debt”. The “Borrower” is identified in Schedule One in this way:
Mortgagor:- Peter Eugene Dworjanyn and Natalie Dworjanyn
Mortgagor:- Natalie Dworjanyn
Clause 1.1 of the agreement states:
In consideration of the Borrower…entering into this Agreement and providing if any the Security referred to in the Schedule SEVEN (7), the Lender will, subject to the terms of the Agreement, provide a Loan and other financial accommodation.
Clause 1.3 says:
Before any loan or financial accommodation is made by the Lender, the Security or other collateral documents if any as described in Schedule SEVEN (7) must be provided in a form acceptable to the Lender’s Solicitors together with any ancillary or supporting documents required by the Lender together with this Agreement all of which must be prepared, stamped and registered at the cost of the Borrower...
Schedule Seven says:
The Agreement is conditional upon the Lender receiving, and is relied upon by the Lender in having the benefits of the following Collateral Documents or Securities signed (or to be signed) namely: -
· Secured over Unit 1101, 7 River Street South Yarra VIC 3141… registered in the name of Peter Eugene Dworjanyn and Natalie Dworjanyn.
· Secured over No 2, 43 Georges Road Toorak VIC registered in the name of Natalie Dworjanyn.
I interpolate that the separate identification of the securities lines up with the separate identification of the mortgagor in Schedule One.
Clause 2 is the interest clause. It says where relevant:
The Borrower will pay interest at the rate in SCHEDULE FOUR (4) … on the Loan or as and when due and owing at any time and from time to time Provided that during any interest payment period in which payment of interest and any other moneys are due to the Lender is paid strictly on its due date and FURTHER PROVIDED during which all other terms and conditions of this Agreement and of any document collateral or ancillary term of condition relating to same are strictly observed or fulfilled to the Lender’s satisfaction the Lender shall accept interest calculated at the rate and manner as set out in SCHEDULE SIX (6) …
The “specified rate” in Schedule 4 was 72% p.a. The “acceptable rate” in Schedule 6 was 48% p.a.
Finally, there is what is sometimes referred to in banking and finance as the dragnet clause. This was the basis of the plaintiff’s case for rectification for a mutual mistake. Clause 5 says:
The Borrower by execution of this agreement hereby charges all freehold and leasehold interest in any land(s) (or part thereof) which the Borrower may now have or during the currency of the loan repayment may acquire a loan or with others jointly or severally and the Borrower further agrees that the Lender may require execution by the Borrower of such forms of additional security including … Freehold Mortgage containing the terms and conditions as in this Agreement and so far as they may be applicable.
The plaintiff says this agreement was returned on 15 December 2007 from Hong Kong and signed by the defendants. The plaintiff also says that it also received from the first defendant from Hong Kong, after speaking to him, a “Declaration of Purpose” which was dated 15 December 2007 and signed by both defendants. That document said: “I/We declare that the credit to be provided to me/us by the creditor provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).” That is all it says.
Apart from that declaration of purpose, the plaintiff states that in discussions before the moneys were advanced, Mr Dworjanyn said he was expecting to repay the plaintiff’s loan from funds expected, in business, from a company known as Sontell. Peter Thomas, the witness to their signatures, is said by the plaintiff to be the chairman of Sontell.
The defendants signed a mortgage to the plaintiff over Unit 1104 as agreed. It is dated 3 December 2007. A mortgage over the Toorak land was also given (undated but O’Donnell says 3 December 2007) but names only the second defendant as mortgagor. The witness to the signatures on both mortgages is one Peter Thomas who, according to the plaintiff (and not denied by the defendants) is a resident of Hong Kong.
Settlement of the purchase of the Toorak property occurred on 20 December 2007. Both defendants became registered proprietors on 31 January 2008.
In December 2008, the plaintiff requested the defendants to sign another mortgage to include them both as mortgagors, but the defendants have refused to do so. That mortgage is not in evidence and it is not clear to me whether the mortgage as sent was a rectified mortgage or a clause 5 mortgage. I gather, by the refusal, that it is the former.
The issues
The plaintiff’s case is that not only was it led to believe that the loan was for investment purposes and therefore not a consumer credit loan, but it prepared the loan agreement and the mortgages thinking ― deceived into thinking ― that the mortgagor over the Toorak property would be the second defendant, she being the named purchaser of the property. Although clause 5 of the loan agreement might be invoked by the plaintiff to compel the first defendant to now sign a mortgage over his interest in the land, the plaintiff contends in the circumstances it deserves the more immediate relief to rectify the mortgage to insert his name. This course may be explicable because rectification of an instrument relates back to the time the instrument was made.
As I raised in argument, the plaintiff does not plead or now advance a case of unilateral mistake. That is, it does not contend that the defendants stood by and allowed the plaintiff to labour under the mistaken belief that only the second defendant would be the mortgagor, and are now unconscientiously refusing to accept the mistake. Rather, the plaintiff pleads and maintains the mortgage was drawn up under a mutual mistake of fact. It alleges “the parties assumed that the Toorak mortgage charged the defendants’ interest in the Toorak land, when in fact it only charged the interest of Natalie Dworjanyn in the Toorak land.” The plaintiff submits that clause 5 of the loan agreement reveals a common intention that both defendants would give a charge over any real estate that they owned or would come to own; therefore if the first defendant was to become co‑purchaser and co‑proprietor, there was a common intention that he would give a mortgage over his interest in the land. As the mortgage does not give expression to that intention, the plaintiff says it should be rectified to do so.
The defendants’ position is that the loan agreement says only Mrs Dworjanyn was to give a mortgage over the Toorak land. Mr Turner submitted that on principle, rectification was not open here, or ought to be refused, on the principle that the parties were in a position of dealing with the predicament themselves: see Young and others, On Equity[4] and Van Der Linde v Van Der Linde.[5] That is, it was open for the plaintiff to require the first defendant to now sign a mortgage under clause 5 of the loan agreement.
[4]At [11. 280]
[5](1947) 1 Ch 306.
But that was not the focus of the defendants’ submissions. The defendants raise these threshold defences:
(a)the loan agreement and the mortgage are regulated by the Code;
(b)the plaintiff has failed to comply with the notice requirements under the Code and as a consequence the proceedings have been improperly commenced;
(c)moreover, the stipulation of an interest rate of 72%, reducible to 48% for prompt payment, makes the credit contract and the mortgage unenforceable by statute, and void.
If the defendants are right on the first and second of those defences, the plaintiff cannot recover interest. But if they are right on the third of those defences, the plaintiff can never recover its principal or interest under the loan or the mortgage. They say the consequence of statutory invalidity is that the lender has no rights at all, including quasi contractual rights of recovery or restitution rights. That is, the plaintiff can never recover its money.
Rectification
The case for the plaintiff is that it is unconscientious for the first defendant who joined in the purchase and stood to gain by the plaintiff’s loan, to not also be held to the mortgage since its inception. Although clause 5 of the loan agreement gives the plaintiff the right to now compel the first defendant to give a mortgage over his interest in the Toorak land, the plaintiff maintains that the intention that inheres in that clause also makes it just and convenient to order rectification.
Equity can take the view that it is unconscientious for a person to avail himself of the legal advantage which he has obtained by reason of a mistake. It is significant I think that the plaintiff does not put a case of unilateral mistake, which would seem to me to fit in with its case that it was deceived. Equity will intervene where a party not under a mistake has known, at the time of execution of the document, of the mistake of the other party and has stood by it, without directing the other party’s attention to the mistake.[6] In a serious enough case, equity may give rescission of a contract: see Taylor v Johnson.[7]
[6]See Spry, Equitable Remedies (8th ed) at 613.
[7](1982) 151 CLR 423 at 432.
Rather, the plaintiff propounds its case on the principle of common mistake. The principle is:
Where all parties who execute a document intend that the provisions of the document should accord with an agreement entered into by them, or with a common intention possessed by them, but due to a mistake shared by all of them it does not do so, rectification is ordered by the Court, in the absence of special circumstances that render this course unjust. [8]
[8]Spry, Equitable Remedies (8th ed) at 610.
