Senworth Capital Pty Ltd as trustee for the Car Loan Security Trust v W & W Investment Group Pty Ltd

[2023] NSWSC 989

Supreme Court

New South Wales

Medium Neutral Citation:

Senworth Capital Pty Ltd as trustee for the Car Loan Security Trust v W & W Investment Group Pty Ltd [2023] NSWSC 989

Hearing dates:

16 August 2023

Date of orders:

16 August 2023

Decision date:

16 August 2023

Jurisdiction:

Common Law

Before:

Campbell J

Decision:

(1) The notice of motion of 21 July 2023 is dismissed.

(2) The second defendant/applicant is to pay the plaintiff/respondent's costs of the motion.

Catchwords:

CIVIL PROCEDURE — application to set aside default judgment — loan made to corporate entity for the purpose of prestige car and other businesses — personal guarantee from company director and his wife — unsatisfactory explanation for delay in responding to default judgment — wife claimed the lender’s entry into her personal guarantee was unconscionable — she claimed to be at a special vulnerability vis a vis her husband and that the lender knew this — she claimed to be completely subservient to her husband — evidence at its highest fell short of proving a special vulnerability — claim in the alternative of an unjust contract based on the same underlying facts — no case established to set aside default judgment

Legislation Cited:

Contracts Review Act 1980 (NSW)

Cases Cited:

Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48

Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25

Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331

O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71; (2013) 16 BPR 31,705

West v AGC (Advances) Ltd (1986) 5 NSWLR 610

Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3

Category:

Procedural rulings

Parties:

Anna Wakim (Second Defendant/Applicant)
Senworth Capital Pty Ltd as trustee for the Car Loan Security Trust (Plaintiff/Respondent)

Representation:

Counsel:
YLR Chen (Second Defendant/Applicant)
BWJ Kidston (Plaintiff/Respondent)

Solicitors:
Juris League Consultancy (Second Defendant/Applicant)
Redchip Lawyers (Plaintiff/Respondent)

File Number(s):

2021/353320

EX TEMPORE JUDGMENT (rEVISED)

1. By notice of motion filed on 21 July 2023, the second defendant, Mrs Anna Wakim seeks to set aside the default judgment entered against her on 10 November 2022 in the sum of $3,627,343.97.

The loan agreement and personal guarantees

2. The plaintiff's action was to recover a loan originally in the sum of $2,058,000.

3. The borrower was the first defendant which was a corporation through which, on the second defendant's case, her husband Mr Simon Wakim, conducted a prestige vehicle dealership.

4. However, from the documents attached to the affidavit of Mr Jonathan Lee (affirmed 10 August 2023), the intermediary who arranged the loan, it is apparent that the finance had a dual purpose, that is, to provide working capital for the car sales business, but also to fund, at least in part, a proposed property redevelopment of premises at Strathfield. From the documents, it appears that those premises may have been the premises from which the business was principally conducted.

5. The loan was supported by a number of levels of security, including a mortgage over those Strathfield premises of which the company was the registered proprietor, personal chattel security over the stock of the business, and an unregistered mortgage over residential premises at Concord of which Mrs Wakim was apparently the registered proprietor.

6. The loan was for the relatively short term of four months. It was not repaid when it fell due, and there is no issue before me about the default of the borrower, or the failure of the guarantors, being separately Mr Wakim and Mrs Wakim, to make good the guarantee. I understand, if I have not said so, that the first defendant borrower has been deregistered.

Default judgments

7. The statement of claim did not claim possession of any of the security properties, but rather, sought to recover the debt.

8. Default judgment was obtained promptly against the first and third defendants on 22 January 2022, but there was an obvious difficulty, I infer, in serving Mrs Wakim. In due course, orders for substituted service were made which was effected pursuant to those orders by a process server leaving the statement of claim in the post box at the residential premises in Concord on 13 April 2022. From his affidavit, it is apparent on the probabilities that no-one was home at the time he effected service under the order for substituted service. I would also infer from his affidavit that the premises had the appearance of being locked up and perhaps unoccupied. I make those observations because part of Mrs Wakim's explanation, in propounding her application to set aside the default judgment, is that the statement of claim did not come to her attention at or about April 2022 because those premises were unoccupied, and she and her family were living elsewhere. In any event, default judgment was not entered against her until 10 November 2022.

