JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : RHG MORTGAGE CORPORATION LTD -v- SCHAFER [2014] WASC 297 CORAM : CHANEY J HEARD : 12 AUGUST 2014 DELIVERED : 21 AUGUST 2014 FILE NO/S : CIV 1479 of 2013 BETWEEN : RHG MORTGAGE CORPORATION LTD (ACN 065 912 932) Plaintiff
AND
BARBARA MAGDALENA SCHAFER
First Defendant
UWE SCHAFER
Second Defendant
Catchwords:
Application for summary judgment - Whether an extension of time should be granted to bring application - No real question to be tried - Turns on own facts
Legislation:
National Consumer Credit Protection Act 2009 (WA)
Rules of the Supreme Court 1971 (WA) Result:
Summary judgment granted
Category: B
Representation:
Counsel:
Plaintiff : Mr J Lin
First Defendant : In person
Second Defendant : In person
Solicitors:
Plaintiff : Jackson McDonald
First Defendant : In person
Second Defendant : In person
Cases referred to in judgment:Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87Webster v Lampard [1993] HCA 57; (1993) 177 CLR 5981 CHANEY J: The plaintiff seeks summary judgment on its claim for payment of the amount said to be due under a loan agreement and for possession of the property subject to the mortgage securing monies payable under a loan agreement. Summary judgment is opposed by the defendants. 2 The action has been on foot for some time, and accordingly leave to bring a summary judgment application is required.
Leave to bring the application
3 An application for summary judgment is required to be brought within 21 days after appearance, or at any later date with leave of the Court.1
4 The writ in this matter was issued on 25 March 2013, initially only against the first defendant, Mrs Schafer. She entered an appearance on 9 May 2013. She was represented by solicitors. There followed a period of negotiation between the solicitors for the plaintiff and the solicitors for the first defendant through May 2013. I note in passing that, in the course of that correspondence, Mrs Schafer's solicitors did not deny her liability under the loan agreement or the mortgage.
5 On 7 June 2013, the plaintiff was advised that the defendant had referred a complaint to the Financial Ombudsman Service (FOS). By then, an affidavit had been prepared in support of an application for summary judgment. However, on receipt of the FOS complaint, the plaintiff immediately instructed its solicitors to place all enforcement action against Mrs Schafer on hold pending resolution of the complaint.
6 On 20 December 2013, the plaintiff received advice that the FOS had concluded that the dispute appeared to fall outside its terms of reference and that the complaint lacked substance.
7 On 23 December 2013, the plaintiff's solicitors wrote to Mrs Schafer's solicitors advising them that they were instructed to apply for judgment in the event that the defence was not received by 17 January 2014. Mrs Schafer's solicitors replied, on 6 January 2014, advising that their client intended to pay all outstanding monies, but seeking the full accounting breakdown. She sought an extension until 28 February 2014 for payment, in light of certain personal difficulties that she had been required to face in late-2013.
8 Payment was not made as promised, and the application for summary judgment was filed on 2 April 2014.
9 The very significant delay in the bringing of the application is largely attributable to indulgences granted to the defendants, or the first defendant in particular, in the face of her acknowledgement of liability or as a result of her unsuccessful complaint to the FOS. In the circumstances, I consider this to be an appropriate case in which extension of time should be granted. None of the defendants' submissions, either in writing or orally, argued to the contrary. There should be an order that the time for bringing of the application under O 14 r 1 of the Rules of the Supreme Court 1971 (WA) be extended until 2 April 2014.
The claim
10 The plaintiff's claim is relatively simple. It is supported by affidavits filed by Mr Warren Handel. Mr Handel is the collections team manager of Unisys Mortgage Processing (RHG) Pty Ltd. By arrangements between Unisys, the plaintiff and another company, Receivables Servicing Pty Ltd (the servicer of the mortgage loans made by the plaintiff), Mr Handel deposed to matters concerning the transaction between the plaintiff and the defendants from the plaintiff's records to which he had access. On that basis, Mr Handel verified in his affidavits that:
i. Mrs Schafer is the owner of the property known as 42B Morris Road, Innaloo, Western Australia, more particularly described as Lot 2 on Strata Plan 34280 and being the whole of the land comprised in Certificate of Title Vol 2129 Folio 272 (the Property). That fact was not disputed by the defendants. ii. The plaintiff entered into a loan agreement with the defendants on 6 June 2007, which was varied by written agreements on 20 April 2010, 18 November 2011, 6 April 2012, and 10 October 2012. Those facts were not in issue save for the variation said to have occurred on 10 October 2012. The defendants assert that, although they signed and posted to the plaintiff a loan variation agreement (LVA) in October 2012, that document was superseded by a LVA dated 6 November 2012 which was in identical terms but for one additional clause. I will deal in more detail with that issue in the context of consideration of the defendants' possible defences.
iii. The first defendant executed a mortgage over the Property to secure the amount of the loan the subject of the agreement of 6 June 2007. The execution of the mortgage was not in issue.
iv. The mortgage was registered at Landgate. That matter was also not in issue.
