Tag Archives: Barrister

Perpetual Trustees Victoria Ltd v Burns – Low Doc Loan Mortgage Unenforceable

On the eve of retirement from the Bench, Justice EM Heenan has delivered a judgment with potential to cause serious concern for lenders, and their intermediaries, who engaged in ‘Low Doc’ lending or unconscionable lending. His Honour’s opening sentence seems to sum up the decision:

Who would lend more than $840,000 to a couple, each of whom was on a disability pension with no prospects of any form of employment, with the husband partially blind and the wife with a long-term disability, when each had nothing to offer but the desire to speculate in real estate?

The following is a very, very shorty summary of the case:

The First and Second Defendant were husband and wife. Neither of them worked and they were in receipt of disability pensions.  Mr & Mrs Burns decided to speculate in the property market. They did this by purchasing properties with the view of renting them out. They received six loans over a period of time.

By April 2011, Mr & Mrs Burns had defaulted on the loans and eventually proceedings were commenced for possession of the mortgaged property.

His Honour found that both Mr & Mrs Burns had significant handicaps, that there were serious doubts as to their ability to fully or adequately comprehend the transactions they were entering into.

There was also the involvement of various intermediaries. Those intermediaries lodged a number of loan applications on behalf of of Mr & Mrs Burns. It seems that in relation to some of the intermediaries, when indicating their appointment status they listed Mr & Mrs Burns as property investors. Most of those applications were refused but somewhere approved.

The employee of one of the main intermediaries gave evidence that he did not consider that it was his role to provide any financial advice or seek any information about the details of the income received by Mr & Mrs Burns. He justified this position on the basis that the facility they were seeking was a ‘low doc’ or asset lend loan, which meant that if the borrowers had sufficient equity their income was not required to be disclosed. However, this employee was well aware that Mr & Mrs Burns were in receipt of a pension and did not have any business of their own and were not full-time investors.

Agency

Hi Honour identified that one of the central questions was whether any of the intermediaries could be an agent of the lender or whether the intermediaries’ knowledge should be attributed to the lender in the circumstances.

His Honour referred to the judgement of Murphy JA in Permanent Mortgages Pty Ltd v Vandenbergh (which was a very similar case). His Honour concluded that the question of agency and/or attribution of knowledge by an alleged agent will depend on many factors and the consideration of the transaction and history of doing as a whole rather than any one determinative fact or test.

His Honour accepted the evidence from Mr & Mrs Burns that when they were dealing with the intermediaries they thought, at all times, that they were dealing with the lender or its agents. After reviewing the totality of the facts, including looking at the number of loans between the lender and Mr and Mrs Burns over a period of time, His Honour considered that the knowledge held by the intermediaries was held by them as agents of the lender and must be attributed to the lender.

The above findings were made despite an express term which expressly excluding an agency relationship – his Honour found that the signatures on those documents were more ritualistic than real.

The Outcome

The mortgage and loan agreement was set aside. The five (5) earlier loans and mortgages were also set aside.

The lender argued for the principal to be re-paid with interest. This arises from a line of authority that when a security is set aside, there is a requirement for the repayment of that which was paid in return for the security: see Maguire v Makaronis (1997) 188 CLR 449, 475.

His Honour considered that as the transaction was set aside ab initio (or from the beginning), there is no contractual entitlement to interest (or legal costs). However, his Honour still considered that it was appropriate that the principal sum be repaid together with simple interest at the cash rate set by the Reserve Bank from time to time. That would be, in his Honour’s view, appropriate and neccessary to do equity between the parties.

The amount of interest allowed by his Honour will be calculated and set-off against what was actually paid to the lender (in respect of all of the loans) by Mr & Mrs Burns. It would appear likely that the lender will have to make some sort of refund to Mr & Mrs Burns in respect of that interest.

A further counter-claim for damages for misleading and deceptive conduct arising from an October 2007 loan and mortgage was adjourned to be heard at a later date.

All-in-all a big win for Mr & Mrs Burns.

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Security for Costs in a Defamation Action

Courts have long stood firm that poverty (alone) should not deprive a person of seeking appropriate relief through the Courts, even if they might not be able to pay costs should they lose. There are, however, exceptions to this rule and this is why Courts have developed security for costs provisions.

In Moran v Schwartz Publishing Pty Ltd & Virginia Peters, Kenneth Martin J was faced with a difficult decision. The evidence indicated that the Plaintiff was wholly unable to satisfy a costs order, but poverty alone is no bar to litigation. Was there any additional factor to justify an order for security.

Background

The Plaintiff had commenced defamation proceedings arising out of the publishing of a book, titled “Have You Seen Simone?“. That book describes a private investigation into the death of Simone Strobel in Lismore, NSW.

Mr Moran (who was formerly known as Mr Suckfuell) commenced proceedings against the publisher and author of that book. Mr Moran alleges, broadly, that the book is defamatory of him as its words can be understood to mean that murdered Simone Strobel.

Prior to the book being published, Mr Moran sought an injunction which was ultimately refused.

The Application

The Defendants sought security for costs in the sum of $780,712.00 or such other sum as the court deemed fit.

In support of the application for security for costs, the defendants relied upon the following:

  1. that the trial would last around five weeks;
  2. that Mr Moran, allegedly:
    • was not an Australian citizen, permanent resident and that he failed to disclose his residential address in Australia;
    • had  previously refused to return to NSW to assist a Police Investigation;
    • had a drug-related conviction in Germany;
    • was not employed in Australia; and
    • did not own any property in Western Australia.

Mr Moran, in response, deposed that he was:

  1. married to an Australian citizen;
  2. held a permanent visa;
  3. lives in Perth;
  4. has been working full time.

Mr Moran did not wish to disclose his residential address in Perth for privacy reasons and also bluntly conceded that he owned no substantial assets, other than a car.

Mr Moran went on to depose that he had previously borrowed money from family and friends to fund the action, but that if security was ordered, he could not meet it from his own assets and would have to discontinue the action.

The Disposition

Mr Moran  did not indicate whether those family and friends, whom he had previously borrowed money from, would assist him in meeting the amount to be paid in to Court on account of the security for costs.

His Honour referred to the relevant principles in an application for security for costs:

1. Order 25 Rule 1 of the Rules of the Supreme Court provide that no order for security shall be made merely on account of the poverty of a plaintiff;

2. Order 25 Rule 2 set out a non-exhaustive list of grounds for ordering security

3. Order 25 Rule 3 confirms that the power to order security is discretionary, and that the Court must take into consideration factors including the prima facie merits of the claim and what property may be available, within the jurisdiction, to satisfy an order for costs.

Kenneth Martin J referred to the oft cited decision of Lindgren J in Knight v Beyond Properties Pty Ltd where his Honour summarised cases where poverty was, combined with other factors, sufficient to justify an order for security for costs.

During the hearing, it became common ground that Mr Moran would be unable to meet any adverse costs order, that Moran was ordinarily resident in Western Australia, despite not holding citizenship. The issues relating to the nondisclosure of Mr Moran’s residential address and his alleged drug addiction were also not pursued.

Instead, it was argued that an inference could be drawn that Mr Moran’s friends and family would likely continue providing financial support. They noted that this was demonstrated by his engagement of an expensive team of defamation lawyers who were not suggested to be acting pro bono.

This, it was argued, indicated that Mr Moran’s poverty was more convenient than actual. That his poverty had not, to date, stifled the continuing of the action. Mr Moran was said to have not discharged his obligation to show that an order for security of costs would actually stifle the proceedings.

In granting an order for security for costs, Kenneth Martin J observed that this application was unusual. His Honour further observed that the application does not appear to meet any of the nominated grounds for ordering security set out in Order 25 Rule 2 although noting that those grounds are non-exhaustive.

Ultimately, his Honour relied on the “rather deafening” silence in relation to whether Mr Moran’s family and friends, who had to date advanced funds for the purpose of the litigation (in the order of at least $40,000.00), would continue to provide such funding and ultimately provide any security ordered. This was the additional factor relied upon by Kenneth Martin J to support an order for security for costs.

Security was granted in the total sum of $500,000.00. It will be paid in stages as the proceedings advance. The first $100,000 is to be paid by 28 February 2015.

Comment: This is a very interesting development in applications for security for costs. Kenneth Martin J was bold in relying on Mr Moran’s outside assistance with funding the litigation to justify the making of an order for security.

The decision is, in my humble opinion, well reasoned and correct. The result could really have went either way and I would be very surprised if no appeal is lodged.

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