This statement of principle is recognised in numerous authorities: see for example Maralinga Pty Ltd v Major Enterprises Pty Ltd,[9] Kyabram Property Investments Pty Ltd v Murray,[10] Franklins Pty Ltd v Metcash Trading,[11] Chartbrook Limited v Persimmon Homes Limited[12] and Ryledar Pty Ltd v Euphoric Pty Ltd[13] There are two passages from those cases which are worth quoting. In Franklins v Metcash the rationale for the principle of rectification was stated as follows[14]:
In considering whether to grant rectification of a written contract, equity does not use any of its own principles to decide what the terms of the contract are, or how they are construed – those matters are decided solely by the common law. Rather, equity focuses on what it is unconscientious for a party to assert about the contract. The rationale is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered. In other words, when a plaintiff succeeds in a claim for rectification, the plaintiff is found to have been justified in effect saying to the defendant “you and I both knew, when we entered this contract, what our intention was concerning it, and you cannot in conscience now try to enforce the contract in accordance with its terms in a way that is inconsistent with our common intention”.
…
It is elementary that rectification is granted only upon “clear and convincing proof” or “convincing proof” [citations omitted] … What needs to be proved in accordance with that standard is not only that the written document does not correctly record the common intention of the parties, but what the common intention of the parties actually was: [citations omitted].
[9](1973) 128 CLR 336 at 349-350 (per Mason J).
[10][2005] NSWSC 1202 at [14] – [22].
[11][2009] NSWCA 407 at [444] – [461].
[12][2009] UKHL 38; [2009] 4 All ER 677.
[13](2007) 69 NSWLR 603 at [122] ff.
[14]At [444].
More recently, the speech of Lord Hoffman in the House of Lords in Chartbrook v Persimmon adopted as the clearest statement of principle, this passage by Denning LJ in Frederick E. Rose (London) Ltd v Pim:: [15]
Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly. And in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at the outward acts, i.e., at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document. But nothing less will suffice.
[15](1953) 2 QB 450 at 461 as cited in Lord Hoffman’s speech at [60].
Put shortly, both parties must be shown to have been mistaken in thinking that the instrument they signed (the mortgage in this case) conformed to the terms of the antecedent agreement (in this case, the loan agreement). But did the prior agreement require both the defendants to give a mortgage over the Toorak property?
I am not sure if this really is a case of mutual mistake. We are concerned with the security, not the obligation to pay the debt. The prior (loan) agreement did not require both defendants to give a mortgage over the Toorak land. It required the second defendant to give the mortgage. And she did. That explains the content of Schedule one and seven of the loan agreement. So where is the common mistake? To say that clause 5 is the repository of the mutual intention that they would both give the mortgage that was in fact signed is I think debateable. Clause 5 gives the plaintiff the right to call for additional security over a freehold interest gained by the Borrower during the currency of the loan. Specific performance of clause 5 is one thing (to compel the first defendant to now sign a mortgage) but it may not be equated with rectification.
I say this taking, as I do a view of the facts that puts the equity of the case naturally in the lender’s favour despite the startling interest rate. It lent the money in response to a real need; the plaintiff was not told there were co-purchasers; the defendants got the Toorak property; and default is admitted. But I view rectification as substantial relief. I think there is a question here whether this is common or unilateral mistake. Or if not, whether the correct relief is not rectification, but an order compelling the defendant to now execute a mortgage in accordance with clause 5. That gives effect to what the parties did agree.
If there was no more to this case, justice could be done to the plaintiff, one way or another, to include the first defendant as mortgagor. But the nagging question concerns the Consumer Credit Code which, if applicable, the defendants say gives the plaintiff no hope of getting a mortgage or recovering the loan, or, that the proceeding cannot even be instituted without prior compliance with mandatory Code procedures: see Benjamin v Ashikian [16]
[16][2007] NSWSC 735
The declaration of purpose
Section 6. (1) of the Code states:
This Code applies to the provision of credit…if when the credit contract is entered into or (in the case of pre‑contractual obligations) is proposed to be entered into –
(a)the debtor is a natural person ordinarily resident in this jurisdiction…; and
(b) the credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; …
Section 11.(1) of the Code states:
In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.
Sub-section (2) states:
Credit is presumed conclusively for the purpose of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).
Sub-section (4) states that a declaration under sub section (2) is to be substantially in the form required by the regulations, and that it is ineffective “for the purposes of this section” if it is not.
A form of declaration is prescribed under regulation 10 of the Consumer Credit Regulation 1995. The declaration of purpose given by the first defendant on 15 December 2007 did not conform to the prescribed form. The form requires a warning to be placed in a drawn boxed area with the heading “IMPORTANT”. Beneath that heading, these words are required to appear:
You should not sign this declaration unless the loan is wholly or predominantly for business or investment purposes.
By signing this declaration you may lose your protection under the Consumer Credit Code.
In my view, the absence of that warning cannot be said to be insignificant. It is self evidently important in the field of consumer protection. I would hold that the defendants’ declaration in this case was not substantially in the form as required by the regulations and therefore is ineffective for the purposes of s 11.
But that is not the end of the matter. The declaration in proper form is only one means by which it may be conveniently demonstrated by a lender, conclusively, that the lending was for business or investment purposes. But in my view, that does not preclude the possibility of a lender demonstrating, by any other admissible evidence that the credit was not provided wholly or predominantly for personal, domestic or household purposes. I would not construe s 11 of the Code to mean that the only means available to overcome the statutory presumption is to use the regulation form. That is, “the contrary may be established” under (1) by any means not just a statutory declaration of purpose.
There seems to be a divergence of judicial interpretation of s 6 of the Code: see Benjamin v Ashikian[17] and Beckley v Consumer, Trader and Tenancy Tribunal.[18] I shall not delve into this. There could be a tendency for courts to follow the approach of Gillard J in Linkenholt Pty Ltd v Quirk.[19] which looks to see what the loan was in fact used for, rather than what a reasonable person in the shoes of the lender understood the loan was used for. That case says it is also permissible to consider statements made and events occurring after the credit contract to the extent that they throw light on the purposes of the provision of the credit.
[17][2007] NSWSC 735 at [65] ff.
[18][2009] NSWSC 703 at [32]ff
[19][2000] VSC 166 at [98].
I think this is debateable. For myself, I would have thought that one looks to purpose at the time the loan was given because that is when legal relations are created. I also apprehend there could be real unfairness to a lender who reasonably relies on purpose as stated by the borrower, only to fall foul of the law when a Court looks to actual application of the funds. But maybe that is how the statute has to be construed. These things were not explored in argument.
So, what was the purpose here? I am willing to accept that the non conforming declaration of purpose by the defendant is nevertheless relevant and admissible as an admission even though it does not carry the cachet of statutory conclusiveness. To say the money was borrowed and used to buy a dwelling does not therefore necessarily mean it is a personal purpose, for the dwelling may be an investment. According to the affidavit evidence as it stands, it is significant that the first defendant did not tell O’Donnell about his family’s residency plans for the home. As against that, I doubt whether the investment purpose of the Sorrento home is probative. I doubt whether the expectation of funds from Sontell, being a business source, is probative. The fact that the defendants were in Hong Kong may not matter if the house was bought for his wife and children and they are now living in it.
I view the defendants’ evidence on this question not convincing, and incomplete. But scepticism is not a justification for summary judgment. The evidence beckons cross examination.
“Ordinarily resident”
Under s6.1(a) of the Code the debtor has to be ordinarily resident in Victoria as well. Sub-section (2) states that “if not all the debtors under a credit contract ordinarily reside…in this jurisdiction, this Code applies only if credit is first provided under the contract in this jurisdiction.”
What is meant by the expression “ordinarily resident”? That question arises in other fields such as taxation law. Reference was made to a number of bankruptcy cases: see Battenberg v Reston[20] and Re Taylor.[21] Both those cases establish that a person can be ordinarily resident in more than one place at a time. In Re Taylor, Lockhart J stated[22]:
To say that a person is ordinarily resident in Australia must mean something more than that he is resident in Australia. The word “ordinarily” connotes a comparison, a measure of degree. A person may have more than one residence, but he is not necessarily ordinarily resident in each of them. The question must be determined … at a particular time. One must ask the question whether at that time the person was ordinarily resident in Australia. The concept of “ordinary residence” for the purposes of the Act [i.e. the Bankruptcy Act], in my opinion, connotes a place where in the ordinary course of a person’s life he regularly or customarily lives. There must be some element of permanence, to be contrasted with a place where he stays only casually or intermittently. The expression “ordinarily resident in” connotes some habit of life, and is to be contrasted with temporary or occasional residence … The concept of ordinarily resident cannot be stated in definite terms; each case must be determined on its facts and after taking into account all relevant matters. …
[20][2007] FCAFC 195.
[21](1992) 37 FCR 194.
[22]At 198
The evidence, not disputed, is that all of the transaction documents concerning the plaintiff’s loan were signed by the defendants in Hong Kong. Mr Dworjanyn says “My wife and I were living in Hong Kong in 2007”. That is a plain and clear statement. He was working there as a partner in a firm of architects. He says “We used Unit 1101 as a base when in Melbourne. It was intended that my wife and my two daughters would live in Unit 1101. However we changed our plans when in mid 2007 [the Toorak property] came on the market.” They do not say in positive or unequivocal terms that they were, or she was, also living in Victoria or ordinarily resident here before settlement. Travel to Melbourne does not make them residents in two places if it was transitory.
The evidence then seems to shift to living and travel arrangements after settlement of the Toorak property in December 2007. He says:
For most of that period after settlement I was based in China. I would visit Melbourne every few weeks. Occasionally my wife would come to China but most of the time she was in Melbourne with our daughters”.
I am currently based in China as I am a partner in a firm of architects and I commute between China and Melbourne on a regular basis.
She says she lived in Unit 1101 with her daughters until May or June 2008 whilst renovations were being made to the Toorak property. But I do not see evidence to show that she was living or ordinarily resident here when the loan was taken out in December 2007. What is unrevealed is the degree or periodicity with which she was also here in Melbourne in 2007 to possibly establish whether she was resident in two places. And it would have been an easy fact to adduce if it was so. The evidence is vague.
I think the plaintiff has a very strong case to say the Code does not apply because neither of the defendants were ordinarily resident in Victoria at the relevant time.
The interest rate
Section 39 of the Consumer Credit (Victoria) Act 1995 says where relevant:
(1)A credit contract (and any mortgage given to a credit provider in relation to that contract) is unenforceable where the annual percentage rate in respect of the contract exceeds 48.
….
(3)A credit provider must not enter into a credit contract where the annual percentage rate in respect of the contract exceeds 48.
Penalty applying to this sub-section: 10 penalty units.
Section 40 of that Act states:–
A mortgage relating to a credit contract in respect of which the annual percentage rate exceeds 30 is void insofar as it relates to that contract.
Under s 25 of the Code (not the Act) the expression “annual percentage rate” under a credit contract means a rate specified in the contract as an annual percentage rate.
Both the loan agreement and the mortgages here fixed an “acceptable rate” of 48% and a “specified” (i.e., default rate) of 72%. There is a well settled rule at common law that if the mortgagee wishes to fix a higher interest rate in default of punctual payment it must reserve the higher rate as the interest payable under the mortgage and provide for its reduction in case of punctual payment: see Fisher & Lightwood’s Law of Mortgage. [23]
[23]By Tyler and others, (2nd Aust ed), at 3.18
What is the “annual percentage rate” here for the purposes of section 39 and 40? The definition is no help. On one view it is the rate that the lender is bound to accept and discharges the borrower’s obligation. Another view is that it is the specified rate of 72% as clause 2.1 of the agreement says “the Borrower will pay interest at the [specified] rate…” There will be a debate of form as against substance. But all this assumes the Code applies.
