Chalak v G & G Mikhael Pty Ltd

1. [1]

   WARD P: I agree with Basten AJA.

2. [2]

   SIMPSON AJA: I agree with Basten AJA.

3. [3]

   BASTEN AJA: On 7 September 2017, the applicant, Safwan Nizar Chalak, entered into a loan agreement with the respondent, G & G Mikhael Pty Ltd, the purpose of which was to obtain funds to finance the construction of three townhouses on land owned by the applicant at Chipping Norton, in south-west Sydney. At that time the land was subject to a registered mortgage in favour of the National Australia Bank (NAB). On 27 July 2018, the applicant entered into a mortgage with the respondent pursuant to which the respondent paid out the applicant’s existing mortgage with NAB. Over the following 12 months, further moneys were advanced by the respondent to the applicant.

4. [4]

   On 17 August 2020, the respondent issued a letter of demand, seeking repayment of the amount it claimed was due under the mortgage. On 6 April 2021, the respondent commenced proceedings in the Common Law Division in which it was the plaintiff (and the present applicant, the defendant); on 3 May 2021 an amended summons was filed.

5. [5]

   On 30 November 2021, after a defence and cross-claim had been filed, and the defence amended, the plaintiff filed a notice of motion seeking summary judgment in its favour on its claim and dismissal of the cross-claim.

6. [6]

   On 17 February 2022, the motion for summary judgment was heard by the primary judge, Dhanji J, who delivered an ex tempore judgment granting the plaintiff possession of the land, the subject of the mortgage, granting leave to issue a writ of possession and giving judgment for the plaintiff against the defendant “in an amount equal to the principal outstanding on the loan together with interest on that amount calculated at simple interest at the rate of 7% to date”. [1] The actual amount of the judgment was calculated by the defendant and further orders were made on 1 March 2022 which, without expressly doing so, appear to have varied the orders made on 17 February.

7. [7]

   On 17 March 2022, the applicant filed a summons seeking leave to appeal from the summary judgment, together with a draft notice of appeal.

Leave to appeal

1. [8]

   Although it may in practical terms dispose of a claim, the summary judgment is, as a matter of law, not a final, but an interlocutory, judgment. Leave is required to appeal pursuant to s 101(2)(e) of the Supreme Court Act 1970 (NSW). Further, in the present case, the judgment disposed of only part of the claim: there was an outstanding issue as to whether the respondent was entitled to interest under the mortgage other than at the rate of 7% simple interest allowed by the summary judgment. The matter is yet to be listed for a further hearing with respect to that outstanding issue. That issue was not merely a working out of appropriate consequential orders with respect to an otherwise final judgment. For that additional reason, the orders made in February were interlocutory.

2. [9]

   The Court is cautious about granting leave to appeal from interlocutory judgments, especially those which are concerned with practice and procedure. However, the judgment in this case does not merely determine a procedural issue. The judgment, for a sum in excess of $1 million, was intended to dispose finally of the major part of the proceedings. Further, the practical effect was to deny the applicant a trial as to that issue. As will be explained below, the applicant has a more than reasonably arguable basis upon which to defend the proceedings.

3. [10]

   Further, there is an anomaly in granting summary judgment for an amount which includes an amount by way of interest, and at the same time providing for a trial as to the proper calculation of interest. Although the primary judge found that interest was payable and that the amount was no less than that awarded, it is unusual to treat a summary judgment as a means of providing an interim payment in circumstances where the plaintiff does not abandon its right to a larger amount.

4. [11]

   Finally, the applicant contended that there was a misapplication of the principles governing the grant of a summary judgment in favour of a plaintiff, which has given rise to a miscarriage of justice. As will be explained below, that contention was well-founded.

5. [12]

   For these reasons it is an appropriate case for a grant of leave to appeal.

Principles governing summary disposal of proceedings

1. [13]

   The plaintiff claimed an entitlement to summary judgment pursuant to r 13.1(1) of the Uniform Civil Procedure Rules 2005 (NSW), which provides:

2. [14]

   The plaintiff also sought dismissal of the cross-claim pursuant to r 13.4, which provides:

3. [15]

   Although the language of the two rules is substantially different, the applicable principles are generally treated in similar terms. The constraints on granting summary disposal stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) [2] have been applied in both contexts. Barwick CJ stated:

4. [16]

   As r 13(1) envisages, a plaintiff cannot succeed unless it establishes that there is evidence of the facts on which its claim is based. That does not mean, however, that presentation of such evidence is a sufficient condition for the exercise of the power; the evidence must be sufficient and able to be accepted. The High Court in Webster v Lampard, [5] found that the trial court must determine whether it is “inevitable that [the evidence relied upon] would ultimately be so accepted”. Further, where there is contradictory evidence, that evidence must also be obviously unacceptable and incapable of acceptance by a trial judge.

5. [17]

   The second limb of r 13.1 requires that the plaintiff produce evidence of a belief that the defendant has no defence. Again, the bold statement by the director for the respondent, “I believe the defendant has no defence to the plaintiff’s claim and no arguable cross-claim”, [6] may satisfy the words of the rule, but does not provide a sufficient basis for summary judgment. Indeed, the primary judge did not assume that it did: he examined the material provided to him with a degree of scepticism, although a large volume of material had been made available at short notice. However, for reasons given below, the f enquiry into the sufficiency of the evidence miscarried.

Assessment of the plaintiff’s case – the pleadings

1. [18]

   If a plaintiff seeks summary judgment in circumstances where the defendant has filed a defence and an amended defence, it is undoubtedly appropriate and will usually be necessary, to have careful regard to the pleadings. Where, as in the present case, the defendant had also filed a cross-claim, regard must be had to that document, its apparent purpose and its relationship to the plaintiff’s claim. That course was taken by the primary judge, as to which there can be no complaint. However, the attention given to the pleadings should not lead to disregard of other material before the court. The ultimate question on a summary judgment application requires a focus on substance rather than form. An inadequacy in the pleading of a defence or cross-claim should not lead to the plaintiff obtaining summary judgment unless it is clear that there can be no amendment of the defence or cross-claim which could provide a basis to deny the plaintiff relief. On occasion, the fact that there have been multiple amendments without identifying a reasonably arguable defence may be sufficient to demonstrate that there is no reasonably arguable defence. However, in the present case, the defence had been amended once and the cross-claim, which was in terms an adoption of the defence, was not amended after the amended defence was filed.

2. [19]

   As senior counsel for the applicant readily conceded, the pleadings were deficient. (Indeed, counsel for the defendant had conceded so much at the hearing of the motion.) And, as the primary judge pointed out, the defendant’s solicitor, when asked to clarify what information was said to be missing from the claim, responded unhelpfully and indeed obstructively, in apparent disregard of the obligations imposed by the guiding principles set out in Pt 6, Div 1 of the Civil Procedure Act 2005 (NSW). The primary judge was right to be critical. [7]

3. [20]

   The amended statement of claim identified the defendant (referred to as “you”) as the owner of a townhouse at Chipping Norton. That was admitted. Paragraphs 1-6 in the claim alleged a loan dated 1 August 2018, a mortgage and various terms of the mortgage said to entitle the mortgagee to possession and a judgment for moneys owing and unpaid, and setting out the interest rates payable on the amounts advanced under the mortgage. Other terms were set in pars 8-11 of the amended statement of claim. All of these paragraphs were addressed in the amended defence as being admitted, “[s]ubject to the matters set out in pars 15 to 32 below”. Paragraph 15 of the amended defence set out a representation with a number of terms. One representation was that interest would be charged at 7% per annum in respect of advances secured by the mortgage; a second was that the existing “second mortgage” (presumably referring to the loan agreement of 2017) would remain in force and be the basis upon which additional funds were provided for development of the property. The rates of interest were also the subject of par 16 and were said to be identified in the mortgage.

4. [21]

   Paragraph 17 stated that, at the time of making the representations referred to in par 15, the plaintiff’s director (Mr Mikhael) was aware of eight specified matters, one of which was the arrangements for payment of interest, but the others were factors relating to the defendant, of a kind which were apt to be taken into account under s 9 of the Contracts Review Act 1980 (NSW) on the review of a contract to determine whether it or particular terms were “unjust”. The defence also noted that the mortgage had in part been discharged upon the sale of each of the two townhouses, prior to the commencement of proceedings. (The third townhouse was intended to be, and when completed became, the residence of the defendant.) Paragraph 24 of the amended defence alleged that the plaintiff had failed to account for the proceeds of sale from the two properties sold. That implied a challenge to the amount of the alleged debt.

5. [22]

   Paragraph 26 stated that the representations referred to in par 15, and the failure to disclose the correct interest rates referred to in par 16, constituted conduct in trade or commerce; pars 28 and 29 stated that the representations were “of a present state of affairs” and that the non-disclosure constituted a representation by silence as to a present state of affairs. These pleadings appeared to be directed to ss 18, 20 and 29 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law), providing for relief for misleading or deceptive conduct, unconscionable conduct, and false or misleading representations in trade or commerce.

6. [23]

   Paragraph 30 stated that “[t]he representations and non-disclosure referred to in pars 28 and 29 above were at the time of the execution of the Mortgage false or false or misleading”. The next three paragraphs should be set out in full:

7. [24]

   On one reading, the reference in par 33 to “the circumstances referred to in par 30” took one back through pars 28 and 29 to the complaints with respect to the interest payable under the mortgage (and the separate loan agreement) identified in pars 15 and 16. However, that understanding would at least raise a question as to the purpose of par 31 which appears, on its face, to provide a separate basis for not enforcing the mortgage. On an alternative reading, there was a typographical error in par 33 and the reference to par 30 should have been to par 31.

8. [25]

   The pleading in the cross-claim repeated references to pars 15 to 32 of the defence. It did not clarify the apparent ambiguity made in the amended defence. Further, the relief claimed in the cross-claim was only for an accounting in respect of the mortgage payments and a variation of the mortgage to make provision for interest calculated “at the rate of 7% per annum calculated on a simple interest basis monthly in arrears”. These orders did not in terms reflect a claim that the mortgage was unenforceable, but rather that the amount advanced and unrepaid and the calculation of interest were in dispute.

Hearing before the primary judge

1. [26]

   At the commencement of the hearing on 17 February 2022, the plaintiff read an affidavit of Mr George Mikhael, the director of the plaintiff. The affidavit, with annexures, ran to some 640 pages. The plaintiff also read two affidavits of Mr Mark Diab of 20 October 2021 and 3 November 2021. Mr Diab said that he was an employee of the plaintiff and had the role of “account manager”. Objection was taken to each of the affidavits on a basis stated by counsel in the following terms, first raised with respect to Mr Mikhael’s affidavit: [8]

2. [27]

   The thrust of the objection was that the hearing of a motion for summary judgment did not permit the making of findings on disputed matters. However, that limited objection elided the real issue as to what matters were in dispute. The response to the objection was as follows:

3. [28]

   The transcript then noted that the affidavit was read and the exhibit tendered and admitted on the motion. Whether the substance of Mr Rollo’s objection was fully understood is not clear; counsel for the plaintiff did not respond to it.

4. [29]

   Mr Diab’s affidavits were dealt with on the same basis. There was then discussion in relation to a further two-page document which was not ultimately material. Mr Rollo, however, restated his position in the following terms: [9]

5. [30]

   The apparent obscurity of the language may be a function of the transcription of an AVL hearing. In any event, the basic point is still clear, namely that there was not to be a mini trial in the sense of findings of fact being made in relation to disputed issues.

6. [31]

   The plaintiff’s case was that there was no dispute except as to the interest rate and that, accordingly, it was entitled to a judgment for the principal advanced with simple interest at 7%, subject to a right to pursue a higher figure at trial.

7. [32]

   The trial judge was alert to the fact that there were different calculations undertaken in the various spreadsheets which had been included in the exhibit to Mr Mikhael’s affidavit. The affidavit itself did not provide assistance as to how the spreadsheets were prepared. Mr Mikhael merely stated that:

8. [33]

   Document 5 comprised 370 pages. Apart from providing no clear information as to the nature of the spreadsheets and what they revealed, it may be noted that Mr Mikhael referred to “drawdown requests” commencing a year before the mortgage was executed.

9. [34]

   There were other deficiencies in the evidence, some of which were noted by counsel for the defendant. He commenced by pointing out that there were “quite a few of the advances for which there is no direct evidence of either a request or a response or that the advance was made”. [10] He identified a number of advances recorded in the spreadsheets for which there was no documentary support in the evidence. [11] In the course of that submission, the judge noted that “it’s not going to be difficult to produce records as to whose accounts the money is going from and to”. [12] Mr Rollo responded, “but that evidence is not in the evidence before your Honour”. The judge said that Mr Mikhael had given evidence of the amounts advanced and the evidence was not objected to. [13]

10. [35]

    With respect, the evidence had been objected to on the basis that there should not be a “mini trial” in circumstances where there could be no cross-examination and conflicts would not be resolved. The course taken by counsel for the defendant was appropriate, in drawing attention to the inadequacies of the evidence which had been presented. Apart from anything else, his submission sought to identify the falsity of Mr Mikhael’s statement that the requests and emails were included in document 5. If all were said to be included, then the principal sum should have been reduced to that which was identified in the requests and emails. That did not happen. Nor should it have happened on an application for a summary judgment. If all were not included, that cast sufficient doubt on the plaintiff’s evidence to require refusal of summary judgment.

11. [36]

    The second matter raised by counsel for the defendant was that, according to the spreadsheets, interest was compounded on a daily basis. He complained that that was not provided for in the mortgage and that the calculations in the spreadsheets could not be relied upon. At the very least, they were contestable. [14]

12. [37]

    Thirdly, counsel noted there was a claim for “misleading conduct”. He accepted that the claim “needs to be more fully pleaded and some different relief sought” but submitted that it could not be said there were no prospects of success on a defence and cross-claim of that kind. [15]

13. [38]

    Fourthly, counsel pointed out that it was important to identify the legal source of the obligation to pay: if the obligation did not arise under the mortgage, the right to possession under the mortgage was not engaged. [16] The inclusion of drawdowns which predated the execution of the mortgage required consideration of the terms of the mortgage, a matter not addressed at the hearing by the plaintiff.

14. [39]

    Fifthly, counsel raised an issue as to the accounting for the proceeds of sale of the two properties which had been sold, details of which were not provided. Mr Diab’s second affidavit, of 3 November 2021, contained a table which purported to set out figures for the accumulated drawdowns, the accumulated interest charges and the closing balances at different dates. The table was said to be a “summary of the key amounts clearly portrayed in the spreadsheets emailed to the plaintiff throughout our dealings”: par 16. In the previous paragraph (par 12 – there were no pars 13-15) Mr Diab stated that the proceeds of the first sale had been received on 31 August 2019. His spreadsheet, however, showed the amount being attributed to the accounts on 10 June 2020. His affidavit identified the proceeds of the second sale as having been received on 2 July 2020. The spreadsheet accounted for the repayment on 19 October 2021. Self-evidently the spreadsheet was incorrect and, one might infer, the interest calculations may have been incorrect.

15. [40]

    With respect to the cross-claim, it was by no means clear what material the plaintiff sought to rely upon in asserting it was untenable. Mr Mikhael made statements in his affidavit as to conversations with the defendant, which may have been intended to refute aspects of the defence and cross-claim. As senior counsel for the applicant pointed out in this Court, little reliance could be placed on that material in the absence of cross-examination. He and Mr Diab swore affidavits on the same day in October 2021, in almost identical terms with respect to conversations at which Mr Diab was present four years or three years earlier. The remarkable similarity of unassisted recollections was implausible.

16. [41]

    In the course of oral submissions in reply, the primary judge raised with counsel for the plaintiff a concern that “the most fundamental point made by Mr Rollo is that there is a contest to whether there is an enforceable mortgage”. [17] Counsel for the plaintiff responded:

17. [42]

    Shortly thereafter the primary judge returned to the issue: [18]

18. [43]

    Finally, the plaintiff submitted that the defendant had made admissions that the principal was repayable. [19]

Determination of appeal

1. [44]

   In this Court senior counsel for the applicant focused upon two issues, namely (i) the challenge to the enforceability of the mortgage and (ii) giving of judgment for a contestable amount both as to principal and interest.

2. [45]

   With respect to the first issue, counsel observed that the trial judge had dealt with the enforceability issue by accepting the submissions for the plaintiff before him as to the effect of the defence and the reference in par 33 “to the circumstances referred to in paragraph 30”. [20] The alternative understanding (noted above) was reasonably arguable.

3. [46]

   That submission should be accepted. The error in the plaintiff’s case was to treat the amended defence as a final document, to be read literally and without regard to any internal inconsistencies or to the substance of the challenge. Whatever the intention of par 33, it was clear that there were challenges sought to be raised to the mortgage which may allow for an arguable claim under the Contracts Review Act or under the Australian Consumer Law.

