Westpac v Brain

[2017] NSWSC 220

Supreme Court

New South Wales

Medium Neutral Citation:

Westpac v Brain [2017] NSWSC 220

Hearing dates:

27 February 2017

Date of orders:

13 March 2017

Decision date:

13 March 2017

Jurisdiction:

Common Law

Before:

Harrison AsJ

Decision:

Judgment

 

(1) It is adjudged that the plaintiff is entitled to possession of the land described in folio identifier X/SPXXXXX , which is known as X/XXX Alcorn Street, Suffolk Park and the land in folio identifier X/XXXX, which is known as X Alcorn Street, Suffolk Park.

 

(2) The first defendant is to pay the plaintiff the sum of $4,615,966.83.

 

The Court orders that:

 

(3) The cross claim is dismissed.

 

(4) Interest is to run from the date of judgment.

 

(5) The first defendant is to pay the plaintiff’s costs of the proceedings and the cross claim on an ordinary basis as agreed or assessed.

 (6) The writs of possession are to be issued forthwith.

Catchwords:

POSSESSION OF LAND – no point of principle – loan agreements – Civil Procedure Act – debt – defaulted payment – possession of properties

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Contracts Review Act 1980
National Consumer Credit Protection Act 2009 (Cth)

Category:

Principal judgment

Parties:

Westpac Banking Corporation (Plaintiff)
Kenneth Ross Brain (Defendant)

Representation:

Counsel:
SB Docker (Defendant)

  Solicitors:
Kemp Strang (Defendant)

File Number(s):

2014/134714

Publication restriction:

Nil

 Decision under appeal 

File Number(s):

2014/134714

Judgment

1. HER HONOUR: By amended statement of claim filed 12 December 2014, the plaintiff Westpac Banking Corporation (“Westpac”) sues for possession and debt against the first defendant Kenneth Ross Brain (“Mr Brain”), who is one of two borrowers with the second defendant Heather Margaret Farquhar (“Ms Farquhar”) on four loan agreements entered into between 2005 and 2007. Two of the loans were guaranteed by Ms Farquhar’s parents, the third and fourth defendants (“Mrs and Mr Farquhar” respectively). Westpac seeks from Mr Brain the moneys due under the loans and possession of two properties that were secured by mortgages. The proceedings have settled between Westpac, Ms Farquhar and Mr and Mrs Farquhar.

2. By consent, as between Westpac and Ms Farquhar, judgment was entered in favour of Westpac for possession of the land in folio identifier X/SPXXXX, which is known as X/XX Alcorn Street, Suffolk Park (near Byron Bay) (“first property”), and the land in folio identifier X/XXXX, which is known as X Alcorn Street, Suffolk Park (“third property”), as well as for $4,658,250.77 plus interest under s 100 of the Civil Procedure Act 2005 (NSW) from 5 April 2016. Pursuant to the settlement between Westpac and Mr and Mrs Farquhar, by consent, Mr and Mrs Farquhar withdrew their defence and Westpac discontinued the proceedings.

3. On 12 December 2016, Mr Brain applied for and was granted an adjournment of the hearing date. On 15 December 2016, the listing manager emailed Mr Pike, Westpac’s solicitor advising that the matter had been relisted for hearing on 27 and 28 February 2017. Mr Mario Quintiliani, Mr Brain and Ms Kate Rowland were copied into the email. (Ex A).

4. On the morning of the hearing, Mr Brain was called three times outside court at 10.00 am. He did not appear. The hearing was adjourned while Westpac’s solicitor made enquiries to try and ascertain whether Mr Brain intended to be present at the hearing. The solicitor who appeared conditionally for Mr Brain on the prior adjournment application did not have instructions to appear at the hearing. In his email dated 27 February 2017 Mr Quintiliani stated that he was in contact with Mr Brain last week when a settlement offer was made on his behalf to the plaintiff’s solicitors. (Ex B). In these circumstances, I shall proceed with the hearing in Mr Brain’s absence.

5. On 11 September 2015, Mr Brain filed a defence and cross claim raising the Contracts Review Act 1980 and the National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)) regarding unconscionability and non compliance with the Code of Banking Practice.