v. The plaintiff advanced a loan of $471,750, but the loan principal was increased from time to time by the subsequent LVAs referred to above. It is not in issue that Mr & Mrs Schafer received the amount of the loan, and agreed to capitalisation of arrears of interest from time to time as reflected in the LVAs. They do not accept, however, that the plaintiff was in fact the lender which advanced the funds. That assertion is central to the defendants' proposed defence, which will be dealt with in more detail below.
vi. The first and second defendants defaulted in payment under the terms of the loan agreement and the mortgage. It is not in issue that the defendants fell into arrears in relation to the amounts payable under the loan agreement and the mortgage, but they raise questions as to whether they were obliged to make payments at particular times.
vii. By reason of the first and second defendants' breaches of terms of the loan agreements and the mortgage, the plaintiff became entitled to possession of the properties pursuant to the terms of the mortgage. That assertion is in issue on the basis of the defences which the defendants propose to raise.
viii. The balance outstanding under the loan agreement, as at 12 June 2014, was $613,773.25 plus accruing interest and costs. There is no issue as to the calculation of the amount if the plaintiff is in fact entitled to the remedies it seeks under the loan agreement and the mortgage.
11 I am satisfied that, subject to consideration of the various objections to evidence and foreshadowed defences that might be arguable, the plaintiff has established the necessary elements of its cause of action and would be entitled to judgment. 12 It is necessary therefore to turn to the defendants' arguments.
The defendants' approach to the application
13 In all, Mr and Mrs Schafer filed a total of 12 affidavits sworn by one or other of them. The affidavits raised a number of issues and concerns. It is not entirely easy to discern the precise defences which the defendants contend are open to them. Because of that, I suggested at a directions hearing, on 12 June 2014, that it would assist if the defendants were to file and serve a defence so as to clarify how they say the matters which they raise would absolve them from their obligations under the loan agreement and the mortgage. At that directions hearing, I ordered that that document be filed and served by 1 July 2014, but, at the second defendant's request, later extended that date to 8 July 2014. A defence was not filed, but Mr Schafer swore an affidavit explaining that because he did not consider there to be any valid evidence before the Court, and because he considered the plaintiff's claim to have 'no substance ab initio', he found it impossible to attempt to defend the action.
14 It is thus necessary to identify, as best I can, the precise nature of any possible defence which might be available, and to consider whether the evidence of Mr Handel (to which I have referred above) should not be accepted, with the result that the plaintiff would not have discharged its burden of proof.
15 It is convenient to first deal with the foreshadowed defences, before turning to the reliability of Mr Handel's evidence.
Is the plaintiff the true lender?
16 In his oral submissions, Mr Schafer stated that he and his wife did not dispute their liability to repay the loan amount if, in fact, the plaintiff was the true lender of the funds to them. He contended, however, that despite persistent requests for documents which are said to relate to the source of funds and to underlie the plaintiff's ability to pay over the loan at settlement, the plaintiff had not discharged the burden of proving that it lent money to the defendants (as distinct from some other entity providing the funds). He contended that documents which he produced, and other documents of which he sought access, suggested, or were likely to suggest, that the plaintiff was a mere go-between between the borrower and the true lender, earning commissions of which the borrower had no notice, and was thus 'masquerading as a lender' or a 'pretender lender'.
17 As a consequence, Mr Schafer contended that the plaintiff did not provide 'valuable consideration' to its customers because the money it was advancing was not its own. Thus, he argued, the loan arguments should fail for want of consideration.
18 The principal document upon which Mr Schafer relied is the document entitled 'Information Memorandum', issued by Rams Mortgage Securities Pty Ltd in its capacity as the trustee of the Rams Mortgage Securities Trusts. It is a document designed to provide information to potential investors in notes, the proceeds of which would be used to fund the acquisition by the trustee of, amongst other things, certain mortgage loans and approved mortgages. In relation to residential loans, the document provides that the trustee will hold only an equitable title to mortgage loans and approved mortgages, as the borrowers would not be notified of the equitable assignment of their loans. It also provides that various participants in the program will receive fees, brokerage and commissions and may act as principal in any dealing with the notes.
19 A diagramatic program overview in the Information Memorandum (at p 9) sets out the structure of the financing arrangements. It demonstrates that the plaintiff is the entity which would be entitled to the 'receivables' from the 'debtors', being borrowers and mortgagees. It contemplates the sale of those receivables to the trust which in turn is funded from the proceeds of the sale of various classes of notes.
20 Mr Schafer was apparently a finance broker and agent of the plaintiff in June 2007, when the funds were advanced, up until around 2011. He deposes to the fact that he only became aware of the Information Memorandum, and of the structure for financing of loans which it revealed, in early 2011. He says that he had never been told of the underlying structure for financing the plaintiff's advances, and accordingly had never passed any information on to his clients, including in particular to his wife to whom he introduced this joint loan in his capacity as a finance broker. He considers that the fact that the lender is advancing monies which are not from its own funds, but sourced from elsewhere, is a matter which should have been disclosed and may have affected a decision to accept the loan. The defendants argue that the failure to disclose that the funds being advanced were being sourced other than through the plaintiff's own funds was a 'fraudulent misinterpretation with intention to deceive'.