4. [47]

   In so far as the pleading in par 31 was concerned, it is not possible to assess the likelihood of such a defence being upheld. However, there are objective circumstances which would support the possibility that a properly pleaded claim could not be dismissed as untenable. Thus, the execution of the mortgage in July 2018 was clearly beneficial to the respondent. Prior to that time, its interest in the land had been restricted to a deed of loan with an agreement that the lender might have a second unregistered mortgage. That protection was limited by the existence of a first mortgage to the NAB.

5. [48]

   So far as the applicant was concerned, the transfer of his debt to the respondent was clearly disadvantageous. In place of the NAB mortgage carrying interest at 7%, with a term of 23 years, he became subject to a mortgage purporting to have funds at either 15% in respect of first $1.3 million, and repayable in six months’ time. Although the mortgage purported to have a “lower interest rate” payable if interest payments were made on time, in fact the lower interest rate was the same as the higher interest rate. If he were unable to make repayment in full at the end of six months, a possibility which must have seemed overwhelming at the time the mortgage was entered into, because he was to retain one residence as his home, he was at the mercy of the respondent and liable to lose his interest in the property.

6. [49]

   The basis upon which the higher interest rate was to accrue with respect to the first $1.3 million was obscure. Indeed, the interest calculations provided by Mr Diab indicating an entitlement to daily capitalisation of unpaid interest, demonstrated an effective interest rate far higher than 15%. The fact that on the motion the plaintiff did not pursue that claim did not prevent it being relevant to the claim of an unjust contract or unconscionable conduct on the part of the plaintiff.

Conclusions

1. [50]

   While the Court is familiar with apparently straightforward possession actions brought by lenders where a borrower is in default being met by defences or cross-claims asserting unconscionable conduct or some other basis for relief from the obligations of the mortgage, it is a rare case in which such proceedings can be disposed of by way of a summary judgment. In substance, the defendant’s pleadings in this case, though ineptly drafted, attempted to plead such defences. There was no part of the plaintiff’s evidence which established beyond contest that such claims were wholly without merit. Indeed, the plaintiff’s case was not to address such claims, but simply to deny that it had been raised. For the reasons noted above, there were elements of the case which suggested that such claims, properly pleaded and supported by evidence, were arguable. On that ground alone, the summary judgment application should have failed.

2. [51]

   There was also substance in the complaint that the plaintiff had failed to demonstrate that moneys had been loaned in the amounts which it claimed. As counsel submitted in this Court, there was no answer to the submission that such documentation was missing. Even more significantly, being on notice from the hearing before the primary judge that such a complaint was raised, and the judge having noted the ease with which payments could be proved, no further evidence was tendered in this Court seeking to overcome the deficiency. Clearly there should not have been a summary judgment where the principal outstanding was in dispute.

3. [52]

   Finally, and apart from the relevance of the interest payable to the defences, there should not have been judgment for interest in a specific amount while the plaintiff was permitted to pursue a claim for a higher amount based on a different calculation.

4. [53]

   For these reasons, this was not a case in which the defendant should have been denied a trial. To the extent the pleadings were inadequate, the appropriate course would have been to set aside the amended defence and cross-claim and require that the defendant replead. That course may yet be appropriate, although further steps taken in the Division suggest that further directions to that effect may not be necessary. As the matter is still pending in the Common Law Division, awaiting the outcome of the proceedings in this Court, no consequential orders should be made by this Court.

5. [54]

   Although not directly relevant to the course to be taken in this Court, the Court is aware that on 12 April 2022, the primary judge made further orders staying the orders made on 17 February 2022 (and by inference, those made on 1 March 2022), giving consequential directions and directing that the costs (presumably of the motion heard on 12 April 2022) be costs in the appeal. Accordingly, the order for the costs in this Court should include the costs of the stay application determined on 12 April 2022.

6. [55]

   The Court should make the following orders:

   1. (1)

      Grant the applicant leave to appeal from the judgment and orders in the Common Law Division dated 17 and 18 February and 1 March 2022.

   2. (2)

      Set aside the orders entered on 17 February and 1 March 2022 and in place thereof, make the following orders:

   3. (3)

      Order that the respondent pay the applicant’s costs in this Court, including his costs of the stay application in the Division.