6. Westpac seeks that judgment be entered against Mr Brain for possession of the first property and the third property and for the outstanding debts on the four loans.

7. Westpac relied on two affidavits of Stefan Koulocheris dated 14 July 2015 and 12 December 2016, two affidavits of David Abey both dated 20 June 2014, the affidavit of Kristy Imber dated 7 December 2016 and the affidavit of Emily Maniti dated 8 December 2016.

Summary of loan agreements and mortgages

8. There are four loan agreements between Westpac and Mr Brain. They are dated 19 October 2005, 15 November 2015, 23 April 2007 and 26 October 2007 (loans 1 to 4 respectively). Three loans are secured by mortgages over the first and third properties.

9. There is no dispute that Mr Brain and his then partner, Ms Farquhar signed the loan applications and received the funds in relation to each loan.

First and second loan agreements and first mortgage

10. Mr Brain and Ms Farquhar were in a de facto relationship and were co-owners of the first property, which they had bought in September 1998 for $220,000 with the intention of renovating and renting it. At that time they both worked for Qantas as international flight attendants. They had borrowed $176,000 from ANZ Bank to complete the purchase and gave a mortgage to secure the loan. In 2002, Ms Farquhar went on maternity leave and took redundancy from Qantas. By 2005 Ms Farquhar had her own cleaning and rental management business. Mr Brain continued to work for Qantas until 4 October 2006.

11. Mr Brain and Ms Farquhar increased the debt on their loan from ANZ by $20,000 in November 1999, by $15,000 in December 1999, by $14,027.25 in June 2000 and, pursuant to an ANZ investment loan agreement dated 8 April 2005, they had borrowed $552,243.82 from ANZ for the purpose of non structural renovations. Their debt to ANZ as at 6 July 2005 was $552,043.62.

12. On 5 August 2005, Mr Brain and Ms Farquhar entered into a contract to purchase land at South Bruny Island in Tasmania for $265,000. The contract was conditional on them obtaining finance for $260,000.

13. The loan application dated 12 September 2005 was signed by Mr Brain, Ms Farquhar and Mr and Mrs Farquhar and sent to Westpac in four facsimiles from New Horizon Lending. It included:

(a)   a declaration that the loan was wholly or predominantly for business or investment purposes or both purposes;

(b)   bank statements for their ANZ loan, credit cards and other accounts;

(c)   recent PAYG summaries and 2004/2005 and 2003/2004 tax returns from Mr Brain and Ms Farquhar, which showed income from cleaning and rental property managements and from rent; and

(d)   a rental assessment for the first property from First National Real Estate Byron Bay dated 2 September 2005 addressed to Mr Brain and Ms Farquhar.

14. On 3 September 2005, Len Robinson of New Horizon Lending sent a submission to Westpac on behalf of Mr Brain and Ms Farquhar in support of the loan application.

15. The submission was that the application was for three loans, being $225,000, $690,000 and $285,000 (a total of $1,200,000) with Mr Brain and Ms Farquhar as the borrowers and Mr and Mrs Farquhar as guarantors. The first property was described as an investment property. The second property and the Tasmanian property were offered as security.

16. The purpose of the loans were to refinance the existing ANZ loan of $552,000 over the first property, refinance the existing ANZ loan of $127,000 over the second property, the purchase of the Tasmanian property for $265,000 and the balance for personal investment. Mr Brain continued to work at Qantas as he had for 25 years. Ms Farquhar had her own cleaning and property management business for the past two years, which had run at a loss in the 2004 financial year because she was looking after their child. By 2005 the business was operating at a profit.

17. On 15 September 2005, Mr Robinson sent a facsimile to Westpac, which included the following a statement that Mr Brain and Ms Farquhar wished to alter the amount of the loans to $1,000,000, being $45,000, $680,000 and $275,000; a letter from Ms Farquhar’s accountant stating that due to the poor health of her child, Ms Farquhar was unable to conduct her cleaning and rental property management business for the majority of the 2004 financial year, which lowered her taxable income compared to other years; and a copy of Ms Farquhar's tax return for 2002/03, which showed the rental and business income from the cleaning and property management business.

