Swift & Anor v Westpac Banking Corporation & Ors [1995] FCA 146

CATCHWORDS

INTERLOCUTORY INJUNCTION - whether a serious question to be tried - mortgator seeking to restrain mortgagee exercising mortgage powers - no security provided for debt

MORTGAGE - unconscionable conduct - undue influence - claim to set mortgage aside - dispute about amount due under mortgage

Trade Practices Act 1974 ss 51A, 51AA, 51AB, 52, 87

Commercial Bank of Australia Ltd v Amadio (1982-3) 151 CLR 447 Cons

Waltons Store (Interstate) Limited v Maher & Anor (1987-8) 164 CLR 387 Refd

The Commonwealth v Verwayen (1990) 170 CLR 394 Refd

Begbie v State Bank of New South Wales (1994) ATPR 4-288 Refd

ANZ Banking Group v Harvey (1994) ATPR 46-132 Refd

MCP Muswellbrook Pty Ltd & Ors v Deutsche Bank (Asia) AG & Ors (1988) 12 NSWLR 16 Refd

Inglis & Anor v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 Quest

Town & Country Sports Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd (1988) 20 FCR 545 Cons

Watkins v Coombes (1922) 30 CLR 150 Refd

Poosathurdi v Kanappa Chettiar (1919) LR 47 Ind App 1 (PC) Refd

Barclays Bank PLC v O'Brien (1994) 1 AC 980 Dist

CIBC Mortgages PLC v Pitt & Ors (1994) 1 AC 200 Cons

General Credits (Finance) Pty Ltd v Stoyakovich (1975) Qd R 352 Refd

Atkison v Hastings Deering (Queensland) Pty Ltd (1984) 6 FCR 331 Refd

Harvey v McWatters (1948) 49 SR(NSW) 173 Cons

Eltran Pty Limited & Ors v Westpac Banking Corporation & Ors (1991) 32 FCR 195 Refd

Glandore Pty Ltd v Elders Finance and Investment Co Ltd (1984) 4 FCR 130 Refd

Rawcliffe v Custom Credit Corporation (1994) ATPR 41-292 Refd

Mainbanner Pty Ltd v Dadincroft Pty Ltd (1988) ATPR 49,661 Refd

Billinudgel Pastoral Co Pty Ltd v Westpac Banking Corporation (unreported, Spender J 31.3.94) Refd

Swift & Anor v Westpac Banking Corporation & Ors

No. QG152 of 1994

Kiefel J. Brisbane 22 March 1995

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION No. QG152 of 1994

BETWEEN:

DORIS SWIFT

First Applicant

AND:

WARREN JOHN SWIFT

Second Applicant

AND:

WESTPAC BANKING CORPORATION

First Respondent

AND:

AUSTRALIAN GUARANTEE CORPORATION LIMITED

Second Respondent

AND:

RICHARD JOHN DENNIS

Third Respondent

AND:

ROSS ANDREW DUUS

Fourth Respondent

JUDGE MAKING ORDER: Kiefel J.

DATE OF ORDER: 22 March 1995

WHERE MADE: Brisbane

MINUTES OF ORDERS

THE COURT ORDERS THAT:

1. The applicants' application for an injunction be dismissed.

THE COURT GRANTS:

2. An injunction restraining the applicants from interfering with the first, third and fourth respondents entering into possession of the land situated in Parish of Pegunny, County of Bauhinia in the State of Queensland described as Auction Purchase Freehold number 35/477, Rockhampton District, being Lot 13 on Plan BH99.

THE COURT ORDERS THAT:

3. The applicants pay the first, third and fourth respondents' costs of and incidental to the applications including reserved costs to be taxed.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

GENERAL DIVISION No. QG152 of 1994

BETWEEN:

DORIS SWIFT

First Applicant

AND:

WARREN JOHN SWIFT

Second Applicant

AND:

WESTPAC BANKING CORPORATION

First Respondent

AND:

AUSTRALIAN GUARANTEE CORPORATION LIMITED

Second Respondent

AND:

RICHARD JOHN DENNIS

Third Respondent

AND:

ROSS ANDREW DUUS

Fourth Respondent

CORAM: Kiefel J.

DATE: 22 March 1995

PLACE: Brisbane

REASONS FOR JUDGMENT

The first respondent, Westpac Banking Corporation, by notice dated 10 November 1994 appointed the third and fourth respondents receivers of the applicants' property near Moura. Mrs Swift and her husband ("Mr Swift Snr") are joint tenants of a two-thirds share in the land and are tenants-in-common with their son, the second applicant, who holds the remaining one-third share. The three conduct a partnership "Hill View Farming Company" on the property.

The material shows that the third and fourth respondents have been appointed pursuant to a mortgage No. 208720 dated 2 November 1984 and that mortgage was first registered in May 1985 as No. C556846E which was later changed to No. 601075787 when the land was converted to freehold title in August 1988. Default, within the terms of the mortgage and constituted by a failure to pay on demand, has occurred. Pursuant to Clause 25 of the mortgage the first respondent was then entitled to appoint a receiver whose powers included taking possession of the property and the sale of it. By the following clause the bank also retained those powers. It was not suggested that the bank and the receivers intend however to conduct the property as a farming concern. It is clear that a sale of it is proposed.

The applicants seek orders, until trial, restraining each of the first, third and fourth respondents from taking any action pursuant to the mortgage. Whilst the application initially filed in the action foreshadowed relief also with respect to a later mortgage held by the second respondent, no action has been taken pursuant to it. The bank, for its part, seeks orders to which I shall subsequently refer.

The mortgage in question, executed by the applicants and Mr Swift Snr in November 1984, was the first of the securities taken by the first and second respondents and formed part of the first transaction by the partnership with the bank. I was told that monies were advanced pursuant to it but the amount involved nowhere appears and neither party suggested that the stamp duty markings were to be relied
upon for such an assessment. The mortgage, by its terms, extended to any later advances to the partnership.

It was submitted for the applicants that the mortgage of 1984 is liable to be set aside and that it will be found that the bank has neither a power to appoint a receiver or to effect a sale. In this respect the applicants' case focused upon the influence of Mr Swift Snr which was alleged in these terms:

"4. At all material times, Swift Snr was the husband of Mrs Swift and the father of Warren and exercised a position of influence over them and was the guiding and controlling mind over the affairs conduct and business of the partnership whereby Mrs Swift and Warren reposed trust and confidence in him.

PARTICULARS

4.1 No formal partnership meetings were held.

4.2 All financial and business decisions were made by Swift Snr.

4.3 Mrs Swift was his wife and performed the duties of an ordinary housewife in a farming household.

4.4. Warren took no active role in the business other than as a labourer on the farm.

4.5 The applicants had no business or financial expertise."

It is then alleged that the bank knew or ought to have known of this reliance, although the particulars given of this allegation as at November 1984 could not be described as persuasive, particularly since this transaction occurred very early in the parties' relationship with the bank. Indeed counsel for the applicants came close to conceding that the bank's knowledge of the relationship existing between the applicants and Mr Swift Snr could be shown only with respect to the later transactions. He ultimately
submitted however that it would be contended that the bank had knowledge of the relationship of influence "at or about the time of" the November 1984 transaction.

The circumstances in which the mortgage came to be signed are said to be as follows:

"6. Thereafter, in or about November 1984, the Swifts executed a Memorandum of Mortgage later registered as No 208720 over the land.

PARTICULARS

6.1 The Swifts attended at the Rockhampton branch of Westpac and were asked to sign documents where indicated.

7. At the time of the mortgage was signed, no explanation was given of it to the Swifts, nor were they given the opportunity to obtain any legal or financial advice, nor were the applicants advised that they should or could seek independent advice separately from Swift Snr.

8. At the time the mortgage was signed, no explanation was given to the effect that it would secure any further borrowings or monies advanced by Westpac to Swift Snr and/or Hillview."

The applicants have deposed that all allegations in the statement of claim are true, but say no more about these matters. The submission for the applicants is that both the circumstances surrounding the execution of the mortgage and the later transactions amount to unconscionable conduct in equity or pursuant to s.51AA, 51AB Trade Practices Act 1974 and seek relief, by way of declaration, that the mortgage be set aside. There are also allegations with respect to the later transactions concerning conduct contravening s.52 and consequential relief under s.87 Trade Practices Act is claimed. A difficulty with the statement of claim, which will need later to be addressed, is that, apart from the claim to set aside the mortgage based on the events surrounding its execution, it is unclear which of the later transactions are relied upon to found such an order and how, if at all, they are said to combine with the earlier conduct.

Any orders sought to set aside the mortgage are sought only with respect to the applicants, which would leave the interests of Mr Swift Snr still subject to the 1984 mortgage or to an equitable mortgage which might in any event oblige him to execute a further security. In any event these matters assume greater importance with respect to the question of the balance of convenience.

It was also made clear by counsel for the applicants that it is not contended that the applicants were relieved of their obligation to repay the initial advance, whatever sum that may be. I take it, then, that the applicants would not resist an order setting aside the mortgage but conditioned upon their first paying that sum, an order which would give effect to their obligation to do equity and one whereby a decree was "moulded" and going "no further than is necessary to prevent unconscionable conduct": see Commercial Bank of Australia Ltd v. Amadio (1982-3) 151 CLR 447, 532 per Deane J.; Waltons Store (Interstate) Limited v. Maher & Anor (1987-8) 164 CLR 387, 419 per Brennan J. and The Commonwealth v. Verwayen (1990) 170 CLR 394, 411, 412 per Mason CJ.

The respondents submit that reliance upon ss.51AA and 51AB is not possible, in the case of the latter because it has been held not to apply to commercial transactions (Begbie v. State Bank of New South Wales (1994) ATPR 4-288, followed in ANZ Banking Group v. Harvey (1994) ATPR 46-132) and in the case of s.51AA because it was not inserted until 1992 and, as has been held with respect to s.51A, it is not a provision which was intended to have retrospective effect: see MCP Muswellbrook Pty Ltd & Ors v. Deutsche Bank (Asia) AG & Ors (1988) 12 NSWLR 16. These matters may assume particular importance in relation to the later question as to whether the applicants must pay into Court monies said to be owing under the mortgage (the rule in Inglis & Anor v. Commonwealth Trading Bank of Australia (1972) 126 CLR 161) given that the power under s.80 Trade Practices Act is different from the discretion exercised in equity (Town & Country Sports Resorts (Holdings) Pty Ltd v. Partnership Pacific Ltd (1988) 20 FCR 545). For the purposes of the present inquiry, as to whether a serious question is raised, the equitable principles are relevant to claims based on unconscionable conduct, whether in equity or under the Act.

If, as the bank contends, the question whether the mortgage is liable to be set aside turns only upon the circumstances surrounding its execution in November 1984, I would conclude that there is no serious question to be tried.

This is not a case where the influence relied upon could be described as "undue" nor one where the applicants' will was overborne. The fact of influence, and that confidence was habitually reposed in Mr Swift Snr, will not suffice to render the
operation of that influence actionable: see Watkins v. Coombes (1922) 30 CLR 150, 193-4 for the very reason that influence may be used wisely: Poosathurdi v. Kanappa Chettiar (1919) LR 47 Ind. App. 1 (P.C.). Further, the general allegation that Mr Swift Snr acted as the bank's agent in making representations, and, I take it, procuring execution of documents later made, was explained in submissions not to refer to the transaction of November 1984 but only to later advances.

