Westpac Banking Corporation v Suzanne Bower [1996] ACTSC 21 (4 April 1996)

SUPREME COURT OF THE ACT

WESTPAC BANKING CORPORATION v. SUZANNE BOWER
No. SC 535 of 1995
Number of pages - 7
Practice and Procedure

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MASTER T CONNOLLY

CATCHWORDS

Practice and Procedure - Enter Judgment for Possession - Default under Mortgage - Premises used for Illegal Purpose - Enforceability of Contract - Public Policy.

Prostitution (Consequential Amendments) Act 1992
Land Titles Act, s.93

Pearce v Brooks (1866) LR 1 Exch 213
Bundoch Bros v Bergle Co (1897) 8 QLJ 106
Theseus Explorations NL v Foyster [1972] HCA 41; (1972) 126 CLR 507
Holman v Johnson (1775) 98 ER 1120
A v Hayden [1984] HCA 67; (1984) 156 CLR 532
Barac v Farnell (1984) 125 ALR 241
Oliver v Kreibig (1989) 96 FLR 426
Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18
Andrews v Parker (1973) Qd R 93
Seidler v Schallhofer (1982) 2 NSWLR 80
Stergiou v Citibank (unreported 30 June 1993, Hill, Higgins and Cooper JJ)

Cheshire and Fifoot's Law of Contract, 5th Australian Ed., Butterworths,

1988.

HEARING

CANBERRA, 29 March 1996
4:4:1996

Counsel for the Plaintiff: Mr G Lunney

Instructing Solicitors: Minter Ellison

Counsel for the Defendant: Mr R Crowe

Instructing Solicitors: Worth and Co

ORDER

THE COURT ORDERS THAT:
1. The plaintiff have liberty to enter judgment for possession.

2. The defendant pay the plaintiff's costs of this application.

DECISION

MASTER T CONNOLLY This is an application for summary judgment whereby the plaintiff, Westpac Banking Corporation ("Westpac"), seeks liberty to enter judgment for possession in respect of two properties on which, it is alleged, the defendant Suzanne Bower is in default on her mortgage.

2. The properties are situated at Downer (a residential property) and Fyshwick (commercial premises). The amount outstanding to the plaintiff by the defendant is, on the Westpac case, some $190,295.05. The defendant claims that the bank has, in effect, orally agreed that $45,000 of this amount is not presently due and payable. I will address this issue later in these reasons, but it is common ground that there is a substantial sum in default.

3. This would, in the ordinary case, be sufficient to dispose of the motion. The plaintiff bank, having established a default on the mortgage, is entitled to possession under the terms of the mortgage. But in this case the defendant raises a somewhat unusual defence.

4. The defendant carries on the business of a brothel and escort agency in the Fyshwick premises. The mortgages were, claims the defendant, entered into in the full knowledge that the loan monies were for the purposes of conducting a brothel, and that the premises at Fyshwick secured by one mortgage was indeed a brothel. This, says the defendant, creates a good defence under the principle that a court will not enforce a contract that is illegal or for an immoral purpose. In the leading old case of Pearce v Brooks (1866) LR 1 Exch 213 the Court held that a coach builder could not recover against a prostitute for the hire of a coach which was used for the purposes of prostitution. On this principle, says the defendant, a bank which advances monies for an illegal purpose cannot enforce any mortgage security for such a loan.

5. At the outset it was argued by Counsel for the defendant that I should reject this application for summary judgment. The plaintiff, it was said, had not overcome the test laid down conveniently by Kelly J in Oliver v Kreibig (1989) 96 FLR 426 of showing that there is no defence to the action. I am mindful of the appropriate caution which should be exercised in an application for summary judgment where the argued defence is on a point of law.

"It is settled that when there is a serious point of law raised by
a defendant, the judge in chambers ought not to decide it, but
ought to give unconditional leave to defend"

(per Griffiths CJ in Bundoch Bros v Bergle Co (1897) 8 QLJ 106, cited by Gibbs J in Theseus Explorations NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 at 515).

6. This application for summary judgment has been before me three times, and has been, by consent, adjourned so that Counsel may be briefed. In these circumstances, to decline to exercise jurisdiction to resolve the matter would be inappropriate, and I will consider the application and the defence raised.

7. It is a recognised principle of contract law that a court will not enforce a contract that is illegal on the grounds of public policy. This principle can be traced back at least to Lord Mansfield in Holman v Johnson (1775) 98 ER 1120 where it was said:

"No court will lend its aid to a man who founds his cause of
action upon an immoral or illegal act. If, from the plaintiff's
own stating or otherwise, the cause of action appears to arise ex
turpi causa (from a base cause), or the transgression of a
positive law of this country, there the court says he has no right
to be assisted".

It is inconceivable that a falling out amongst principals in a drug importation operation would be resolved by an action in contract in an Australian Court.

8. But the principle is of course subject to great vagaries, dependent as it is on a determination of "public policy". As the learned authors of Cheshire and Fifoot's Law of Contract (5th Australian Ed. at 372) note:

"... a principle stated in such sweeping terms as these has its
disadvantages. It is imprecise, since judicial views will
inevitably differ upon whether a particular contract is immoral or
subversive of the common good; there is no necessary continuity in
the general policy of the law, for what is anathema to one
generation seems harmless to another; and the public good affects
so many walks of life that the causes of action that can be said
to arise ex turpi causa must, in the nature of things, vary
greatly in their degree of harm to the community."

9. This difficulty was recognised by the High Court in A v Hayden [1984] HCA 67; (1984) 156 CLR 532, where Mason J said:

"The problem is one of formulating with any degree of precision
the criteria or the circumstances which will justify a court in
refusing to enforce a contract on the ground that there is a
countervailing public interest amounting to public policy. The
difficulties in asserting the existence and strength of an
identifiable public interest to which the courts should give
effect by refusing to enforce a contract are so formidable as to
require that they 'should use extreme reserve in holding such a
contract to be void as against public policy, and only do so when
the contract is incontestably and on any view inimical to the
public interest' "

(at 559).

10. The Full Bench of the Federal Court has recently had to consider the question of illegality as it relates to the conduct of a brothel in Canberra; and the decision of Barac v Farnell (1984) 125 ALR 241 provides significant guidance. In that case a clerical worker in a brothel was injured at work, and the question for the Court was whether the illegal and immoral nature of the enterprise rendered void the workers compensation insurance. The Court held that it did not.

11. In Barac v Farnell two members of the Full Court, Higgins and Carr JJ, found that the conduct of the clerical worker, who arranged times, took clients' money and generally "facilitated" the operation of the brothel, was sufficient to make out a criminal offence. In the present case, it would be difficult to see that lending money would make Westpac liable for any criminal offence, any more than ACT statutory authorities supplying water or electricity to the brothel premises would be liable to potential criminal charges.

12. Despite the finding as to the nature of the conduct of the worker in Barac v Farnell, Higgins and Carr JJ were not prepared to hold the contract unenforceable. As Higgins J explained:

"For an agreement involving illegal conduct to be regarded as void
or unenforceable, that illegal conduct needs to be characterised
as sufficiently serious for public policy to require that result"

(at 260).

13. Beaumont J expressly considered the competing public interests in ensuring that workers compensation claims are dealt with fairly compared with the rule in Pearce v Brooks. He said:

"In my view, if there is a rule of public policy to be applied in
this area, it should be used to defeat claims made by the
principals in the affair, rather than claims made against the
principals by the workers"

(at 254).

14. Applying this approach I do not see how justice would be done if a party to a commercial loan agreement is able to simply refuse to repay the loan by pleading that they themselves engaged in unlawful or immoral conduct. A prospective purchaser of a high performance motor vehicle could well enquire of its ability to travel in excess of 110 kph on the motorway, and yet they surely could not defeat a claim for the balance of the purchase price by pleading illegality.

