Westpac Banking Corporation v Russell

[2000] QSC 339

THE SUPREME COURT  [2000] QSC 339

OF QUEENSLAND

BRISBANE  No. S2979 of 2000

BETWEEN:

WESTPAC BANKING CORPORATION ARBN 007 457 141

Plaintiff

AND:

RONALD WILLIAM RUSSELL

First Defendant

AND:

SHIRLEY ANNE RUSSELL

Second Defendant

REASONS FOR JUDGMENT

B.W. Ambrose J.

Delivered the second day of October 2000

CATCHWORDS:               PRACTICE – SUMARY JUDGMENT – whether the defendants have an arguable case – consideration of whether real estate salesmen acted as agents for the plaintiff

Uniform Civil Procedure Rules 1999

Counsel:Mr E J Morzone for the applicant

Mr M Gynther for the respondent

Solicitors:Clayton Utz for the applicant

Hynes Hartnett for the respondent

Hearing Date:  6 September 2000

1. This is an application by the plaintiff (“the Bank”) for summary judgment pursuant to r 292 of the Uniform Civil Procedure Rules1999 for –

1.          Possession of land owned by the defendants at 215 Cotlew Street, Ashmore in the State of Queensland;  and

2.          Summary judgment pursuant to that rule against the defendants for moneys payable under an agreement with the Bank described as “loan offer-investment property loan” made on or about 20 September 1995.

1. The case is a sad one however it will be of benefit to the defendants if a careful analysis be made of the matters they raise by way of defence to the Bank’s claim to determine at a relatively early stage if they have indeed an arguable defence.

1. The defendants who are in their 60’s own a home at 215 Cotlew Street, Ashmore which they purchased in 1974.  When they were persuaded by a real estate salesman to purchase “an investment unit” in September 1995, they had a significant equity in it.  At that time their home was subject to a mortgage to the Bank upon which approximately $10,000.00 was owing.

1. The defendants had given that mortgage to the Bank when they refinanced a mortgage debt initially owed to another financial institution.

1. That mortgage signed by the defendants on 12 January 1994 secured to the Bank “advances or accommodation already granted or afforded and/or presently granting or affording advances or accommodation and/or at any time or from time to time hereafter granted or affording advances or accommodation - -“.

1. In about July or August 1995 one Don Fairbrother, who was either an employee or agent of a real estate company HMS Australia Pty Ltd (“HMS”), approached the defendants and discussed with them their purchase of a home unit at Waverley Manor, Taringa, Brisbane.  He took the defendants to inspect the unit and on their case represented “that the purchase of the unit would cost only about $5.00 per week and further that the unit would eventually pay for itself without the defendants having to pay out any money of their own”.  According to the defendants they informed the salesman that they would need to obtain a loan of money to buy the unit they inspected and that they did not want to have “a second mortgage over the property” in which they resided at Ashmore.

1. According to the defendants the salesman “represented” to them that –

1.          HMS did a lot of business with the branch of the Bank at Loganholme (which happened to be the branch that the defendants used);  and

2.          The Bank’s branch at Loganholme had lent money to other purchasers of units in the block containing the one which he was attempting to sell to the defendants.

1. According to the defendants the salesman advised them that he or HMS could arrange a loan for the purchase of that unit with the Bank’s branch at Loganholme.

1. I take that history of events from the amended defence and counterclaim of the defendants.

1. I will now go to other documentary evidence used upon the application.

1. According to an officer of the Bank, by a letter dated 18 September 1995 the Bank offered to lend to the defendants the sum of $166,600.00 (“the loan offer”).  According to him that offer “was executed” by the defendants on or about 20 September 1995.  Exhibited to that affidavit is what purports to be an “acceptance of loan offer” signed by each of the defendants which bears date 20 September 1995.  It is interesting to note that the common form acceptance gave the defendants an election among other things, to accept or reject an offer by the Bank to insure the building.  They crossed out and initialled the option to have the Bank provide insurance.

1. A critical part of the loan offer which they purport to have accepted reads –

“SECURITY

The security for the investment property loan will be a mortgage by - - the defendants – over the property at Unit 17 “Waverley Manor”, Taringa, 4068

plus a mortgage by - - the defendants – over property at 215 Cotlew Street, Ashmore, 2414.”

1. Exhibited also to this affidavit is a document titled “special form of acknowledgment” apparently attached to the Bank’s loan offer which they appear also to have signed on 20 September 1995.

1. Perhaps unsurprisingly the investment made by the defendants upon the advice of the real estate salesman was less than financially rewarding.  Having paid $155,000.00 for the unit plus other sums advanced by the Bank to cover transfer costs, agency commission etc (amounting in all to $166,600.00) apparently the unit managed by a company for a couple of years more or less provided sufficient income to nearly meet the interest payments etc.  However, after a couple of years a new management company took over the units and by letter of 21 December 1998 it advised the defendants that a review of the rental of the unit “in line with prevailing market rates” showed that it could then return $693.33 per calendar month in lieu of the $1,073.34 per calendar month enjoyed to that time.

