Westpac Banking Corporation Ltd v Kay (No 3)

The plaintiff moves to strike out the second defendant’s defence to the amended statement of claim, such defence being filed on 29 November 2019, and the second defendant’s cross-claim filed on 6 September 2019.

The background is set out in my judgment delivered 22 July 2019: Westpac Banking Corporation Ltd v Kay [2019] NSWSC 929. It can be summarised as follows.

The plaintiff alleges that the first defendant, Paul William Kay, entered into a loan agreement on 20 May 2013 with it to borrow $346,500. The money was alleged to have been advanced on 28 June 2013. On that day Mr Kay is alleged to have entered into a mortgage with the Bank to secure his obligations under the loan agreement. It appears that the loan was obtained to purchase a property at 16 Follan Close Kariong, over which property the mortgage was given.

Subsequently, there was default in complying with the provisions of the loan agreement. On 22 November 2018 the Bank issued a notice under s 88 of the National Credit Code and s 57(2)(b) of the Real Property Act 1900 (NSW). Following a failure to comply with that notice, the proceedings were commenced on 13 February 2019.

On 20 May 2019 Thomas James Clinton (also known as Sydney Thomas Finnie) applied to be joined as the second defendant in the proceedings. That application formed the basis of my judgment of 22 July 2019. In short, Mr Clinton said that the purchase of the land by Mr Kay was a purchase by him in a representative capacity as the trustee of the Falcon Discretionary Trust. Mr Clinton said that he removed Mr Kay as the trustee of that Trust on 4 August 2018 and appointed himself as the new trustee of the Trust. Under the terms of the Falcon Discretionary Trust deed Mr Clinton appeared to have the authority to do that. It was on that basis that Mr Clinton was added as the second defendant in the present proceedings.

The Bank claims that it entered into the mortgage with Mr Kay knowing nothing about any trust. The Bank believed that Mr Kay was the borrower under the loan agreement and that he signed the mortgage.

The Bank resisted Mr Clinton’s application to be joined in the proceedings, and in doing so it relied on an affidavit sworn by Mr Kay on 24 June 2019. In summary, that affidavit said that Mr Kay was asked by a friend of his to become a trustee of a trust known as the Bayview Discretionary Trust. Mr Kay agreed to do that, and he signed a trust deed of the Bayview Discretionary Trust, being appointed as trustee. Mr Kay said that he knew nothing about the Falcon Discretionary Trust and denied that it was his signature on the mortgage given to the Bank. He said that he never participated, as trustee or otherwise, in the acquisition of the Kariong property.

Mr Kay annexed to his affidavit a copy of a transfer, subsequently registered under the Real Property Act. Mr Kay’s signature does not purport to appear on that transfer. Rather, the signature of a Svetlana Thorpe appears because she was said to be the licensed conveyancer for the transferee. Mr Kay denied ever issuing any instructions to her or any other person in respect of the acquisition of the property. Mr Kay said that he had never had any communication with Mr Clinton in respect of the Kariong property. His only communication related to the property at 5 Bayview Crescent, Blackwall. That was the property to be purchased by the Bayview Discretionary Trust.

After Mr Clinton was joined as a defendant in the proceedings the Bank, with leave, filed an amended statement of claim on 17 October 2019. The amended statement of claim added a cause of action in unjust enrichment. The Bank claimed that if the loan agreement and mortgage was not valid, the first defendant, alternatively, the second defendant, alternatively the Trust, had received the amount of $346,500, and that that amount was had and received to the benefit of the plaintiff.

Mr Kay has not filed either a notice of appearance or a defence in the proceedings. I directed that both the Bank’s and Mr Clinton’s legal advisors were to contact Mr Kay to inform him that if he did not appear and defend the proceedings a default judgment was likely to be given against him. Notwithstanding that such contact was made, Mr Kay has not appeared.

The defence filed by Mr Clinton to the Bank’s amended statement of claim does not take issue with the matters alleged except as follows. In response to paragraph 7, which alleges that Mr Kay is in default of the loan agreement and mortgage, Mr Clinton does not admit that allegation. In response to the claim for possession of property Mr Clinton opposes the relief.

Paragraph 15 of the amended statement of claim pleaded this:

Otherwise, the defence pleads what Mr Clinton asserted when he sought to be joined to the proceedings, namely, that Mr Kay borrowed the money and mortgaged the property on behalf of the Falcon Discretionary Trust.

In a cross-claim by Mr Clinton against the Bank filed 6 September 2019 he pleaded as follows:

On 20 December 2019 the plaintiff filed a further amended statement of claim, leave having been given to do so on 17 December 2019. That further amended statement of claim did three things. First, it tidied up the pleading in the principal cause of action, adding some detail not contained in the earlier pleading. Secondly, it abandoned the whole of the unjust enrichment claim. Thirdly, it pleaded that the mortgage given by the previous owner of the property was discharged by registration of a discharge of mortgage, and Mr Kay became the registered proprietor with the plaintiff becoming the registered first mortgagee of the property. No further defence has been filed to that further amended statement of claim notwithstanding directions having been given enabling the filing of such a defence on 17 December 2019 and 12 February 2020. It must be taken, therefore, that Mr Clinton’s defence to paragraphs 1 to 10 of the amended statement of claim is his defence to those corresponding paragraphs in the Further Amended Statement of Claim.

As far as Mr Kay is concerned, although he swore an affidavit, he has not filed a defence in the proceedings. In those circumstances, the allegations of fact made by the Bank are taken to be admitted by Mr Kay because he is a party required to plead in response: r 14.26(1) of the Uniform Civil Procedure Rules 2005 (NSW). In any event, Mr Kay is in default under r 16.2(1)(a) UCPR, and the Bank is entitled to seek default judgment.

As far as Mr Clinton is concerned, nothing in his defence puts in issue the facts pleaded by the Bank, except that Mr Clinton does not admit that Mr Kay is in default of the loan agreement. Where the substance of Mr Clinton’s defence is that the loan was made to the Trust and he is now trustee, a non-admission of default is not a proper pleading. The affidavit that Mr Clinton swore included the statement that after reasonable enquiry he did not know whether or not the allegations of fact that were not admitted in the defence were true. There is no evidence of reasonable enquiry. I note that Mr Clinton does not cross-claim against Mr Kay. In any event, the pleading in paragraph 7 is inconsistent with paragraph 9 where Mr Clinton admits that no payments were made to reduce the amount owing under the loan agreement.

Mr Clinton’s defence admits that the loan agreement and mortgage were entered into by Mr Kay. In his cross-claim, he admits the loan was advanced. It is not relevant that Mr Clinton asserts that the transaction was entered into by Mr Kay as trustee.

What I said in Trust Co. Fiduciary Services Ltd v Hassarati (No. 3) [2012] NSWSC 979 in relation to applicants who sought to be joined to those proceedings is applicable to Mr Clinton’s defence that Mr Kay entered the arrangement on behalf of the Trust:

The only defence of substance raised by Mr Clinton in his amended defence filed 29 November 2019 is a reliance on what are said to be statutory obligations upon the Bank under the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act). However, as noted earlier, paragraph 15 is said to be an answer to what was contained in paragraph 15 of the amended statement of claim (now superseded) which pleaded:

That paragraph is no longer relied upon by the Bank. Paragraph 15 of the amended defence is not expressed to be an answer to the whole of the statement of claim. However, even if it was, all that is raised in that paragraph is effectively a cross-claim. The cross-claim filed on 6 September 2019 and what appears to be a proposed amended cross-claim which Mr Clinton seeks to rely upon (Exhibit C on the present application) do not make reference to those provisions of the NCCP Act.

The amended defence by Mr Clinton filed on 29 November 2019 discloses no defence to the Bank’s claim. It should be struck out.

As I said earlier Mr Clinton filed a cross-claim against Westpac on 6 September 2019. The terms of that cross-claim are set out at [14] above.

When the proceedings were before Lonergan J on 3 October 2019 her Honour directed that any amended cross-claim which Mr Clinton sought to file and serve was to be filed by 7 November 2019. On 28 November 2019 I extended the time for Mr Clinton to file and serve an amended cross-claim to 29 November 2019.

On 17 December 2019, no such amended cross-claim having been filed, I directed that any proposed amended cross-claim was to be served on the Bank’s solicitors by 20 December 2019. That was to enable those solicitors to indicate whether they would consent to the filing of that document.

An amended cross-claim was served on 20 December 2019. The proposed amended cross-claim was in the same terms as the earlier cross-claim filed except for two matters. First, in lieu of paragraph 2, the following was pleaded:

Secondly, the following particulars of loss and damage were added, following the particulars of breach of statutory obligations.

The solicitors for the Bank wrote to Mr Clinton’s solicitors drawing attention to what they saw as some problems with the pleading. However, no further pleading was provided. In those circumstances, and because Mr Clinton appeared unrepresented by the solicitors acting for him on 12 February 2020, I directed that the proposed amended pleading should be filed and served by 21 February 2020, and that that amended pleading would then become the subject of the Bank’s strike out motion. It was not filed and served by 21 February or at all. At the hearing of the Bank’s motion I dealt with the proposed amended cross-claim as if Mr Clinton was seeking to file it.

Section 179 of the NCCP Act relevantly provides:

The Bank submitted that the cause of action under s 179(1) includes the following elements:

In my opinion, the proposed amended cross-claim does not plead a cause of action under s 179 of the NCCP Act. It does not identify the civil penalty provision breached or the offence committed under the NCCP Act. Further, even if it is assumed that the particulars relate to civil penalty provisions or offences, the cross-claim does not plead how any of the loss or damage is said to be related to those breaches or commission of offences. The particulars of loss and damage do not self-evidently relate to such breaches or offences.

On their face, the particulars of loss and damage appear to relate to the purchase of the land rather than the loan agreement with the Bank. Some of them are difficult to understand. For example, it is not apparent what is meant by the “loss of opportunity to sell the property when the property market was at a high value”. If the Trust owned the land through Mr Kay as the trustee, the Trust was not prevented from selling the property apart from the fact that the Bank would have to be repaid from the sale. In any event, it is difficult to see how such loss can be related to the matters identified in the particulars.

The absence of the identification of the civil penalty provisions and/or the offences, and the failure to relate the particulars of loss and damage to any such provisions means that the proposed cross-claim in the first instance does not disclose a proper cause of action, and is in any event embarrassing.

Further, the purpose of s 179 orders is to compensate, and to prevent or reduce the loss or damage suffered: s 179(1)(c) and (d). It is inconceivable that any order for compensation could be made that would result in no liability on Mr Kay and/or the Trust to repay the principal sum borrowed. In that way, the cross-claim does not provide a defence to the claim for possession where default has been admitted.

Both sections 117 and 130 of the NCCP Act are referred to in the defence in similar terms to the pleading in the cross-claim. Section 117 has no application to the Bank because it falls within Div 4 of Ch 3 of the NCCP Act concerning the obligations of credit assistance providers. The Bank is a credit provider and not a credit assistance provider. This was a matter pointed out to Mr Clinton’s solicitor by the Bank’s solicitors on receipt of the proposed amended cross-claim. No amendments have been made to take account of that matter.

Further, s 179(3)(b) provides that an application must be made within six years of the day the cause of action that relates to the contravention or commission of the offence accrues. At the earliest, the application was made when the cross-claim was filed on 6 September 2019. The loan agreement was made on 20 May 2013 and settled on 28 June 2013. Loss was first sustained at settlement because particular (a) refers to an amount contributed towards purchase money. That was when time commenced to run, notwithstanding that later damage may have been incurred. Any cause of action is therefore statute barred.

For these reasons both the amended defence filed 29 November 2019 and the cross-claim filed 6 September 2019 should be struck out pursuant to r 14.28 UCPR. Leave should be refused to file the proposed amended cross-claim.

It would be futile to give leave to Mr Clinton to file and serve a further form of the cross-claim because any such claim is statute barred. When the defence and cross-claim are struck out there will be no impediment to the Bank obtaining default judgment against the defendants for possession of the land.

Accordingly, I make the following orders: