Westpac Banking Corporation v BACHU Bhai Krispashanker Pandya and Gouri Pandya No. 4215 Judgment No. SCGRG 93/48 Number of Pages 8 Mortgages

[1993] SASC 4215

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA ANDERSON J

CWDS
Mortgages - rights and liabilities of mortgagor and mortgagee. Defendant gave plaintiff bank all money mortgage with house as security - demand made - house sold and proceedings for balance due. Defendants' counterclaim based upon allegation that bank deliberately concealed from defendants true extent of their liability - defendants' evidence rejected - first defendant very experienced and aware of contents of security documents - this mortgage replaced one in similar terms - judgment for the plaintiff.

HRNG ADELAIDE, 22-23 September 1993 #DATE 13:10:1993
Counsel for plaintiff:     Mr D A Trim
Solicitors for plaintiff:    Phillips Fox
Counsel for defendants:     Mr G K Patel
Solicitors for defendants: Patel and Co

ORDER
Judgement for plaintiffs.

JUDGE1 ANDERSON J The claim by the plaintiff bank is within a very narrow compass. The essence of this matter is the defendants' counterclaim. 2. It is agreed that on 13 February 1990 the defendants gave the plaintiff bank a memorandum of mortgage numbered 6870424 dated that day, being an all moneys mortgage registered over the home of the defendants situated at Lot B Blacktop Hill Road, Hillbank, to secure a loan to Pandya Nominees Pty Ltd. Subsequently that loan fell into arrears and a demand was made by the plaintiff bank to the defendants. The defendants did not respond thereto and the plaintiff bank then issued proceedings to take possession of the house property, which object was achieved, and that property was sold. These proceedings are directed to the balance of the funds allegedly due pursuant to the said mortgage. Mr Trim, of counsel for the plaintiff tendered a certificate under the hand of a manager of the plaintiff bank made pursuant to clause 25 of the mortgage which indicated that the sum of $465,562.94 is outstanding as at 22 September 1993. Pursuant to the mortgage, that certificate is proof of the sum due. That is the plaintiff's case. 3. At the commencement of the trial, Mr Patel, of counsel for the defendants, sought and obtained leave to file an amended defence and counterclaim. That amended document deleted all reference to the plea of special disability of the defendants (and the first-named defendant in particular) in dealing with the plaintiff's employees. 4. In his opening Mr Patel indicated that the defendants relied upon two defences. Firstly, the provisions of s.52(1) of the Trade Practices Act 1974 and the associated provisions of the Misrepresentation Act 1971 of South Australia and secondly, upon the plea seeking a rectification of the mortgage so as to delete reference to any provision which extended the liability of the defendants pursuant to the mortgage beyond the realisation by the plaintiff bank of their home at Hillbank. 5. It is essential that the factual circumstances surrounding the transaction and what followed be made plain before further consideration can be given to the defences of the defendants. Without doubt, the first-named defendant ("the defendant") was at the time the mortgage was executed in February 1990, a most experienced businessman. He was then 52 years of age. He had obtained qualifications as a radiographer in Singapore and migrated to South Australia in 1969. He was then employed at the Lyell McEwin Hospital as assistant chief radiographer for ten years. He then purchased land and built the Salisbury Private Nursing Home and Private Hospital which became operative in 1983. He was the principal administrator of this entity. It was established by using funds from the Salisbury Private Hospital Unit Trust with he and his wife, the present defendants, being directors of the trustee company. That company was Pandya Nominees Pty Ltd. The necessary funds were borrowed from a national insurance company and privately and were secured. That entity was sold in late 1984 and the Brahma Lodge Hotel was purchased in the name of Pandya Nominees Pty Ltd. The defendant became the publican and operated the hotel as its chief officer for 18 months. To help complete this purchase funds were borrowed from the Commonwealth Bank. To secure part of the funds borrowed, the house at Hillbank was mortgaged to that Bank. This mortgage was a third party or all moneys mortgage as was the mortgage the subject of this action. A subsequent mortgage to the Commonwealth Bank of Australia in July 1986 was in similar terms. In 1986 the hotel was sold and the defendant commenced employment with Colliers. In his curriculum vitae, which is in evidence, he described this employment as "an investment and planning adviser" but sought to move away from that in cross-examination and described himself as "more on the hospital and medical lines rather than investment and planning advice". After the sale of the hotel, another company in which Pandya Holdings Pty Ltd had shares, Molit (55) Pty Ltd, as trustee of the Market Plaza Unit Trust, purchased the Market Plaza in the city of Adelaide. Another company with which the defendant was involved, Lakshmi Nivas Pty Ltd was also responsible for organising the purchase of the Cremorne Plaza for another unit trust. The defendant put together the finance package to enable these transactions to occur. A further company, known as Lam Soon Pty Ltd was the operator of a supermarket in the market complex and at North Adelaide. The defendant was the chief executive of that company's South Australian operations. 