Mr Turner relied on various authorities which say that money lending statutes which rendered certain contracts to be unenforceable were examples of laws imposing onerous obligations on money lenders to comply with statutory requirements and to protect borrowers from oppressive conduct. Such provisions cannot be interpreted to mean that an agreement unenforceable under statute could be overcome by a lender suing on quasi contractual causes of action: see Pavey and Matthews Pty Ltd v Paul.[24] According to Dixon CJ in Mayfair Trading Co Pty Ltd v Dreyer[25]:
When the governing statute enacts that no loan which fails to satisfy any of these requirements is to be enforceable it must be taken to mean what it says, that no court of law is to recognise the lender as having a right at law to get his money back. This is part of the penalty which the statute imposes. There is no room to reform the terms of the loan, since the statute is not concerned with the vice of its content but with the vice of the conditions under which it was made … If a court therefore were to impose terms of repayment as a condition of making any order for relief it would be expressing a policy of its own in regard to such transactions which is in direct conflict with the policy of the Acts themselves.
[24](1986) 162 CLR 221.
[25](1958) 101 CLR 428 at 453.
It was submitted therefore that if the statute “outlaws” contracts with a higher than acceptable interest rate, then to allow a quasi contractual claim for recovery would be contrary to the effect and policy of the statute and the Court could not order terms of repayment as condition..
Outcome
I have gone to some length to expose the facts and issues in this case because it is unavoidable for the task of surveying how to fairly deal with this application. My conclusions are (1) Code aside, the plaintiff has a deserving case, and at the very least under clause 5 the first defendant agreed to give a mortgage, the only question being the characterisation of the mistake and proper remedy; (2) the Code forms part of national legislation and has to be dealt with; but it was never raised until this application and the money has been due for a long time; (3) I do not think, on the state of the evidence, that the defendants were “ordinarily resident” here at the relevant time but maybe there are more facts; (4) the first defendant’s conduct in representing the loan was for investment purposes (he living overseas) and his omission to tell the plaintiff that he was to be co-purchaser defence weighs heavily in my assessment about the justice of the case; (5) under the Code, at worst and assuming there is no invalidity, the plaintiff will not be able to recover interest but can recover principal ; (6) the defendants’ case is dubious but the case calls for a testing of their evidence and credibility.
Those factors lead me to conclude that leave to defend should be given on condition that the principal be paid into Court in cash or by equivalent security. It is open for me to impose such a condition in granting leave to defend. The Court of Appeal in Banicic v Beach [26] recognised that:
Where a defendant satisfies the Court on a summary judgment application that there is an issue to be tried, but the nature of the case made out by the plaintiff when considered in conjunction with the defences raised, leaves the Court with a serious concern about the substance or bona fides of the defence, the Court may impose a condition in granting leave to defence. It will then be for the defendant to satisfy the Court that a financial condition should not be imposed.
[26][2008] VSCA 35.
In so doing, the Court agreed with the view of Warren J, as her Honour then was, in Graywinter Properties v Rodway[27] that:
If a discretion to grant leave to defend is exercised, but made subject to the imposition of a condition of financial security, a court should have flexibility to preserve the position of a plaintiff but at the same time ensure that a defendant is not placed in a position where the financial condition renders the defence impossible…Where a defendant submits that no condition should be imposed at all, it is appropriate that the defendant satisfy the Court on the basis of cogent evidence that the imposition of the condition will render the defence impossible.
[27][1998]VSC 177
There is nothing to suggest the defendants are without means. They have had the benefit of the plaintiff’s money to buy the Toorak home. The principal debt is relatively small compared to the apparent value of the land. There has been no application under the Code for relief from hardship or other ameliorating orders. As for impossibility, the defendants rely on the statutory construction principle in the money lending cases that if the loan and the mortgage are unenforceable or void, then a court cannot grant conditional relief. But that is a matter of ultimate determination on the substantive question. Where the Court regards the very application of the statute as dubious on the facts, as I do (most certainly on the residency ground) , then to order conditional leave to defend does not violate the legal principle in the money lending cases. The Court is deploying a procedural discretion.
I ask counsel to bring proposed orders into Court. Costs of such an application are ordinarily costs in the cause. An attempt should be made to agree to a time limit for the payment in. I would direct the defendants to file an amended defence so that at least it alleges with all material facts and proper particulars the matters of fact and law which they contend make the Code applicable and the consequences of the applicability of the Code. If the plaintiff wishes to amend, I would grant leave.
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