Westpac Banking Corporation v Chadha

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SUPREME COURT OF SOUTH AUSTRALIA

(Appeal from a Master: Civil)

WESTPAC BANKING CORPORATION v CHADHA

[2012] SASC 223

Judgment of The Honourable Justice Peek

17 December 2012

APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - POWERS OF COURT

MORTGAGES - MORTGAGEE'S REMEDIES - POSSESSION - PROCEEDINGS TO OBTAIN

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - HARSH AND UNCONSCIONABLE CONTRACTS AND STATUTORY REMEDIES

PROCEDURE - COURTS AND JUDGES GENERALLY - JUDGES - POWERS AND DUTIES IN RESPECT OF UNREPRESENTED LITIGANTS

CONSUMER CREDIT - CREDIT PROTECTION - REGULATED CONTRACTS AND REGULATED MORTGAGES - ENFORCEMENT AND TERMINATION

Appeal from a Master of the Supreme Court - the appellants entered into a series of loans with the bank in their personal capacity and as directors of a company - the appellants executed guarantees - the loans fell into arrears and the bank instituted proceedings for possession of two of the properties - the Master granted the bank orders for possession.

Whether the order for possession in respect of the matrimonial home should be set aside - whether the Master erred in finding that the appellants had not raised an arguable defence such that the proceedings should be referred into the ordinary civil trial list - whether the Master erred in not finding that the loans were procured by unconscionable conduct - whether the bank engaged in "pure asset lending" - whether the appellants suffered from a special disability by virtue of their inability to service the loans or their ill health - whether the rule in Yerkey v Jones or Garcia v National Bank Australia Ltd applied - whether the unrepresented appellants were given insufficient opportunity to put their case - whether the Master erred in finding that there was no evidence that the loans were granted in contravention of the National Credit Code - whether the National Credit Code applied to the loans.

Held: Appeal dismissed - the order for possession should not be set aside - the Master did not err in finding that the appellants had raised no arguable defence - the appellants were bound by the terms and conditions of the documents by their signature - the Master did not err in finding that the bank had not acted unconscionably - the appellants were unable to demonstrate that as at the time of granting any of the loans the bank was indifferent to their ability to repay the loans or that the bank took advantage of severe disadvantages then suffered by the appellants or that they suffered from a "special disadvantage" - the appellants did not show that they suffered from ill health at the time the loans were granted - no basis for an application of the rule in Yerkey v Jones or Garcia v National Bank Australia Ltd was established - neither appellant asserted that the other had exercised undue influence or pressure upon the other - the Master did not fail…

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Details
Case
[2012] SASC 223
Decision Date

CaseChat Overview and Summary

The case of Westpac Banking Corporation v Chadha involved a dispute between the bank and the appellants, who had executed a series of loans and guarantees in their personal capacity and as directors of a company. The bank instituted proceedings for possession of two of the properties, which the Master of the Supreme Court granted. The appellants appealed the Master's decision, arguing that the order for possession should be set aside. The appeal raised several legal issues, including whether the Master erred in finding that the appellants had not raised an arguable defence, whether the bank engaged in "pure asset lending", and whether the unrepresented appellants were given insufficient opportunity to put their case.

The court held that the appeal should be dismissed and the order for possession should not be set aside. The Master did not err in finding that the appellants had not raised an arguable defence, as they were bound by the terms and conditions of the documents by their signature. The court also found that the Master did not err in finding that the bank had not acted unconscionably, as the appellants were unable to demonstrate that the bank was indifferent to their ability to repay the loans or that they suffered from a "special disadvantage". The court further found that the Master did not fail to give the unrepresented appellants sufficient opportunity to put their defence, and that the Master did not err in rejecting the appellants' general assertion that the loans had been granted in violation of the National Credit Code.

The court's decision was based on a detailed analysis of the evidence and the applicable legal principles. The court held that the Master's findings were supported by the evidence and that the appellants had not established any of the grounds of appeal. The court also noted that the appellants had not made any attempt to issue substantive proceedings for equitable or other relief and had elected to proceed with the appeal only. The final orders of the court were that the appeal be dismissed and the costs of the appeal be awarded to the bank.