15. There is no doubt that keeping a brothel involved the commission of common law and statutory offences in Canberra at the time the first of the loan transactions was entered into. However, on 1 December 1992 the Prostitution (Consequential Amendments) Act 1992 came into effect, which provided for a regulatory regime for the lawful conduct of prostitution in this Territory. The passage of this legislation provides a clear signal that public and legislative attitudes toward prostitution have changed. A court should always be cautious about striking down a contract on the basis of public policy:

"The refusal of the courts to enforce contracts on the grounds of
public policy is a striking illustration of the subordination of a
private right to public interest"

(per Mason J, A v Hayden, supra at 539).

16. I have been unable to identify a precise authority to guide me as to the effect of a change in the law on the principle of illegality. But given the purpose of the rule, and the appropriate cautions about its exercise, it seems to me that where a legislature has clearly rendered lawful some conduct or activity which was previously unlawful, a court would be exceeding its authority to strike down a contract on the grounds of public policy simply because it was tainted by the previous illegality. Without deciding this matter, the High Court in Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18 considered the effect of recent changes to obscenity laws in the context of police refusal to return certain items on the basis that they might be used for a conspiracy to corrupt public morals. In a joint judgment Deane, Dawson, Toohey and Gaudron JJ said:

"Whether the possession of the articles without more is something
which the law would regard as illegal or immoral is a matter
which, in the light of the provisions of the Indecent Articles and
Classified Publications Act, may be regarded as debatable. The
questions which arise are very much questions of public policy
upon which the expression of legislative intent must have a
powerful influence" (at 49).

17. The legislative intent given effect to by the Prostitution (Consequential Amendments) Act 1992 is in my view conclusive of this matter. The passage of these laws renders it inappropriate for a court to strike down a contract based on public policy illegality in relation to prostitution in this Territory. Should further authority be sought for the proposition that a court must look to legislative reforms in considering an application to strike down a contract on the basis of public policy, it is to be found in those modern cases involving cohabitation and de facto relationships which would once surely have been struck down. In Andrews v Parker (1973) Qd R 93 Stable J rejected an application that an agreement relating to real estate was tainted by immorality because it arose from a de facto relationship by saying:

"I am not, in my view, to be taken as changing the law if I do not
accept that immoral today means precisely what it did in the days
of Pearce v Brooks; I am, I believe, entitled to look at the word
under modern social standards"

(at 102).

18. A similar conclusion was reached by Hutley JA in Seidler v Schallhofer (1982) 2 NSWLR 80 who said:

"The encouragement of de facto relationships by the State and
Commonwealth, it occurring on a substantial scale and over a wide
spectrum of legal relationship(s), requires in my opinion, that
the judicial condemnation of such relationships as immoral, so
that they are unenforceable, be discarded. Whatever may be the
moralists stand, judges can hardly characterise what legislation
encourages as immoral"

(at 101).

19. I find there is no defence to this action based on illegality or immorality.

20. A further defence to the application by Westpac for possession was pleaded in relation to an advance of $45,000. In an affidavit of 22 March 1996 the defendant states that she advised the bank that she required a further advance of $45,000 to buy out her former husband, and that, when the property was sold that money could be quickly repaid. An employee of the bank, it is alleged, said:

"Alright, we'll advance the money to you by way of overdraft to be
met in full out of the proceeds of the sale".

21. It is common ground that the proposed sale in 1994 fell through, but even if everything in the affidavit of the defendant is accepted as true, I do not think that this establishes any defence. The defendant is still in default on the mortgage, and even if the $45,000 advance is disregarded, the plaintiff is entitled to seek possession. Whether some portion of the overall debt between the parties is yet due and payable does not affect the ability of the bank to seek possession in circumstances where there is clearly a default.

22. Yet another defence to the claim which was not pleaded was raised at the hearing, being that the bank had failed to properly serve a Notice of Default on the defendant pursuant to S.93 of the Land Titles Act (as it is now known, formerly the Real Property Act). In Stergiou v Citibank (unreported 30 June 1993, Hill, Higgins and Cooper JJ) a bank failed on this ground, but in that case the relevant mortgage document clearly limited any right to possession to the procedure under the Land Titles Act. In the present case the form of the mortgage is different, and clearly reserves a common law right to seek possession regardless of any defect, which in any event is not proven, in the Notice.

23. I order that the plaintiff have liberty to enter judgment for possession, and the defendant pay the costs of this application.