1. Moreover a valuation of the unit obtained on 13 April 2000 showed that the market value of the unit had dropped from the purchase price of $156,600.00 to one of $140,000.00 – a drop in value of $16,600.00 over a period of a little under 5 years.

1. What precisely has happened with respect to the unit is not clear on the material, however, it clearly has been a disastrous investment for the defendants.  The Bank however does not appear to have yet realised its security over the unit.  It has simply demanded possession of the defendants’ residential property at Ashmore.

1. The defendants have not met their obligation under the mortgage which at the moment exceeds $170,000.00.

1. The Bank has given the requisite notices and now seeks recovery of possession of that land to permit its sale or in the alternative I presume to recover moneys due under the property investment loan agreement.

1. It is interesting to note from the mortgage given over the unit that it was executed by the defendants on 29 September 1995.

1. It is interesting to note also that it was the same Justice of the Peace, one Gary Borradale who witnessed the execution of the mortgage over the unit on 29 September 1995 as witnessed the mortgage over their Ashmore home given by the defendants to the Bank on 12 January 1994.

1. It is the case for the defendants that it was on 20 September 1995 that they signed documents the precise nature of which they are unable to particularise “by virtue of which - - they – took out a loan with the Bank secured by a mortgage over the Taringa unit”.  It is their case that they did not ever attend the Bank’s branch at Loganholme and that they did not ever prior to 21 September 1995 receive any document either from the Bank or HMS at their home at Ashmore – and in particular they did not ever receive the “offer of loan” to the terms of which I have referred.  They assert that they attended the premises of HMS at Springwood to sign whatever documents they did sign.  They assert that there were no employees of the Bank at those premises or if there were they did not speak to them.

1. Critically they assert that –

“The first and second defendants did not understand and were not informed by any person that the documents had the effect of granting to the plaintiff security over 215 Cotlew Street, Ashmore in respect of the loan for the unit (or at least part of the security for such land)”.

This is unsurprising because on the Bank’s case it is not any document executed on that day upon which the Bank relies.  It relies upon the mortgage given in January 1994 for present and future advances.

1. However the defendants also assert that they were not offered nor did they receive independent advice in relation to the documents which they then signed.  They assert that –

“(19)The first and second defendants would not have entered into the loan for the unit had they been aware that the effect of the documents was in part and did constitute 215 Cotlew Street as part of the security for the loan.”

1. Critical however to the defendants’ case are the facts asserted in paragraph 20 of their defence and counterclaim –

“20.In the circumstances alleged in paragraphs 14, 15, 18(a), 18(b), 18(c) and 18(e) above HMS were agents actual or ostensible on behalf of the plaintiff (Bank) for the purposes of  -

(a)Marketing the plaintiff’s financial packages in respect of the proposed sale of lots in Waverley Manor;

(b)Arranging for and supervising potential borrowers to sign documents including loan and security documents on behalf of the plaintiff.”

1. In para 21 of the defence it is asserted –

“21.In the circumstances alleged - - the plaintiff (“Bank”) or HMS ought to have –

(a)Advised that the documents had the effect of constituting 215 Cotlew Street as part of the security for the loan;

(b)Further or alternatively ensured that the plaintiff obtain independent financial or legal advice concerning the effect of the documents particularly in relation to the effect of the documents constituting 215 Cotlew Street as part of the security for the loan.”

1. The problem with this approach, which must be surmounted by the defendants, is that the only document that was executed on the day in question that had the effect of activating the mortgage given more than 18 months earlier over the defendants’ residential property at Ashmore was the document recording their indebtedness to the Bank by reason of the moneys to be advanced by the Bank to enable them to purchase the unit in Waverley Manor.  It is quite inaccurate to assert that any document executed by the defendants on that occasion “constituted” 215 Cotlew Street as part of the security for the loan.  The only document that had that effect was the mortgage executed by the defendants in January 1994 for present and future advances made or to be made by the Bank.

1. The short point really and the one which seems critical to the defendants’ success is whether HMS salesmen or employees (and in particular Don Fairbrother) were in fact agents of the Bank because it forwarded to that real estate company the mortgage document which was executed by the defendants in the HMS office on 29 September 1995 with respect to the unit in Waverley Manor.

1. It could not on the material be asserted that the Bank failed to take steps to advise the defendants that the effect of taking “an investment loan” to purchase the unit would be to render their house liable as security under the mortgage which they gave to the Bank in February 1994.  I have already set forth the express advice to this effect contained in the “loan offer” posted to the defendants which they purported to accept on 20 September 1995.  It is contended that upon their material they could not have accepted it until 29 September 1995 notwithstanding the date which the acceptance bears.

1. In para 2 of their amended defence and counterclaim the defendants expressly admit a matter pleaded on page 3 of the Bank’s statement of claim –

“1.On 20 September 1995 the defendants executed a document titled ‘Loan Offer – Investment Property Loan’ (the ‘Loan Offer’).

2.By executing the loan offer the defendants accepted a loan from the plaintiff for $166,600.00.