A conclusion that a bargain is unconscionable, in the sense referred to in Amadio's case, has regard to the circumstance where a person's will is voluntary but where it has resulted from the disadvantageous position in which they are placed (the distinction to be drawn from undue influence being explained by Mason J, as he then was, at 461), requires that the disadvantage suffered be "special" and that the bank has been put on notice that the applicants suffered from it. Two of the features present in Amadio and here relied upon, namely reliance upon another and an absence of explanation or advice, do not compel a conclusion that unconscientious advantage has been taken of the applicants. The "special" disadvantage (per Mason J. at 462, 464) included a complete lack of knowledge of the perilous state of the son's company which the parents were about to guarantee, that they received no consideration and would almost certainly be called upon under their guarantee; features which not only made their entry into the bargain irrational but so much so that it must have been obvious to the bank (per Mason J. 466 and Deane J. 477, 478). Here the advantage given was for the benefit of the partnership. The highest the applicants could put their case is that they did not have knowledge of a particular, but not unusual, clause but then it is not suggested that they were unable to understand the clause but rather that they chose not to do so since they placed reliance upon Mr Swift Snr to advise them whether to sign the document. The bank, although alleged to know of this reliance, is not said to have been put on notice of any unusual features of the transaction itself (no such features are alleged) nor of the lack of knowledge of the particular clause and its effect.

The case relied upon by the applicants, Barclays Bank PLC v. O'Brien (1994) 1 AC 980 is distinguishable upon its facts alone. There the wife guaranteed facilities to a company in which she had no interest and executed it in reliance upon her husband's misrepresentation as to the limit of the guarantee. The bank, who had enabled the husband to procure her signature, could not have believed the transaction was to her advantage and was held to be put on notice or enquiry. Closer to the facts of this case, with respect to the 1984 transaction, is CIBC Mortgages PLC v. Pitt & Ors (1994) 1 AC 200 where the bank was held not to have been put on inquiry where it had knowledge only of a loan application which appeared on its face to be to the advantage of both the husband and the wife.

The subsequent transactions, which are too lengthy to set out as pleaded, are also said to affect the exercise of the bank's rights under the mortgage. Approximately one year later it is alleged the amount borrowed was increased to $800,000 by Mr Swift Snr procuring the signatures of the applicants to a document. To this is added a later general allegation that he misrepresented, as agent for the bank, that there was no danger in doing so but that allegation is hardly compelling given that any "danger" to the partnership by further borrowing is not then alleged to exist and could only be seen to relate to the fact that the additional monies were also secured by the mortgage.

The pleading goes on however to refer to a worsening in the position of the partnership's financial position. From February 1986 the second respondent AGC had been introduced, advanced monies to the partnership and took securities including one over machinery essential to the continued operation of the property. It is said that AGC and Westpac were acting in concert and that the transactions with AGC benefited Westpac by requiring monies to be deposited on terms such that they could be applied to the repayment of the mortgage with Westpac and that later monies advanced by AGC were in effect only used to meet interest payments to Westpac. This is in the background of a partnership now said to be in a difficult financial position and where the bank, it is now alleged, knows of their complete reliance upon Mr Swift Snr who misrepresents the position by failing to inform them of the dangers in the transaction, the state of the partnership and that essential machinery had been encumbered.

It is also alleged that the bank constituted itself a partner by giving advices to the partnership and requiring particular steps to be taken. The notes kept by the bank officer involved as to conversations relating to action to be taken by Mr Swift
Snr, for example as to the crop to be planted and the timing of it, would, if accepted as accurate, cast considerable doubt upon the accuracy of this claim.

It is not apparent, with respect to these later claims, whether they are relied upon to set aside the 1984 mortgage. Damages are also sought generally in the application. At least with respect to the claim that the bank acted as a partner it is clear that losses are said to have been suffered as a result of its breach of duty, although they are in no way quantified. It is possible then that such losses could be the subject of a right of set-off against the monies now demanded by the bank (see e.g. General Credits (Finance) Pty Ltd v. Stoyakovich (1975) Qd. R. 352 and the other cases cited in Meagher, Gummow & Lehane "Equity, Doctrines and Remedies", 3rd ed. para [3708]).

The claims concerning AGC and Westpac acting in concert and including the conduct of Mr Swift Snr on the bank's behalf may affect AGC's transactions and its securities. There are other attacks on their validity. So far as Westpac is concerned, it may give rise to an order varying the mortgage, taking into account advances made or monies applied in this period or, again, to set-off any monies said to have been lost as a result of the conduct against the bank's claim, but again just what sums are so represented is not revealed.