9. Mrs Wakim has not been cross-examined today. I do not criticise anyone for that. It is common enough in these type of applications, given the limited nature of the Court's enquiry, for witnesses not to be cross-examined. But taking her evidence at its highest, the earliest she personally became aware of a default judgment was when she was served with a bankruptcy notice on 3 February 2023. She does not accept that at that time she was aware there was a judgment against her, for reasons I will return to in a moment. She in fact says that the first she was aware of the default judgment was when she was asked by Mr Wakim to appear in the Federal Circuit and Family Court of Australia, sitting at Melbourne, via AVL in answer to the creditor's petition filed and served by another creditor, a company that has been referred to in these proceedings as ‘Bizcap’. Again, I will return to that in a little more detail.

General principles

10. The principles concerning setting aside a judgment obtained in default of a defence are not in doubt, and Mr Chen of learned counsel who appears for Mrs Wakim, and Mr Kidston of learned counsel who appears for the judgment creditor, have both referred me to relevant decisions which summarise those principles.

11. For present purposes, I consider it sufficient to refer to the judgment of Hodgson JA in Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 [48]-[52]. I hope I do no injustice to his Honour's analysis if I summarise the principles by saying generally, what is required is an adequate explanation for the failure of a party to appear, and the demonstration of "an arguable case on the merits". An arguable case is one "that might reasonably bring about a different result". Hodgson JA said (at [52]):

“In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require 'a reasonably clear case of merits to be shown', that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant's default and hardship to the respondent."

I interpolate that, other than as to costs, there is no argument advanced before me today that the plaintiff, a financier operating in the short term loans market, has suffered any particular hardship.

12. Given some of the arguments that have been addressed, I think I should observe that there is an obvious crossover between the Court's approach to an arguable case, for the purpose of setting aside a default judgment, and the existence of a triable issue for the purpose of refusing summary judgment. The principles governing the latter are equally well known. They were summarised by Macfarlan JA in a similar context in O'Brien v Bank of Western Australia Limited [2013] NSWCA 71; (2013) 16 BPR 31,705 at [3]. Ward J agreed with his Honour, as did Beazley P (as her excellency then was). As Macfarlan JA pointed out, the real issue is whether there is an underlying defence that has a real, not fanciful, prospect of success. This is distinct from the question of whether such a defence is actually pleaded.

13. An applicant for summary judgment is required to demonstrate that the outcome of the litigation is so certain that it would be an abuse of process of the Court to require the action to proceed to a full hearing on the merits. A court satisfied that there is a sufficiently arguable case to set aside a default judgment is unlikely at the same time to conclude that the outcome of the litigation is sufficiently certain to justify summary judgment. The only real distinction in practice is as to the party who bears the onus, which however remains on the party seeking the relevant relief. I make those observations because Mr Kidston did submit that the case formulated by or on behalf of Mrs Wakim falls into that category of one that is clearly untenable or could not properly succeed.

14. I propose to deal first with the explanation proffered by Mrs Wakim for failing to take appropriate steps on her own behalf to look after her own financial interests, and for failing to take any step to set aside the default judgment when she actually became aware that the default judgment had been entered. There is a very significant crossover between that explanation, and the basis of the defence that she wishes to propound. That defence, in summary rests upon the equitable principles governing unconscionability of the type discussed by the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 at 395, and also in the older case referred to in that judgment of Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3.

15. In the alternative, she relies upon the statutory relief available under the Contracts Review Act 1980 (NSW). I think it is accurate to say that although the legal elements required to be established in respect of those alternatives are different, as the case has been presented by Mr Chen the factual matrix supporting each of them is essentially the same.

16. The case sought to be advanced, which is also part of the explanation for the delay including the absence of her actual knowledge, is that in all financial matters (I infer from her affidavits this is to the exclusion of household bills), she not only deferred to her husband, but was submissive to him in all respects, and at his command, she left all such matters to him. And she was not in any sense a free agent in regard to such matters. These matters are a summary of what is spelt out in more detail at paragraph 4 of the proposed defence (Mrs Wakim's affidavit 21 July 2023, Annexure A).

17. These are matters relevant to the explanation, to the extent to which it is necessary to look beyond the date of her actual awareness of the proceedings, in as much as she says in her affidavit that she is terrified of voicing any opposing opinions to that of her husband. As a cultural aspect of her Lebanese heritage she regards it as her duty as a “good Lebanese wife” to do everything her husband tells her. She has never voiced a contrary opinion, and she feels that her husband controls the decision-making within the household.

18. She said that she had some awareness of claims or demands made in financial matters from time to time. She acknowledges that over the years she had been served with various court documents and had received court documents in the mail. It was her, I infer, invariable practice to hand those documents to Mr Wakim at the first available opportunity, and he would always assure her that she should not worry because he would take care of it. She does not have a specific memory of the statement of claim in these proceedings, but she cannot say definitively she received a copy. She says, in a kind of hypothetical way, that if she did receive it, then it is likely she dealt with it in accordance with her invariable practice. She was particularly aware, in mid-2022, that there were a number of letters of demand, including letters of demand addressed to her, all of which she handed to her husband, in exchange for the usual assurance.

19. She said that the first time she realised that the plaintiff had a judgment against her was in early May 2023, when she was asked by her husband to dial into the bankruptcy court in relation to the bankruptcy proceedings, to which I have already referred. She had been told by her husband, on 10 May, that that was necessary, and that she was supposed to seek an adjournment. It was only then that she began to understand what was happening.

20. I should say that I fully accept the evidence attached to the affidavit of the plaintiff's solicitor, Mr Dylan Carrier-Hubbard, of 10 August 2023, and in particular, Exhibit DCH-04, that a bankruptcy notice was served on Mrs Wakim, by the same process server who served the statement of claim, on 1 February 2023. Although taking her evidence at its highest, it may be that she handed that to her husband. However, her explanation is that, when she became aware that there were pending bankruptcy proceedings against her, which I may say presumably had been served on her, she had the understanding that the creditor I have referred to as Bizcap was the petitioning creditor, and that the plaintiff was a supporting creditor. She then realised that Mr Wakim had not taken care of matters as he said he would.

21. She borrowed money from her family to see a lawyer, which did not happen until June 2023. She received advice about the nature of bankruptcy proceedings, and states the following:

“(c) If I put up a fight but ultimately fail at resisting the bankruptcy order, I would be ordered to pay the costs of Bizcap and [the plaintiff], and that those costs orders may form the basis for a second bankruptcy.

(d) Therefore, if I had no confidence in settling or setting aside both Bizcap and [the plaintiff's] judgments, there would be wisdom in not taking any actions at all, in order not to waste any of my borrowed money on lawyers, not to waste any of Bizcap's money on lawyers, not to waste any of [the plaintiff’s] money on lawyers, and not to waste the Court's resources."

I infer all of this was learnt in June 2023, and that was the decision that she made at that time.

22. She changed her mind in early July 2023 because Mr Wakim told her that he thought he had brokered a deal with Bizcap which might result in the bankruptcy proceedings, so far as it was concerned, being dropped. Although she says that then she noticed the judgment was a default judgment, this is hard to understand, given her earlier evidence.

23. However, it seems, one must infer, that given that she was now in the position where she may only have to fight on one front, she decided to bring this application to set aside the default judgment. I have to say that, on many levels, that explanation is not satisfactory. It is, with respect, taking it at its highest, and it has not been challenged, Mrs Wakim’s evidence that when she received legal advice in June, she made her own decision, not under the influence of her husband or anyone else, having received at that time entirely independent legal advice from a lawyer consulted independently of her husband, to let matters lie where they fell, legally speaking. And I must say, given the amount of the debt here, and I know nothing of Mrs Wakim's financial circumstances, I am unaware of whether the home I have referred to is encumbered or not, it seems more than a little hard to understand why Bizcap dropping out gave her confidence to fight a debt in excess of $3 million from the plaintiff.

Mrs Wakim’s case

24. In any event, that is the explanation. I turn again to the case that she wishes to bring now in more detail. While it may not be a legal element of her claim for relief on unconscionability grounds against the plaintiff, if she is allowed to propound it, it is certainly an essential factual aspect of her case that there was actual undue influence by her husband over her, and that it was for that reason that she entered into the loan transaction with the plaintiff, both by proffering her real property as security and by entering into the guarantee.

25. However, the elements of her case against the plaintiff must go well beyond proving undue influence by her husband. Essentially, she has to prove that the plaintiff had actual or constructive knowledge of her vulnerability in that regard, sometimes expressed as a special vulnerability in the authorities of the High Court, and that the plaintiff sought to take advantage of that special vulnerability.

Resolution

26. In the particular circumstances of Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25, it was said that what was required was evidence that the plaintiff's benefit of the bargain was procured by an unfair exploitation of the weakness of the vulnerable defendant which may require proof of a predatory state of mind. The Justices said that the principle is not engaged by mere inadvertence or even indifference to the circumstances of the defendant.