21 Mr Schafer contends that, since it was not the plaintiff which advanced its own funds, it cannot recover from Mr and Mrs Schafer the money which was advanced to them. He also contended that, since the true identity of the lender is unknown, and he had no contract with whoever might have been the true lender, that he and his wife were simply entitled to retain the money which had been advanced to them.
22 The defendants' contentions are untenable. The Information Memorandum simply demonstrates that, as is hardly surprising, the monies used to advance funds to borrowers were raised through a form of investment. There was nothing which actually ties the funding arrangements dealt with in the Information Memorandum to the particular advance made to the defendants, but, even assuming that the funds advanced to the Schafers were acquired through the structure demonstrated by the Information Memorandum, that does not lead to the conclusion that the loan was not made by the plaintiff pursuant to the loan agreement.
23 The loan agreement simply requires that the plaintiff advance the agreed sum on the appropriate settlement date. The source of the funds, and any arrangements which the plaintiff might make to secure advances of funds to it, are not matters which are required to be disclosed to a borrower. Entities which lend the funds to the public no doubt have a wide range of sources of funding.
24 The simple position in this case is that the plaintiff was bound to advance funds pursuant to the loan agreement with the defendants, funds were advanced in satisfaction of that contractual obligation, and the defendants became liable to repay the funds advanced to the plaintiff in accordance with the terms of the loan agreement and the mortgage.
25 The defendants' assertion that the plaintiff did not provide valuable consideration is also untenable. The consideration provided was the amount of the loan funds. It matters not what liabilities the lender may have incurred in order to obtain funding, nor, in the context of those background funding arrangements, that commissions or fees were payable between the various entities involved. The underlying funding source arrangements have no effect on the rights or obligations of the borrowers under the loan agreement and mortgage.
26 The foreshadowed defence that the plaintiff may not have been the true lender has no substance and is not arguable.
Purported breach of the November LVA
27 The basis of this defence is an assertion that the plaintiff is not entitled to enforce its rights under the loan agreement or the mortgage because it is itself in breach of a provision of the loan agreement inserted in the last LVA.
28 In order to understand the contention, it is first necessary to review the facts. I note that, in the context of a summary judgement application, I should accept the version of facts which is put forward by the defendants unless that version is inherently incredible.2
29 It is common ground that by October 2012, the defendants were in arrears in relation to the loan totalling $17,286.50. It is also common ground that the plaintiff offered to capitalise those arrears, as it had on three previous occasions, taking the balance of the loan at that time to $533,132.31. It was also common ground that on 3 October 2012, the plaintiff sent to the defendants a LVA for execution. That document was executed by the defendants and returned to the plaintiff by mail. It is apparent that the document was not received by the plaintiff. The circumstances of those events were not the subject of clear evidence, but in a letter dated 5 June 2013 from the plaintiff's solicitors to the first defendant's solicitors, it is asserted that because the LVA signed by the defendants in October 2012 was not received by the plaintiff, a fresh LVA was sent to them for signing on about 2 November 2012.
30 On 6 November 2012, Mr and Mrs Schafer returned the fresh LVA to the plaintiff under cover of a letter of that date. An additional provision had been added into the LVA by Mr and Mrs Schafer (November 2012 LVA). It reads as follows:
Lenders obligations if you borrow the additional loan at the variation disclosure date | Upon the borrower's written request, lenders will (within 7 days) provide all information pertaining to the original loan agreement, including but not limited to:
• certified records of double entry bookkeeping • details of assignment, transfers or sale • evidence of intact chain of title |
31 The covering letter reads as follows:
As requested, kindly find attached the original of the document for your acceptance and settlement. We apologise for the delay experienced by the Australia Post stuff-up.
Please note we have included one additional item in the agreement and are satisfied with all the other terms and conditions.
Kindly refer to page 2, paragraph 2.
All being to your satisfaction and acceptance, please proceed to settlement.
32 The reference to 'page 2, paragraph 2' is a reference to the additional provision set out above. 33 It is not apparent on the evidence precisely when the additional advancement by way of capitalisation of the outstanding interests was actually effected in the books of the plaintiff. In the plaintiff's solicitors' letter dated 5 June 2013, it is asserted that the 'additional loan' was supplied to the account at the time of the return of the November 2012 LVA.
34 Mr Schafer asserts that, in December 2012, he made requests for production of documents in accordance with the added provision. Those demands, which were said to have been made in writing, were not produced in evidence. It is not evident, therefore, precisely what was requested. Whatever was requested, it appears that it was not provided, and on 24 December 2012, the defendants sent to Mr Handel a document entitled 'Notice of Breach of Agreement'. The document recites their request for documents, the subsequent 'Notice of Default' (which I infer repeated the request for documents) and that no reply was received. The notice continued:
Dishonour By the terms of the Initial Presentment and the Second Presentment, failure, refusal, silence or neglect in the presentment of a sufficient response, constituted Recipients acquiescence and tacit agreement and therefore Confession of Judgement [sic] on the merits is warranted.
Confession of Judgement [sic]
Recipients Dishonour is their confession of judgement [sic] to the following specific terms:
1. Recipient agrees that it has no standing to bring any further claims