In summary I do not consider that the material discloses that any claim to set aside the 1984 mortgage, having regard to the circumstances surrounding its execution, has any substance. There may be questions as to whether the mortgage ought be subject to variation, although to an extent which is unclear. And it may be possible to contend for set-offs, but again the amounts involved are not apparent. Beyond an observation that these claims, as presently pleaded, do not appear particularly strong, I am not able to assess their prospects of success. There remains the matter of repayment of whatever sums were initially advanced which, as I have commented, may well be required before any further relief is given.

Balance of Convenience

The applicants wish to retain the property. Given however a history of their own attempts to sell the property, it may be thought that, in reality, I am concerned with only who is to sell. That person would have the important choice as to when to sell. It was however said that in the event of a sale brought about by the exercise of the bank's rights with respect to Mr Swift Snr's interest, that the applicants might then be in a position to pay the bank whatever is found to be due by him, which would include the sum advanced in 1984. How that might be achieved is not adverted to in the evidence. I expect I am asked to infer that the value of the property would far exceed the amount found due to the bank, so that the applicants could re-finance. No offer is made by the applicants to pay in or to secure the sums claimed as due under the mortgage or any part of it, including the sum advanced in 1984.

The sum said to be due is now some $2.8M and interest is accruing at the rate of over $700 per day. The bank's valuer valued the property in November 1993 at $1.6M. It has been drought affected for some years and now suffers, partly as a result of the applicants' inability, absent their machinery, to control weeds by planting, a weed infestation which affects its value. It is now valued at $1.385M although with the breaking of the drought that would increase again to about $1.6M.

The applicants submit that, since they have attacked the bank's right to a sale under the mortgage, they ought to be relieved of any requirement to pay in the monies denied as due or otherwise to secure the bank's position in the interim.

Whilst concerns have clearly been expressed by Judges from time to time as to the application of the sale in Inglis' case (or as Pincus J. commented in Atkinson and Hastings Deering (Queensland) Pty Ltd (1984) 6 FCR 331, there has been some "lack of enthusiasm" for it) the "ordinary case" involves a proposed restraint upon the exercise of an undoubted legal power in the mortgagee (Harvey v. McWatters (1948) 49 SR (NSW) 173). It seems to me that this is just such a case, that is to say, where there is no question that default has been made and that the power of sale is exercisable, but the only dispute is about the amount due under the mortgage.

The applicants submit however that they fall within the exception to the rule, referred to by Sugerman J. in Harvey v. McWatters (176, 177), cases where the "real dispute" is whether the power of sale is presently exercisable at all. That would clearly be so where what was at issue was whether the mortgage was liable to be set aside, and it has been extended to cases where an equitable set-off is claimed (see e.g. Eltran Pty Limited & Ors v. Westpac Banking Corporation & Ors (1991) 32 FCR 195). In those cases the Courts are concerned to ensure protection to mortgagees but only having regard to the "risk" to which they are exposed in the interim. The language of Sugerman J. might be thought however to require that there be shown something of substance in the relevant claim made (a "real" dispute), a conclusion not here open. The applicants' submissions however proceeded upon the footing that no more was required than the fact of the claim itself to constitute the case an exception.

Whether a mortgagor would be required to show more than that an attack upon the exerise of the power of sale is made, would seem to be the subject of differing views. Eltran seems to proceed on the basis that that may be sufficient, but it is notable that it was there held that there was only a "slight possibility" of financial detriment to Westpac and there was no reference to the decision of the Full Court in Town & Country, which had been decided only a few months earlier. Glandore Pty Ltd v. Elders Finance & Investments Co. Ltd (1984) 4 FCR 130 might also be thought to proceed upon this premise as does, clearly so, the more recent decision of Rawcliffe v. Custom Credit Corporation (1994) ATPR 41-292.

In Town & Country Sports the Full Court, whilst distinguishing the power under s.80 from the exercise of a discretion in equity suggested that (545):

"... The powers of this Court under s.87 of the Act enable the mortgagor to obtain in an appropriate case orders varying the terms of agreements or declaring them void as a consequence of the contravention of the provisions of the Act by the mortgagee. This may strengthen the inclination of the Court in an appropriate case to refrain from requiring the applicant to provide adequate security
for its indebtedness before restraining a mortgagee from exercising its powers: see Glandore Pty Ltd v. Elders Finance and Investment Co Ltd (1984) 4 FCR 130, per Morling J. (at 133-136); Cunningham v National Australia Bank (1987) 15 FCR 495; cf Mainbanner Pty Ltd v. Dadincroft Pty Ltd (1988) ATPR 49,661.

As a matter of discretion the relaxation of such a requirement in this Court usually would be restricted to cases where the allegations which ground the plea for the use of the Court's powers under s.87 are clearly arguable and not merely colourable and to cases which show an obvious nexus between the allegations of misleading or deceptive conduct in contravention of s.52 of the Act and the formation of the security documents sought to be varied or rendered unenforceable by the exercise of those powers. We express no view on the strength of the applicants' case in this regard."

Such an approach is consistent with the views expressed by Pincus J. in Mainbanner Pty Ltd & Ors v. Dadincroft Pty Ltd & Anor (1988) ATPR 49,661. An exercise of discretion or power must require more than that a claim has been made and that there is a prospect, however slight, of its success.

Such an approach I accept acknowledges a need, to an extent, to enquire at this point into the prospects of an applicant's case. There seems to me to be no alternative to that. Whether the courts ought then go further and "mould" the order, or determine the risk to which the mortgagee is exposed, by reference to whether an applicant's case is particularly strong, is not a matter upon which my views are here necessary. I would think it would be a rare case, in any event, where no protection was required to be given to a mortgagee where substantial sums of interest continued to accrue and where the value of the property was shown to be insufficient to meet the debt the bank claims. Here the applicants face the further difficulty that, in
reality, their claim is at its highest for a variation of a mortgage or relief conditioned upon their paying the amount of the initial advance.

Here however the applicants offer nothing, not even to secure the amount initially advanced and the Court is then, as it was in Billinudgel Pastoral Co. Pty Ltd v. Westpac Banking Corporation (unreported, Spender J. 31.3.94) unable to consider the grant of an injunction.

The balance of convenience I consider requires the refusal of an injunction. The bank has sought orders requiring delivery of possession but in terms, I consider, of final relief and are not appropriate for that reason and for the reason that the other co-owner has not been served with this application. There is however shown some likelihood of difficulty with respect to the receivers and I am prepared to grant an injunction restraining the applicants from interfering with the first, third and fourth respondents entering into possession.

It would seem to follow that the applicants ought pay the first, third and fourth respondents' costs of each of the applications to be taxed. I am also asked to make an order as to the expenses incurred by those respondents flying a witness, required for cross-examination, to the hearing but which witness was not ultimately required. The order is sought against the legal representatives of the applicants personally.

The applicants' legal representatives explained that the particular witness was said to be necessary only if the bank files were not to be made available at the hearing. The witness was not in fact required, although it was not clear to me that he became unnecessary because access was in fact had to the documents, the requirement for the bank files otherwise being meaningless. Particularly in light of a previous blanket requirement that all deponents be made available for an earlier hearing, I was concerned that the motivation here may have been to occasion expense and inconvenience. Such a conclusion is not however free from doubt. It is not sufficiently clear to warrant the order, which appears in any event to be sought primarily because of the applicants' financial position. For the purposes of any taxation of costs I add however that the witness costs were incurred as a result of the requirement that he attend.

I certify that this and the preceding fifteen pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.

Associate

Date: 22 March 1995

Counsel for the applicants: Mr M Duncan

Solicitors for the applicants: Clarke & Kann as Town Agents for Carroll & Knudsen

Counsel for the respondents: Mr R.V. Hanson QC

Solicitors for the respondents: Feez Ruthning

Date of Hearing: 8 February 1995

Place of Hearing: Brisbane

Date of Judgment: 22 March 1995

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