Orders

Orders of the court

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Background

Background to the litigation

In summary, provided that the applicant for an order for possession has met the requirements specified in Part XVII, Real Property Act 1886, the applicant is prima facie entitled to that order. However, if the Court is satisfied that the defendant has raised an arguable case supported by some evidence which, if accepted, could give rise to a particular defence, the matter may be referred to the ordinary civil trial list for determination. I will consider the arguments of the appellants on the basis that they seek to submit that his Honour erred in failing to adopt the latter course. Ground 1 of appeal: the judgment of the Master was bad on facts and law This is really only introductory and stands or falls on the following substantive grounds.Ground 2 of appeal: assertion of “pure asset lending” Ground 2 challenges the following finding made by the Master at paragraph [4] of his reasons:[4] It appears that all of these loans were properly serviced over a period of approximately four years. From the second affidavit of Ms Dichiera – FDN 7 – the loans first fell into arrears as follows:· First home loan – January 2012· Equity loan – January 2012 · Second home loan – September 2011 · Third home loan – September 2011 · Fourth home loan – January 2012 His Honour’s point here was that the appellants had successfully serviced the loans for about four years from December 2007 (when all the loans were taken out, with the exception of the later Investment Property Loan for $150,000 executed on 14 July 2010) until September 2011 when the first defaults occurred. The appellants appear to submit that the loans were only “serviced” by way of additional funds provided by the bank on the basis of revaluations of the three properties held as security. The appellants assert here, and in subsequent grounds of appeal, that the bank was engaging in “pure asset lending”. I take that to mean the lending of money “without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default”.[10] The usual hallmarks of such lending will be an indifference of the lender to the purpose of the loan in circumstances where the lender has ample security to cover the outstanding principal and interest (both normal and penalty interest) and recovery costs. I will deal here with the contentions as to “pure asset lending” referred to in the various grounds of appeal. [10] Perpetual Trustee Company Limited v Khoshaba (2005) 14 BPR 26, 639, [128] (Basten JA). The appellants refer to Perpetual Trustee Company Limited v Khoshaba (Khoshaba)[11] where the Full Court of the New South Wales Supreme Court dismissed an appeal against a finding that a loan contract for an unspecified purpose was “unjust” under s 7, Contracts Review Act 1980. Spigelman CJ there found that the combination of the appellant’s failures to inquire as to the purpose of the loan and to verify or follow up other details in the loan application indicated that the appellant lender was “content to lend on the value of the security”.[12] In the particular circumstances of the case, his Honour held that this “indifference” was determinative of the unjustness of the contract under the Act.[13] Basten JA in Khoshaba stated:[14][128]To engage in pure asset lending, namely to lend money without regard to the ability of the borrower to repay by instalments under the contract, in the knowledge that adequate security is available in the event of default, is to engage in a potentially fruitless enterprise, simply because there is no risk of loss. At least where the security is the sole residence of the borrower, there is a public interest in treating such contracts as unjust, at least in circumstances where the borrowers can be said to have demonstrated an inability reasonably to protect their own interests, for the purposes of, for example, s 9(2)(e) or (f). That does not mean that the Act will permit intervention merely where the borrower has been foolish, gullible or greedy. Something more is required: see Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491 (Handley JA) cited with approval in Elkofairi (supra) at [77] by Beazley JA. (Emphasis added)[11] (2005) 14 BPR 26,639.[12] Perpetual Trustee Company Limited v Khoshaba (2005) 14 BPR 26,639, [82], [84], [92] quoting Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413, [79] (Beazley JA). [13] Perpetual Trustee Company Limited v Khoshaba (2005) 14 BPR 26,639, [92], [96].[14] (2005) 14 BPR 26,639.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

PEEK J
On 16 July 2012, the appellants were served with the proceedings and notices to occupiers were duly attached to the 2A Lanor Avenue property and the 2 Lanor Avenue property pursuant to Rule 204, Supreme Court Civil Rules 2006. The appellants sought to resist the bank’s claim, filing a defence on 9 August 2012. The appellants have been unrepresented for the duration of these proceedings.The decision of the Master The bank’s application came before the Master on 29 August 2012. The Master noted that:[13]By the actions it had taken and the material filed, the plaintiff established a prima facie right to a summary order for possession in respect of those two properties.…[24]… For the plaintiff to be deprived of its remedy of a summary possession order, it is necessary for the defendants to demonstrate that they have a dispute of substance to justify the Court directing pleadings and referring the summons into the ordinary trial list for determination: see Moonta Town Corporation v Rodgers & Rodgers (1980) 26 SASR 143 at 160. Accordingly, his Honour considered the following arguments advanced by the appellants (which have been repeated before me):·That the loans were granted in contravention of the National Credit Code and in circumstances which attract the operation of the principle of “unconscionable equity” in Blomley v Ryan (Blomley)[3] and Commercial Bank of Australia v Amadio (Amadio).[4] The appellants argued that other financial institutions had refused to grant them further financial facilities due to lack of serviceability in January or May 2006 and August 2007 and that the bank knew, or ought to have known, that the appellants were not in a position to repay the loans. ·That the 2A Lanor Avenue property is the appellants’ family home where they live with their two daughters, one of whom is disabled, and two grandchildren. ·That the appellants suffer depression and stress. ·That penalty interest rates should not be applied to the amounts outstanding under the loans.[3] (1956) 99 CLR 362.[4] (1983) 151 CLR 447. The Master proceeded to examine the appellants’ contentions, including as to the general principles of unconscionable conduct and the decision in Amadio. Ultimately, his Honour found that no arguable case had been made out on any of the appellants’ contentions. As to the Amadio aspect, his Honour concluded that the appellants had not made out an arguable case that they had suffered from a “special disability” at the time the loans were negotiated in all the circumstances, including that: ·the loans had been serviced for a period of four years which tended to displace any suggestion that the appellants suffered from such a special disability when the loans were negotiated;·while the business eventually failed and a development of the Erskine Street property produced a smaller than expected profit, these matters did not establish a special disability, and particularly so since they had occurred well after the loans had been executed;·evidence of ill health, stress and depression suffered at a later time cannot constitute a “special disability” at the time the loans were negotiated;·there was no evidence which could establish a violation of the National Credit Code by the bank; and ·the application or non-application of penalty interest rates to the loans was not a factor relevant to the Master’s decision in the particular circumstances.

Ratio Decidendi

Legal Principle Established

Established by: PEEK J

The stay has now lapsed and the appellants have made no attempt to issue substantive proceedings for equitable or other relief. They have elected to proceed with this appeal only. In those circumstances it is unnecessary for me to consider further the orders made by Gray J. I should add that these orders were apparently made with the consent of the bank and accordingly the making of them in this case does not constitute a precedent as to the usual process to be followed in such circumstances.Consideration of the appeal The appellants remain unrepresented on the appeal. The grounds of appeal are not professionally drafted and substantially overlap, particularly in relation to the matter of asserted “pure asset lending”. The grounds of appeal The grounds are as follows:1.The judgement of the Honourable Judge, Master of the Supreme Court is bad both on facts and law.2.That Para 4 of the Judgment is wrong. That the Honourable Judge failed to consider the affidavit of Rajesh Chadha dated 22/8/12. That the loans were serviced as a result of the respondents providing loans to the appellants at various times. That the loans were granted on pure asset lending. That the properties of the appellants were valued each year and the loans were further granted against the increased values of the properties.3.That the appellant’s case falls squarely on the established law of unconscionable equity. In case Attorney General VS World Best Holdings (2005) 63 NSWLR P557. Chief Justice Spigelman has said over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined unconscionability is such a standard. Unconscionability is a concept which requires high level of moral obloquy. If it were to be applied as if it were equivalent to what is ‘fair’ or ‘just’ it could transform commercial relationships. If the lender that there will be default in payment of the interest or principal so that mortgagee sale will inevitable result.4.That in reference to para 16 of the judgement of the Honourable Judge, the appellants request this court to consider their case of unconscionable equity with in case of Elkofairi VS Permanent Trusty company Ltd (2002) NSW court of appeal. Also refer to Perpetual Trusty Company Ltd VS Khoshaba (2006) NSWCA41 at 218. Pure asset lending there is public interest in treating such contracts. In Kowalczuk VS Accom Finance pty ltd (2008) NSWCA 343.5.That the facts in Para 6 of the judgements are wrong. That the deed of guarantee dated about 13th of December 2007 was for an amount of $350,000 and then it was amended to $450,000 in 2009 and later again amended to $610,000 on 9th of Feb 2012 plus costs and interest up to an additional 20 per cent to cover expenses.6.That the appellants were defending their case in person. The appellants were not given enough opportunity to put their defence properly. As a result the judgement and order of the Honourable Judge is bad in law.7.That the Honourable Judge failed to consider his own remarks on the case file that the statement of claim and defence inappropriate for this action.