3.The security for the loan will be a mortgage by the (defendants) over the property at 215 Cotlew Street, Ashmore.

4.The loan offer provided for the repayment of the loan amount together with interest on it as follows – ”

1. With respect to the contention that “HMS” through its employees or agents were in effect the agents of the Bank, exhibit B to the affidavit of the solicitor for the defendants is a letter which the General Manager of HMS sent to the defendants on 11 September 1995.  This letter which was obviously sent after contact had been made between salesmen for HMS and the defendants leading to an expectation that a sale of a unit to the defendants would be effected contains the following paragraph –

“We are excited for you, so we will be endeavouring to do the following for you –

1.          Finance will be applied for.

2.          Your 221D tax forms will be completed and mailed in.

3.          Legals will be attended to.

4.          Valuations etc organised.

5.We will start the ball rolling for a tenant search for your property through our multiple contacts.”

1. This letter and other material placed before me strongly suggests that HMS far from being the agent of the Bank, was the agent for the defendants to procure finance from the Bank.  There is nothing to suggest that HMS did anything more than obtain information from the defendants relevant to the Bank making an advance to them to purchase the unit and send that to the Bank to permit a mortgage document over the unit to be prepared and returned to HMS which would then have the defendants execute it so that it might be forwarded to the Bank really as an offer made on behalf of the defendants to give a mortgage over the unit which might be accepted by the Bank should it lend money to enable the defendants to settle the purchase of the unit.

1. It may be arguable (faintly) that HMS in the circumstances was the agent for both the defendants for the purpose of endeavouring to obtain from the Bank a loan secured by mortgage (perhaps the loan offer accepted by the defendants apparently on 20 September 1995) and also for the Bank for the purpose of having the defendants sign the mortgage document (constituting an offer to the Bank to give a mortgage over the unit in exchange for the advance of moneys to purchase it).

1. While I am far from persuaded that such a contention has much prospect of success at the end of the day I am unpersuaded that it is not a matter that might be advanced with a hope (if not an expectation) that it might succeed.

1. For the defendants to have any real prospect of success in this case in my view they would have to demonstrate that they did not in fact accept the Bank’s loan offer on 20 September 1995.  However as I have indicated they admit that they did accept the loan offer on that day in para 2 of their amended defence and counterclaim.

1. At the end of the day they must demonstrate that the Bank was obliged to bring to their attention before they borrowed from it the money for the purchase of their unit and executed the mortgage document with respect to that unit on 29 September 1995 the fact that the mortgage they gave to the Bank over their residential property to secure “future advances” in February 1994 would also be security for repayment of that money.

1. On the material to which they refer in their defence and counterclaim and on other material in opposition to the Bank’s application for summary judgment they may have a cause of action against HMS by reason of misrepresentation or failure to advise or negligence on the part of its salesman with whom they allege they had discussions to the effect that they were not prepared to subject their residential property at Ashmore to a mortgage to secure repayment of the moneys they borrowed to acquire their investment unit.

1. It is contended that if disclosure of documents is successful they may obtain from the Bank correspondence, records etc establishing that the Bank was on some basis the principal of HMS in the negotiations with the defendants concerning the acquisition of the investment unit.

1. It may be arguable that in spite of the contents of the loan offer accepted by the plaintiff, at least on the face of the documents, prior to accepting the moneys advanced by the Bank secured by the mortgage given on 29 September 1995, those agents were obliged to point out to the defendants that contrary to the wish they allegedly expressed to Mr Fairbrother, their residential property at Ashdown would in fact be security for repayment of the money advanced under the mortgage they gave to the Bank in February 1994 (as was made quite clear in the loan offer which on the face of the document it appears they accepted on 20 September 1995).

1. I have given careful consideration as to whether judgment in favour of the plaintiff would not preserve the defendants against the incurring of further costs in mounting a defence which on my evaluation of the material so far placed before me would seem to have negligible prospects of success.

1. At the end of the day I conclude that it is ultimately a matter for the defendants to decide whether they wish to incur yet further legal costs and become liable for further costs incurred by the Bank in this action having regard to their undoubted obligation to repay the money advanced to them under the loan agreement.  I propose therefore to adjourn further consideration of the Bank’s application for summary judgment pending full disclosure between the plaintiff and the defendants of all documents relating to the issue of agency between the Bank and HMS and the defendants.

1. I direct that such disclosure be effected within 28 days from today’s date.

1. I would be prepared to entertain an application for non-party disclosure by HMS by either party.  I would also be prepared to entertain an application for leave to deliver interrogatories by each party to the other upon completion of disclosure of documents by each party and by HMS if so required.

1. Upon disclosure by the parties and any non-party disclosure by HMS being effected within the time required I give the parties liberty to place such further documents before me verified and/or explained by affidavit as they think desirable.

1. I adjourn the further consideration of the plaintiff’s application for judgment to a date to be fixed subsequent to the completion of disclosure and delivery of answers to interrogatories if ordered.

1. I give the parties liberty to apply.

1. I reserve the costs of this application.