6. When the Market Plaza was purchased, Pandya Holdings Pty Ltd moved its office to that complex. That office was situated adjacent to the Central Market branch of the plaintiff bank and that branch became banker to the daily trading activities of Molit (55) Pty Ltd and Lam Soon Pty Ltd. The secured finance then remained with the Commonwealth Bank. 7. This is but a brief resume of the defendant's financial activities. It is sufficient, however, for it to be apparent that he was a most experienced businessman and particularly experienced in organising and negotiating the obtaining of finance and quite familiar with the executing of various forms of security documents in relation thereto. He had obtained this experience over many years. His counsel used the word "astute" to describe him. 8. Because of his use of the Westpac branch, Mr Pandya came to know Mr Humby who was the then manager of that branch. Discussions occurred between them and it was resolved that a meeting would take place to see whether or not the borrowings of Pandya Nominees Pty Ltd could be reorganised so that all banking was with the plaintiff bank. To this end, on 16 January 1990, Mr Pandya, Mr Humby and Mr Gellert, who was then the commercial manager of Adelaide City West for the plaintiff bank, met in the defendant's office. Mr Gellert was Mr Humby's superior and responsible for large commercial negotiations at the time. Mr Humby knew his presence was necessary to achieve, from the bank's point of view, the desired objective of removing Mr Pandya and his associated bank accounts from the Commonwealth Bank and transferring them to the plaintiff bank. That meeting resulted in Mr Pandya providing to Mr Gellert, by letter dated 18 January 1990, a loan application offering as security "(a) first mortgage over home; (b) equitable charge over Pandya Nom. Pty Ltd". On 26 January 1990, Mr Gellert wrote to the secretary of Pandya Nominees Pty Ltd at the Hillbank address offering a loan in the sum requested and requiring as security insofar as is relevant "RPA mortgage by B.B.K. and G. Pandya over: Blacktop Road, Hillbank and a mortgage debenture by company over assets and uncalled capital". Mr Pandya saw that offer to be in terms similar to his letter of 18 January 1990 and signed the second copy thereof, thereby indicating acceptance. Mr Gellert instructed that security documents which were to contain the detailed terms of the agreement reached between the parties, be prepared. That having been done, they were forwarded to the branch and arrangements were made for Mr and Mrs Pandya to see Mr Humby with a view to the execution thereof. 9. Mrs Pandya gave evidence that immediately prior to the execution of the mortgage on 13 February 1990, her husband had told her that the documents were to be executed and had given her a brief resume of their purpose. It was apparent from her time in the witness box that Mrs Pandya is a most articulate and widely read person. Together with this strong impression was the impression that she has almost no interest in her husband's many financial interests. Indeed, in cross-examination, on the topic of the many mortgages which she has signed over the years, she was asked: "Do you remember signing those mortgages from time to time?" Her answer was: "I've signed so many documents in my lifetime, to be very, very honest. I've just followed my husband. He says 'Sign here' and I've signed I repeat, I'm a teacher." 10. It was quite obvious from the cross-examination that she had never read any of the security documents which she had executed over many years and had no real interest in so doing. 11. When it came time to sign the mortgage, Mr and Mrs Pandya went to the branch office. Mr Pandya said that the documents were produced by Mr Humby at a counter and that he merely opened them and without further explanation pointed to where they were to sign. They signed, he signed and they left. An exercise which took no more, in his estimate, than two or three minutes. Apart from the fact that Mrs Pandya thought this exercise took place in Mr Humby's office, she corroborated the evidence of her husband that there had been no explanation given to them by Mr Humby as to the effect of the mortgage and the extent of their liability and that they had simply signed where indicated and gone away in a very short time. 12. Mr Humby's evidence was quite different. Whilst he admitted having no independent recollection of the execution of the document, he relied upon a file note marked "History sheet" which I admitted into evidence pursuant to the provisions of s.47 of the Evidence Act 1929 relating to the execution of these documents. That file note indicates that in addition to the mortgage, four other documents were executed. The defendants have no real recollection of that. The file note contains the following words: "Each of the parties appeared to understand the true purpose and effect of the documents and voluntarily signed the same." 13. Mr Humby was both examined and cross-examined at some length about his practice. In examination-in-chief, he described his practice, conceding all the while that he had no independent recollection of the execution of the mortgage, as requiring the parties to have a copy of the document open before them as does he, and he then explains the parties named in the mortgage and the accumulated effect of the clauses of the mortgage and including an expression to the effect that if the property secured in the mortgage is insufficient to satisfy the debt due thereunder, those parties may be pursued further by the bank in relation thereto. He was most vehement in his denials of the suggestion put to him in cross-examination that such a course had not been adopted and that he had effectively complied with a bank regulation in relation to such third party mortgages for audit purposes by rote, relying upon the expertise and familiarity of Mr Pandya with such documents. In response to that suggestion, Mr Humby made it quite plain that the certificate would not have been completed over his hand had the events therein described not occurred irrespective of bank requirements. 14. Before I return to complete the meeting of 16 January 1990 in Mr Pandya's office, it is convenient to move to a further mortgage which was prepared and executed on 9 July 1990 by the defendants. This mortgage was prepared to secure a further overdraft advance and was needed because of the omission from the first document of reference to the trust. The document was prepared after discussions between Mr Pandya and Mr Gellert and was sent with Mr Gellert's assistant, Mr Jones, to Mr Pandya's office for execution. Both Mr and Mrs Pandya said in evidence that a procedure similar to that which had been adopted in February was adopted by Mr Jones. The documents were produced and executed without any further explanation as to their contents or the consequences of execution. Mr Jones, like Mr Humby, and in compliance with the same bank regulations, also prepared a minute for the bank file. He also conceded no independent recollection of the event but described his usual practice as explaining the contents of the documents and the consequences of the failure of the security referred to therein to satisfy the sum due thereunder to the bank, to the parties. He said further that it was his practice to require a response from the parties. Indeed, such a response is noted in his file minute. He was also subjected to cross-examination along similar lines and rejected the suggestions made by Mr Patel that he had relied upon Mr Pandya's experience and had completed the file minute as a matter of convenience to satisfy bank audit requirements. He was quite specific in his evidence that it was his practice to require a response from those who were to sign the document, and he would not have couched his minute in those terms had that normal procedure not led to such a response. 15. Mr Patel, in cross-examination of Mr Humby suggested that Mr Humby was aware from the meeting of 16 January 1990 at the time of execution on 13 February 1990, that the defendant was not prepared to give the all moneys covenant that appears in clause 1 of the mortgage. Mr Humby denied such knowledge. He indicated that on that occasion the principal discussions were between his superior Mr Gellert and Mr Pandya and that apart from bringing the parties together, he took no real interest in the events. However, his file note made on that day indicated the proposals for security in relation to the provision of a commercial bill facility to Pandya Nominees Pty Ltd as well as discussions concerning other accounts and the documentation necessary in relation thereto. At trial he had no independent recollection in detail of what had occurred at the meeting on 16 January 1990. 16. Mr Gellert, however, did have a recollection of what had occurred on that day. It was almost inadvertently in cross-examination that Mr Gellert made reference to what has become the high point of the defendants' case. When discussing the loan correspondence as it related to security and to which I have referred, the following exchange occurred:
    "Q. There is no difference between what you are offering and
    what he is offering.
    A. Correct.
    Q. At that meeting, it is clear, that you weren't seeking
    any personal undertaking or guarantee from Pandya or any of
    the directors of the company.
    A. Only what's covered by the covenants of the mortgage.
    Q. You were not seeking, I am putting it to you.
    A. We were not seeking a director's guarantee.
    Q. You were not seeking any personal undertaking.
    A. I think I might have asked for it but Bachu said it
    wasn't available, a director's guarantee.
    Q. He said to you it was not available.
    A. Yes.
    Q. Therefore, you were prepared to recommend, that the house
    be taken as security and that a debenture be taken on the
    assets of the company as sufficient adequate security.
A. Bearing in mind the normal covenants in a mortgage." 17. It is plain from that exchange that Mr Gellert may have sought a director's guarantee which was not forthcoming. Mr Gellert then proceeded on the basis that the security required would include only the usual covenants of the bank's mortgage. 18. Therein lies the nub of this dispute. The defendant maintains that at no time was it intended that a mortgage securing unlimited liability in relation to the debts of Pandya Nominees Pty Ltd be offered and the plaintiff maintains that the mortgage which included that term as a usual term was entered into freely and after explanation of its contents, not only once, but again five months later, by the defendants. 19. The essence of the defendants' case against the plaintiff bank is gathered from the use of the words "sharp practice, ... unfair tactics perpetrated on the defendants" in clause 8.2 of the amended counterclaim and the submission in Mr Patel's final address "that the defendants were mislead by conduct, deliberate conduct on the part of the bank officers as to the content of that document" (p.130 of transcript) and "the plaintiff is guilty of malpractice in the way it went about getting execution of the documents" (p.120 of transcript). So it is that the defendants maintain that the bank has deliberately, through its three employees and knowing the restrictions on the security offered by the defendants, conspired to ensure that they were not made aware of the provisions of the mortgage document as to their unlimited liability. It must follow from that submission that that conspiracy commenced immediately after, if not at, the meeting of 16 January 1990 or at the latest when the letter of offer from the bank of 28 January 1990 was forwarded. It required, presumably through the intervention of Mr Gellert, both Mr Humby and Mr Jones to provide file notes that were false and further required that they give evidence which they knew to be false. This proposition is put forward on behalf of the defendants, the first of whom is a most experienced businessman who has conceded, and as is borne out by the evidence, that the mortgage of the Commonwealth Bank which this mortgage replaced was in precisely the same terms as that mortgage. Further, it is clear from the evidence and from the exhibits that on many previous occasions the defendants have entered into similar third party mortgages in addition to the many two party mortgages on their property. When one considers Mr Pandya's experience in this area it is almost inexplicable that he should not have read the mortgage of 13 February 1990. This is made the more so because in his evidence he said that the Commonwealth Bank mortgage whilst it may have been similar, was complemented by a personal loan document which specified the extent of the defendants' personal liability. Here there was no such document. This, to my mind, is a significant reason why a person of Mr Pandya's experience would look at the document to ensure that it was as he had expected had he not known or been made aware of its ramifications. 20. Mr Pandya, in the giving of his evidence, was evasive. Notwithstanding the considerable business experience that he possesses, when asked by Mr Trim to describe that experience, he used the adjective "little" and then sought to engage in a semantic debate about the breadth of that word. And this was so generally when cross-examined about his previous experience, and in particular, his understanding and recollection of those previous documents. I am not able to prefer his evidence where it is in conflict with the plaintiff's witnesses. 21. Mrs Pandya was, as I have already indicated, of her own admission, merely doing her husband's business. She suggested in her evidence, that had there ever been any discussion or indication by anyone that the execution of these documents would have led to liability beyond the loss of her home, she would have refused to sign. Having regard to the previous documents of like ilk which she has signed at the behest of her husband, this is not an assertion which I am able to accept. 22. Acceptance of the defendants' factual position requires the specific rejection, not only of parts of Mr Gellert's evidence, but principally the evidence of Mr Humby and Mr Jones as to what occurred at the execution of the respective documents. That is a finding which must be made if the defendants are to discharge the onus which is upon them in relation to their counterclaim. It is a finding which I am not able to make on the evidence before me. Mr Humby and Mr Jones struck me as diligent, forthright and honest employees of the plaintiff. Mr Gellert is obviously an experienced and capable bank manager in his commercial lending field. When put together, the suggestion that these three men, have over a period of time, effectively combined to defeat the rightful position of the defendants, is not a finding which I am able to make on the evidence. The position more likely is that, nothing ever having gone bad for the defendants before when similar security documents were executed, they simply pushed on expecting things would not change and have now been met with a significant demand from the plaintiff bank. Notwithstanding that Mr Pandya made no mention of a personal guarantee, as opposed to a personal covenant within the mortgage having been discussed on 16 January 1990, in his evidence-in-chief or cross-examination, it may well be, as Mr Gellert said, that a personal guarantee as an additional form of security was not available in this instance. That is quite separate from the usual covenants of the mortgage which, if they were not known to Mr Pandya, were both available for him to read in the document before execution and on my findings, explained to him on two occasions prior to execution. In addition, it is notable that, as was mentioned in evidence when the initial demand from the bank was made in August 1991 and thereafter, the defendants did nothing to raise with the bank their now postulated understanding of the mortgage document. Indeed, there is no evidence of any assertion to the bank of the defendants' position prior to the filing of the defence and counterclaim herein. 23. That being so, the defendants' claim pursuant to s.52(1) of the TradePractices Act 1974 which requires, irrespective of the question of fault, that the conduct be "misleading" in the sense referred to by Gibbs CJ in Parkdale Custom-built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 149 at 198 is not made out. 24. The defendants have not shown that there was the silence by the bank's employees, upon which Mr Patel relied to found an obligation to them by the plaintiff bank. Hence no obligation exists in that regard. 25. Not only was there no unilateral mistake in the pleaded sense so as to amount to fraud, thereby allowing rectification or other general equitable relief but there is no sufficient evidence to support the basis upon which this submission has been made. 26. From all that has gone before there was, on the whole of the evidence, no sufficient support for any proposition which would establish other than that the employees of the plaintiff bank had at no time reason to expect or understand that the defendants were under any misapprehension as to the contents of the documents which they signed, both in February and July 1990. That being so, no duty falls upon the plaintiff to make any further disclosure to the defendants, particularly in the light of the evidence of Mr Humby and Mr Jones as to execution, which evidence I accept and prefer to that of the defendants. 27. For those reasons, the defendants' counterclaim fails and in relation thereto there is to be judgment for the plaintiff. In addition, the plaintiff is entitled to judgment on the claim in the sum of $465,562.94, being the sum referred to in the certificate tendered pursuant to the provisions of the mortgage. I shall hear counsel as to interest and costs.