18. On 21 September 2005, Westpac carried out a serviceability assessment for a loan of $1,000,000 which received a “pass”. Westpac’s running notes record that Mr Brain and Ms Farquhar were seeking to refinance owner occupied property, which would become an investment property with the surplus for shares.

19. On 29 September 2005, New Horizon Lending sent Westpac a facsimile with a statement showing that the existing ANZ loan over the second property was $127,378.88 as at 26 September 2005 and a copy of the contract for the purchase of the land in Tasmania.

20. On 18 October 2005, Westpac approved the first loan for $320,000. On 10 November 2005, Westpac approved the second loan for $680,000 and sent Mr Brain a letter the next day.

21. On 19 October 2005, Mr Brain and Ms Farquhar signed a loan application to Westpac specifically for the first loan. It included a declaration that the loan was wholly and predominantly for business or investment purposes or both purposes. Also on 19 October 2005, Mr Brain and Ms Farquhar signed the first loan agreement for a loan of $275,000 and a line of credit of $45,000. The purpose of the loan was to purchase residential land. The security was to be mortgages over the first property, the Tasmanian property and the second property, as well as a guarantee from Mr and Mrs Farquhar. Mr and Mrs Farquhar signed a guarantee on 19 and 24 October 2005 and another on 27 October 2005, both limited to $119,000. (“the first guarantee”).

22. On 15 November 2005, Mr Brain and Ms Farquhar signed another version of the first agreement for a loan of $275,000 and a line of credit of $45,000. The purpose of the loan was to purchase residential land and the security was to be mortgages over the first property, the Tasmanian property and the second property, as well as a guarantee from Mr and Mrs Farquhar. The same day, Mr Brain and Ms Farquhar signed the second loan agreement for a loan of $680,000. The purpose of this loan was to refinance existing home land and the security was to be a mortgage of the first property.

23. On 15 November 2005, the funds in respect of the first and second loan agreement were advanced. Mortgages were taken over the first property, the second property and the Tasmanian property, which were all subsequently registered. On 18 November 2005, Westpac wrote to Mr Brain reporting on the opening of the loan accounts and on the payments from the loan proceeds, including $278,372.90 from the first loan for the Tasmanian purchase and $679,293.49 from the second loan to ANZ. The mortgages of the first property and the second property to ANZ were discharged.

24. On or about 18 August 2006, Westpac, Brain and Ms Farquhar entered into a written agreement to vary the second loan agreement by increasing the loan by $25,000. The amount was drawn down on 21 August 2006.

Third loan agreement and purchase of third property

25. On 10 March 2007, Ms Farquhar entered into a contract to purchase the third property for $1,667,000, with Stone and Partners Byron Bay, the purchaser’s solicitor. On 12 March 2007, a receipt was issued for the deposit of $83,350 to Brain and Ms Farquhar. On 30 March 2007, Ms Farquhar entered into a residential tenancy agreement for the third property for two years with rent at $15,000 per month. A bond of $4,000 was lodged on 1 April 2007.

26. On 1 April 2007, Mr Brain and Ms Farquhar signed a loan application to Westpac for a Residential Investment Loan of $600,000, which made no mention of the third property and they declared that the loan was wholly or predominantly for business or investment purposes or both purposes. The same day, Mr and Mrs Farquhar signed a Personal Finance Enquiry - Personal Guarantor form for a guarantee amount of $600,000.

27. On 4 April 2007, Westpac approved the loan to Brain and Ms Farquhar for $600,000. On 20 April 2007, Westpac issued a confirmation of this stating it would be secured by an existing mortgage over the second property and a guarantee by Mr and Mrs Farquhar. At this stage, the first loan (including the line of credit) and the second loan were in order.

28. On 22 April 2007, Aussie Home Loans faxed a loan application to the Commonwealth Bank on behalf of Mr Brain and Ms Farquhar, being a low documentation loan to purchase property. Included with the application was a low documentation declaration signed by Ms Brain and Ms Farquhar dated 18 April 2007 stating that their financial statements for the Escape to Byron business were currently unavailable and their gross taxable income was $180,000. The Aussie Home Loans’ application faxed to the Commonwealth Bank noted that the loan amount was $1,333,600 for an investment property purchased at auction with beach frontage at Byron Bay. The customers had long term leases for the existing and proposed properties and funds to complete the purchase were being raised from other properties with the Westpac approval for the third loan of $600,000 attached.

29. On 23 April 2007, Mr Brain and Ms Farquhar signed the third loan agreement, with the security being an existing mortgage over the second property and guarantee by Mr and Mrs Farquhar. On the same day, Mr and Mrs Farquhar signed the second guarantee in respect of the third loan limited to $600,000.

30. On 26 April 2007, Aussie Home Loans faxed the Commonwealth Bank advising that Mr Brain would be on the title of the third property.

31. On 1 May 2007, Aussie Home Loans faxed the Commonwealth Bank advising that Mr Brain and Ms Farquhar wished to proceed with a reduced loan amount of $1,000,000, being 60% of the purchase price. The Commonwealth Bank approved a loan of $1,000,000 and issued a contract for the loan which was signed by Mr Brain and Ms Farquhar on 7 May 2007.

32. On 11 May 2007, Stone and Partners gave cheque directions to the Commonwealth Bank on behalf of Mr Brain and Ms Farquhar for settlement of the purchase of the third property on 14 May 2007, for $993,680.75 including $982,232.01 to Perpetual Nominees Limited.

33. On 14 May 2007, the purchase settled, with $674,994.60 being sourced from the Commonwealth Bank. On 9 May 2007, $600,000 was withdrawn from the account of the third loan.

34. On 8 June 2007, the transfer to Brain and Ms Farquhar was registered. It was signed on their behalf by David Maxwell Jones, solicitor for the transferee and is undated. The mortgage to the Commonwealth Bank is stamped for $1,000,000 and dated 14 May 2007.

Fourth loan agreement and third mortgage

35. On 31 August 2007, Mr Brain registered himself on the Australian Business Register as a sole trader.

36. On 28 September 2007, a letter from Frances O’Connor Real Estate to David Thomson of Westpac was faxed to Westpac, which stated that the third property could run at 70% occupancy which would work out to $123,760 along with provisional acceptance of a proposed loan for $450,000. Mr Brain says that it was his and Ms Farquhar’s intention to renovate the third property to increase its value and sell it. The proceeds were to be used to reduce the mortgage debt on the first and second properties and holiday rental would cover the mortgage.

37. On 11 October 2007, Mr Brain and Ms Farquhar signed a loan application to Westpac for a loan of $450,000, which stated that Mr Brain was employed full time by Qantas (which was not true) with an annual gross income of $102,780. Ms Farquhar was employed part time in various capacities and offered the third property as security. They also signed a declaration that the proposed loan was wholly or predominantly for business or investment purposes or both purposes.

38. On 26 October 2007, Mr Brain and Ms Farquhar signed a loan application for a loan of $1,500,000, stating that Mr Brain was employed full time by Qantas (which was not true) with an annual gross income of $102,780. Ms Farquhar was employed part time in various capacities and offering the third property with an estimated value of $2,100,000 as security. They also signed a declaration that the proposed loan was wholly or predominantly for business or investment purposes or both purposes. At this time, their existing loans were in order.

39. On 26 October 2007, Brian and Ms Farquhar signed the fourth loan agreement for a loan of $1,500,000 to be secured by a mortgage over the third property. They signed the third mortgage the same day, which was subsequently registered on 6 December 2007 along with the discharge of the Commonwealth Bank mortgage dated 1 November 2007. On 6 November 2007, the Commonwealth Bank advised Westpac that the payout figure for settlement on 7 November 2007 was $1,006,110.91.

40. On 7 November 2007, the fourth loan was advanced with surplus funds of $487,768.09. The evidence does not disclose to what use the surplus funds went. On 9 November 2007, $400,030 was withdrawn from the account of the fourth loan and by 7 January 2008, the fourth loan was fully drawn.

Events following the fourth loan and the third mortgage

41. On 23 December 2013, the line of credit facility under the first loan agreement was repaid and the balance of the first loan was reduced from the proceeds of the sale of the Tasmanian property. Aside from the repayment of the credit facility, no payments in relation to all the loan were made after this time.

42. In 2014, Mr Brain moved out of the Billinudgel property as his and Ms Farquhar’s de facto relationship had ended.

Default provisions in loan agreements and mortgages

43. All four loan agreements had similar default clauses that read:

“16.   DEFAULT – ACCELERATED

PAYMENT OF AMOUNTS

This does not apply to Lines of Credit.

We may notify you if:

• You fail to pay us an amount due or fail to do anything else you promise us under the loan contract or under any security; and

• The failure continues for at least seven days.

• If the failure continues for at least 31 days after service of the notice, then we can require you to pay all amounts under the loan contract that would not other wise have been immediately payable.”

44. There is a similar clause in the mortgages. Clause C2 reads:

“C2.   POWERS ON DEFAULT

If you or any of you:

(a)   fail to pay the Lender an amount due under this mortgage; or

(b)   fail to do what you promise the Lender,

and the failure continues for at least seven days, the Lender may notify you of the failure and serve a notice on you.

If the failure continues for at least 31 days after service of the notice then the Lender can do any one or more of the following, but it need not do so.

• Required you to pay to the Lender all money secured by this mortgage. Each of you will then pay immediately all principal and all other amounts which you promise to pay under Clause B1, even if they are not yet otherwise payable.

• Take possession of the property. The Lender can remove personal possessions and other things on the property and store them at your risk. If you do not reclaim them within a reasonable time, it may dispose of them and pay any proceeds into your account, or the account of their owner.

• Sell the property in one or more lots or with other property.”

45. Mr Brain has been served with two notices of default, one on 17 September 2013 and the other on 4 March 2014 in respect of all loans and mortgages. The occupiers of the properties have been served with notices to occupiers.

46. As at 27 February 2017, the amounts outstanding and due and owing by Mr Brain under the loan agreements are:

Date	Transaction	Current Status/Comment
19/10/2005 (Advanced 15/11/2005)	First Loan Agreement First Loan - $275,000	Balance as at 15 November 2016: $249,263.40
15/11/2015 (Advanced 17/11/20015)	Second Loan Agreement Second Loan - $680,000	Balance as at 15 November 2016: $1,078,124.82
23/4/2007 (Advanced 14/5/2007)	Third Loan Agreement Third Loan - $600,000	Balance as at 25 January 2017: $698,438.37
26/10/2007	Fourth Loan Agreement Fourth Loan - $1,500,000	Balance as at 14 February 2017: $2,590,140.24

47. I am satisfied that Westpac is entitled to possession of the properties. The first defendant has defaulted in payment of the loan agreements. The total of each outstanding amount on all four loans is $4,615,966.83. The first defendant is to pay the plaintiff the sum of $4,615,966.83. The cross claim is dismissed.

48. Westpac has sought interest from the date of judgment and the costs of these proceedings and the issue of writs of possession forthwith.

49. Costs are discretionary. Costs usually follow the event. The first defendant is to pay the plaintiff’s costs of the proceedings including the cross claim on an ordinary basis as agreed or assessed.

Judgment

(1)   It is adjudged that the plaintiff is entitled to possession of the land described in folio identifier X/SPXXXXX , which is known as X/XXX Alcorn Street, Suffolk Park and the land in folio identifier X/XXXX, which is known as X Alcorn Street, Suffolk Park.

(2)   The first defendant is to pay the plaintiff the sum of $4,615,966.83.

The Court orders that:

(3)   The cross claim is dismissed.

(4)   Interest is to run from the date of judgment.

(5)   The first defendant is to pay the plaintiff’s costs of the proceedings and the cross claim on an ordinary basis as agreed or assessed.

(6)   The writs of possession are to be issued forthwith.

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Decision last updated: 13 March 2017