27. I fully accept that all of these cases engaging equitable principles are fact-sensitive, and that success or failure on such a claim depends upon a careful review of all of the circumstances proved by the evidence as to the nature and content of the relationship between the parties. However, it must be said that neither the allegation nor the evidence proffered in support of it in this case is capable of rising to that level. As Mr Kidston pointed out, although there is an allegation that the control and influence which Mr Wakim had over Mrs Wakim "was so overbearing that Mrs Wakim could not protect her own interests" and that “Mr Wakim communicated Mrs Wakim's submission to the representatives” of the plaintiff, there is in fact no allegation or averment that the plaintiff sought to unfairly exploit Mrs Wakim's vulnerability in that regard. Her evidence about the plaintiff’s actual or constructive knowledge of her vulnerability arises only in her second affidavit of 11 August 2023, which was prepared and served in response to an affidavit of Mr Jonathan Lee of 10 August 2023, the intermediary. Mr Lee's evidence was to the effect that his impression of Mrs Wakim was that she was a savvy person, familiar with business matters, and he had dealt with her before. I put his evidence to one side, other than as context for Mrs Wakim's evidence.

28. Mrs Wakim asserts that what Mr Lee says "are lies". Putting that to one side, because it is not for me to seek to determine whose evidence is the more acceptable in this limited application, the only evidence she gives is in her second affidavit, which is in the following terms (at [52]):

“I remember vividly also that [Mr Wakim] said to [Mr Lee] in front of me that, 'Yeah, just tell Anna what to sign, and she'll sign it.' And Jonathan was looking at me when Simon said this."

She also recalled other occasions when similar things were said. I think there is force in Mr Kidston's argument that that representation falls a long way short of the sort of special vulnerability, even accepting it at its highest, which is an essential aspect of the cause of action for unconscionability.

29. I should also say that other objective evidence in the case, which Mrs Wakim seeks to explain in some detail in her affidavit in response, does suggest that she was a person who had a good familiarity with the nature of the business in which the company was engaged. I drew to counsels' attention her email of 30 July 2020 signed by her, in which she seemed to answer, in quite some detail and in a very knowledgeable way, a number of technical questions that had been raised by the financier in relation to the company's financial and tax position. I acknowledge that in her affidavit she effectively says that she was a mere typist, and that Mr Wakim dictated that email to her. But the email is certainly a contrary circumstance established by the objective evidence.

29. Bearing in mind the principle as explained by Hodgson JA that I have already referred to, this is a matter which, in my judgment, even on this application, calls for, in the words of Sir Frederick Jordan, a reasonably clear case of merits to be shown. And to adopt Hodgson JA's further explanation, it is necessary that it appear reasonably clearly that there is a defence capable of producing a different result. And in my opinion, the evidence that I have referred to, leaving aside the technical omission in the defence which could be cured by amendment, falls short of that standard.

30. I have already said that the contracts review defence depends essentially as pleaded on the same facts, matters and circumstances as the unconscionability defence. I fully appreciate that the legal elements are different, and what is required, as Mr Chen submitted, is an evaluative judgment, weighing and assessing the matters set out in s 9 of that Act, in determining whether the loan contract is unjust in the circumstances relating to the contract at the time it was made.

31. However, no other factual basis is put forward than Mrs Wakim's financial subservience to her husband. And again, I think that the evidence, looked at from her point of view at its highest, really falls somewhat short of establishing that, at a trial, if her evidence is accepted, there is a good prospect that — and I do not mean it is likely — she would obtain relief under that legislation.

32. Mr Chen appropriately put some emphasis upon the circumstances in which legal advice was given to Mr Wakim and Mrs Wakim, apparently at the same time. Of course, the real question is whether, as between the plaintiff and Mrs Wakim, the contract was unjust at the time that it was made. And I think there is force in the submission of Mr Kidston that: (a) the legal advice was certainly independent of the plaintiff; and (b) that over and above what is put as having been said to Mr Lee, there is nothing to suggest that the plaintiff knew or should have known that her will was likely to be overborne by that of her husband in the circumstances. One needs to bear in mind that there is no suggestion other than the solicitor, a Mr Li, would not have been sensitive to any dynamic between Mr Wakim and Mrs Wakim which would have raised a concern with him as an independent legal advisor asked to advise both guarantors.

33. It seems to me that, although I was attracted to Mr Chen's argument to a degree, on proper analysis the material does not rise to a level where there is a reasonably clear case of procedural unfairness of the type that Mr Chen propounds based upon the well-known judgment of McHugh JA, as he then was, in West v AGC (Advances) Ltd (1986) 5 NSWLR 610.

34. Looking at the evidence both as to explanation and as to the merits, I am not satisfied that a case has been established for setting aside the default judgment.

Orders

36. My orders are that:

1. The notice of motion of 21 July 2023 is dismissed.

2. The second defendant/applicant is to pay the plaintiff/respondent's costs of the motion.

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Decision last updated: 21 August 2023