Wong v Novakovic

The plaintiff seeks judgment for possession of land at 3 Dales Road, Silverdale. The claim is said to be based on a loan agreement and a second mortgage entered into by the defendants on 17 June 2019.

The first and second defendants were respectively husband and wife, and the registered proprietors of the land. The third defendant, Perpetual Corporate Trust Limited, is the first registered mortgagee. Although no orders are sought against the third defendant, it has filed an ordinary appearance in the proceedings.

Orders for substituted service on the first defendant were made by Campbell J on 8 September 2021: Chung Wah Wong v Ivan Novakovic [2021] NSWSC 1130. Despite service having been effected on the first defendant pursuant to those orders, he has not appeared in the proceedings.

The second defendant has appeared and filed a defence and a cross-claim on 11 June 2021.

The cross-claim is brought against both the plaintiff and against the first defendant. The claim against the first defendant seeks an indemnity if the second defendant is found to be liable under the loan agreement and mortgage.

For reasons that are not clear, the second defendant did not seek substituted service against the first defendant when the matter was before Campbell J. I subsequently gave leave for a notice of motion to be filed by the second defendant seeking substituted service. I indicated that I would deal with that notice of motion in chambers. On 15 October 2021 I refused the application for substituted service on the basis that there was no prospect of the proceedings coming to the attention of the first defendant by the methods of service put forward.

On 3 September 2021 Campbell J granted leave to the plaintiff to file a notice of motion to strike out various paragraphs of the defence and the cross-claim. That notice of motion was duly filed on 8 September 2021, and it is that motion with which this judgment is concerned.

In substance, the basis for the notice of motion is an assertion by the plaintiff that in her defence and cross-claim the second defendant is approbating and reprobating in a way that is not permitted.

The statement of claim alleges that on 17 June 2019 the plaintiff as the lender, and the first and second defendants (subsequent references to “the defendants” herein are references to the first and second defendants) as borrowers, debtors and mortgagors, entered into an agreement whereby the plaintiff would lend the defendants the sum of $395,000 secured by a second mortgage over their property (paragraph 8). The statement of claim then pleaded a number of terms of the loan agreement and mortgage including a requirement to pay interest by equal monthly instalments, and the requirement to repay the principal sum due under the loan by 1 July 2020 (paragraph 10).

The statement of claim pleaded that the principal sum of $395,000 was advanced to the defendants on 17 June 2019 (paragraph 11); that on 24 July 2019 the plaintiffs received a part repayment of the principal in the sum of $116,498.35 from the defendants (paragraph 12); that the defendants were required to pay interest on or by 1 August 2019 (paragraph 13); that the defendants failed to pay interest on or by 1 August 2019 (paragraph 14); that the defendants failed to pay interest due by 1 September 2019 and thereafter for every succeeding month (paragraph 15); that the failure to pay interest by 1 August and thereafter constituted breaches of the agreement and mortgage (paragraph 16); that on 7 April 2021 a notice of demand and notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW) was served on the defendants demanding the payment of the outstanding amount of principal and interest totalling $363,335.13 (paragraph 17); that the defendants failed to pay the outstanding amount in breach of the loan agreement and mortgage (paragraph 18); and that in the circumstances the plaintiff was entitled to possession of the land (paragraph 19).

All of these paragraphs of the statement of claim were denied, except for paragraphs 12 and 17 which were not admitted.

In the cross-claim, the second defendant seeks declarations that the loan agreement and mortgage are void and unenforceable, and that the plaintiff is not entitled to possession of the land. Paragraphs 3 and 4 of the cross-claim plead as follows:

Paragraph 5 then pleads that the “purported Agreement and the purported Mortgage Agreement” were unjust contracts for the purposes of the Contracts Review Act 1980 (NSW). Particulars are then set out which allege an inability on the part of the second defendant to negotiate the terms and to read the agreements before she signed them. The particulars assert that she was not given independent legal advice, that the agreements were not explained to her, and unfair pressure was put upon her to sign them.

Paragraph 7 then pleads that the “two purported agreements” are void as far as the second defendant is concerned.

In her affidavit of 4 August 2021, the second defendant detailed the circumstances in which she was asked by her husband to go to his lawyer’s office to sign documents. In that affidavit she said this:

On 1 July 2021 the plaintiff’s solicitors served a Notice to Admit Facts on the second defendant’s solicitor. Paragraph 9 required the second defendant to admit:

Questions 11-18 required the second defendant to admit the authenticity of the following documents:

The second defendant’s response was to say that she does not admit the authenticity of each of the documents.

The plaintiff submits that the denial of the mortgage and the agreement, and the refusal to admit the authenticity of the documents including the mortgage, when taken with the admissions of actually signing the documents, lead to the conclusion that the second defendant is relying on a plea of non est factum. However, the plaintiff submits, there is no such plea in the defence. Moreover, the plaintiff submits, the second defendant cannot in the first instance deny that she is a party to the contract but then ask for it to be declared void or set aside under the Contracts Review Act.

The plaintiff submits that the pleading is embarrassing unless the second defendant acknowledges that the defence she relies on in denying the mortgage and the authenticity of the documents is one of non est factum. An alternative view is that a denial, and a refusal to admit the authenticity of the documents, might be an allegation of forgery, but no such plea to that effect is made.

The High Court explained the doctrine of non est factum in Petelin v Cullen (1975) 132 CLR 355 at 359-361:

In Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited (2009) 75 NSWLR 42; [2009] NSWCA 186 the Court of Appeal, having considered that passage from Petelin v Cullen said at [38]:

It is clear from the second defendant’s own evidence that this is not a case where a plea of non est factum is available. Mr Morahan of counsel for the second defendant accepts that reliance is not placed on that principle. Rather, he relies by analogy on Small v Gray [2004] NSWSC 97 to submit that the second defendant can deny the agreement but seek, in the alternative, that it be set aside under the Contracts Review Act.

In Small v Gray a mortgage was purportedly given by a husband and wife who were joint tenants. The wife only intended to be bound if her husband signed the mortgage. In fact, the husband’s signature was a forgery, unbeknownst to the wife or the mortgagees. The mortgage was registered.

Although the wife said that she only intended to be bound by the mortgage if her husband “approved the transaction” (which included signing the mortgage), her only defence to the claim was unjustness and unconscionability under the Contracts Review Act and the general law (see Small v Gray at [6]). It was the plaintiffs who wished to argue that there was no contract with the wife on the basis that the husband had not signed it (see at [66]). That was to prevent the wife being able to call in aid the provisions of the Contracts Review Act. The plaintiffs wished simply to rely on its rights as a registered mortgagee because they were unaware of the forgery of the husband’s signature (see at [1]).

Small v Gray is of no assistance to the second defendant where, as here and in Small v Gray, the relevant mortgagor signed the mortgage and the mortgage was registered. Although the wife in Small v Gray did not intend to be bound until her husband also signed the mortgage, the effect of registration was to give the mortgage the effect of a deed: s 36(11) Real Property Act; Small v Gray at [79]-[80]. In that way, it was open to the wife to rely on the Contracts Review Act to obtain relief from the liability she incurred by signing the mortgage and its being registered. In the present case, the second defendant admits to signing the documents including the mortgage. Small v Gray is no authority for a right to put forward inconsistent defences in the way the second defendant seeks.

However, in Permanent Trustee Company Limited v Frazis [1999] NSWSC 319 the defendants had not signed the mortgage at all. Their signatures were forged. Dunford J said, when considering defences put forward by defendants who were seeking to set aside a default judgment:

The present case is really the obverse of Frazis. The second defendant admits to signing the mortgage, but by denying paragraphs 8 and 10 of the statement of claim and refusing to admit the authenticity of it, she is seeking to present an inconsistent case, contrary to what is said in Frazis.

In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, the Court said, having made reference to what was said in Petelin v Cullen:

Mr Morahan accepted that the case, in substance, concerned the Contracts Review Act because of the circumstances in which the second defendant came to sign the documents. That is the case pleaded in the cross-claim, subject to one matter dealt with below. Where the second defendant admits to signing the documents, she cannot deny the existence or the authenticity of those documents in the absence of a plea of non est factum.

Nor is this a case where rule 14.18 of the Uniform Civil Procedure Rules 2005 (NSW) applies to permit the pleading of an alternative ground. That rule provides:

This is not a case where the second defendant says that she does not know, or is not sure, if she signed the documents. In such a case she would be permitted to plead a defence under the Contracts Review Act in the event that it was found that she had signed the documents.

Paragraphs 8, 9 and 12 of the defence should be struck out.

Different considerations arise for the remaining paragraphs of the defence sought to be struck out. Paragraphs 11, 12, 14, 15, 16 and 17 of the statement of claim all allege factual matters. If, as seems likely, the second defendant does not know whether or not those matters are true (because it was the first defendant who was responsible for matters concerned with the mortgage), the pleading should be one of non-admissions, as has been done in relation to the allegations in paragraphs 12 and 17 of the statement of claim. Unless a positive case is being put forward by the second defendant (for example, to assert that interest had been paid), denials of those matters are inappropriate.

For those reasons, paragraphs 10, 13, 14 and 15 of the defence should be struck out.

The cross-claim contains a similar problem in paragraphs 3 and 4 to that discussed earlier in relation to inconsistent defences. Those paragraphs (set out above at [12]) plead only that the first defendant “purported” to execute the documents “to secure and encumber the Cross-Claimant’s interest” in the land. That pleading rather suggests that the first defendant either had the power and authority to bind the second defendant by his execution, or did so anyway, perhaps by forging the second defendant’s signature. That cannot be correct because, by her own admission the second defendant executed the documents. She may not have understood what she was committing herself to, but it was by her execution that her interest was secured and encumbered.

For similar reasons given in relation to the defence, paragraphs 3 and 4 of the cross-claim require amendment to plead that the second defendant executed the documents.

The second defendant’s responses to the notice to admit facts (not to admit that the identified documents are authentic) are inappropriate when she admits to signing them. Unnecessary costs incurred by the plaintiff in proving matters which are not really in contention are likely to be borne by the second defendant, regardless of the outcome of the proceedings. Those acting for the second defendant should, in the preparation for the hearing, be focusing on the real issues in dispute between the parties, in accordance with their obligations and the second defendant’s obligations pursuant to s 56(3) and (4) of the Civil Procedure Act 2005 (NSW).

Accordingly, I make the following orders: