GE Personal Finance Pty Ltd v Liddy & Liddy [2008] ACTSC 126 (7 November 2008)

Last Updated: 23 December 2008

GE PERSONAL FINANCE PTY LIMITED v LYNDA JOY LIDDY & JOHN DANIEL LIDDY

[2008] ACTSC 126 (21 November 2008)

PRACTICE AND PROCEDURE – action by mortgagee against joint tenants for debt and for possession – mortgage executed fraudulently on behalf of one defendant – default judgment entered – application to set aside – explanation for delay – arguable defence to debt claim – judgment for debt set aside – no arguable defence to claim for possession – application to set aside judgment for possession dismissed

Oaths Act 1900 (NSW)

Real Property Act 1990 (NSW), ss 40, 42

Land Titles Act 1925

Perpetual Trustees Victoria Limited v Cipri [2008] NSWSC 1128

Breskvar & Anor v Wall & Ors [1971] HCA 70; (1971) 126 CLR 376

Perpetual Trustees Victoria Limited v Tsai [2004] NSWSC 745

Chandra v Perpetual Trustees Victoria Limited [2007] NSWSC 694

Vassos v State Bank of South Australia [1993] 2 VR 316

St. George Bank Limited v O’Reilly (1999) 150 FLR 27

No. SC 396 of 2007

Judge: Master Harper

Supreme Court of the ACT

Date: 21 November 2008

IN THE SUPREME COURT OF THE )

) No. SC 396 of 2007

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: GE PERSONAL FINANCE PTY LIMITED (ACN 008 443 810)

Plaintiff

AND: LYNDA JOY LIDDY

First Defendant

AND: JOHN DANIEL LIDDY

Second Defendant

ORDER

Judge: Master Harper

Date: 21 November 2008

Place: Canberra

THE COURT ORDERS THAT:

1. The judgment against the second defendant for the monetary amount plus interest and costs be set aside.

2. The second defendant deliver a defence in relation to the monetary claim within 21 days.

3. The application by the second defendant to set aside the judgment for possession be dismissed.

1. This is an application by the second defendant to set aside default judgment in an action for possession of land and for debt.

2. The proceedings were commenced in June 2007. The plaintiff attached two statements of claim to the originating claim, one for possession and the other for debt. Whether it is appropriate in the circumstances to attach two separate statements of claim to the same originating process was not a matter which was debated on the hearing of the application, and it is unnecessary for me in determining the present application to make any observations about the course which was adopted.

3. In the statement of claim seeking possession, the plaintiff pleaded that the defendants had borrowed money from the plaintiff, secured by registered mortgage. The mortgage gave the plaintiff a right to possession on default in repayments. The defendants defaulted.

4. The statement of claim for debt was pleaded in identical wording to the statement of claim for possession, except that it concluded with a claim for judgment for a money amount plus interest rather than a claim for possession of land. The statement of claim for debt, on examination, does not plead facts which lead in a logical fashion to any liability for a money amount.

5. The defendants were, at the time of the loan and the mortgage, husband and wife. According to affidavits of service, the husband was served with the originating process at the mortgaged property on 8 July 2007, and the wife on 11 July 2007. The originating claim informed each of the defendants that they were required to file a defence, or a notice of intention to respond and a defence, within twenty-eight days of service, failing which the proceedings might be heard in their absence, or default judgment might be entered against them.

6. Neither of the defendants filed a notice of intention to respond or delivered a defence in time. The first defendant, the wife, has never taken any steps in the matter and is not a part to the present application.

7. On 24 August 2007, Ms M-L Jagger, an employee of the plaintiff, swore an affidavit verifying the default by the defendants under the mortgage, on the basis of which default judgment was entered by the Deputy Registrar of the Court on 14 September 2007. The default judgment was framed, effectively, as two separate judgments, one for debt and the other for possession of the mortgaged property.

8. On 2 July 2008, the second defendant (the husband) through his solicitors filed a notice of intention to respond and an application to set aside the default judgment. The application was supported by an affidavit of his solicitor, Mr Barnett. Mr Barnett swore on information and belief that the agreement for the loan had been entered on the second defendant’s behalf fraudulently by the first defendant, via a forged power of attorney. It is not now challenged by the plaintiff that the first defendant forged her husband’s signature on the power of attorney, during his absence on military service with the Australian Army in Iraq, and that she caused the forged power of attorney to be registered. She then executed the loan agreement and the mortgage on her husband’s behalf pursuant to the power of attorney.

9. The husband subsequently affirmed an affidavit, the contents of which are not challenged, for the purpose of the present application. He said that he and his wife married in 1987. They separated in July 2007. They had no children. He had been for some years an army officer and had had a number of postings away from home. He does not say in the affidavit when he and his wife bought the house, but it is apparent that prior to the involvement of the plaintiff, the house was subject to a substantial first mortgage to the National Australia Bank. The defendants had other (by comparison minor) credit card debts. The husband relied on the wife to make payments in respect of the mortgage, debts and other household outgoings. He made allotments from his pay to joint accounts with the National Australia Bank and the Defence Force Credit Union to provide the necessary funds.

10. He later became aware that his wife had incurred significant debts in her name, his name and their joint names without his knowledge. In May 2004 she had forged his signature on the power of attorney and registered it. He was not aware of the existence of the power of attorney until the day he was served with the originating claim in the present proceedings. The husband says that in about October 2004 his wife used the power of attorney to execute a second mortgage to secure borrowings from the plaintiff. He was unaware of any dealings between his wife and the plaintiff until he was served with the originating process. I infer that on the day of service upon him, 8 July 2007, an altercation took place between the husband and wife and that they have lived separately ever since. The husband says that in the wife’s absence, he discovered hidden correspondence detailing a number of other debts in joint names, including an increase in the amount owing under the registered first mortgage to the National Australia Bank. It seems that the wife spent all of this money and that most of it will be irrecoverable.

11. The husband then says in his affidavit that subsequent to his discovery about these debts, and the agreement to separate, he agreed with his wife that she would remain in the property and would pay him rent. She agreed to settle the debt with the plaintiff by using money she was to obtain from a superannuation fund in her name. The husband says that between July and November 2007 he had periodic contact with the wife, who constantly assured him that the debt to the plaintiff had been paid. By November 2007 the wife had discontinued contact with him. In December 2007, he says, he suspected (he does not explain why) that she had not made the agreed payments to the plaintiff. He says that he contacted the plaintiff by telephone at its Tuggeranong office, and “was informed that the loan repayments in respect of the second mortgage had recommenced and were paid until February 2008”.

12. He then says that in January 2008, he telephoned the Tuggeranong office of the plaintiff. He was informed that the wife had forwarded two cheques totalling $50,000.00 to the plaintiff, but that both cheques had been dishonoured.

13. The husband became aware that default judgment had been entered on 25 June 2008. He was informed of this by Mr Barnett by email. He did not at any time personally receive any communication from the plaintiff informing him of the entry of default judgment.

14. When he was served with the originating process, the husband did not personally contact the Court or the plaintiff because he says, he assumed that the wife “would act both rationally and honourably after the events of 8 July 2007 and would honour the terms [of the] settlement arrangement”. He was sent to Iraq with the Australian Defence Force in April 2008. By the time he swore his affidavit this month, he had reported his wife’s criminal activity to the Australian Federal Police.

15. The loan contract and the mortgage documentation are in evidence. The loan contract was signed by the wife on her own behalf, and as attorney for her husband, on 7 October 2004. Her signature was witnessed by a solicitor, Ms Elizabeth Carter of Helen Small & Associates, Tuggeranong. On the same date, the wife signed two documents headed “Declaration by Borrower”. The declarations refer to the Oaths Act 1900, which I take to be the Oaths Act 1900 of the State of New South Wales, although nothing else in the documentation seems to have any nexus with that State. At all events, the wife signed one of these declarations on her own behalf, and the other, purportedly, on behalf of her absent husband. Somewhat extraordinarily, both were witnessed by Ms Carter, and perhaps even more extraordinarily, the declaration made by the wife on her husband’s behalf was accepted by the plaintiff as adequate for its then purposes. The mortgage was signed by the wife in her own name, and also by the wife as attorney for the husband. Her signature in both capacities was witnessed by Ms Carter.

16. The husband and wife were at all material times registered proprietors of the mortgaged property as joint tenants.

17. The mortgage was expressed to be over the whole of the property. It provided that the mortgagor was to pay to the mortgagee the secured money pursuant to the terms and conditions of the loan contract. The mortgage incorporated twenty-four pages of standard provisions separately registered with the Registrar-General. The standard provisions defined the terms “credit contract” and “secured money” so as to cover the money borrowed under the loan agreement.

18. The standard provisions further provided that if there was more than one mortgagor, their obligations were to apply to each of them individually and to any two or more of them together. It was further provided that if the plaintiff dealt with any of them, it would be taken to have dealt with all of them.

19. On 8 May 2008, Mr Barnett wrote to the Tuggeranong office of the plaintiff, informing the plaintiff that the loan and mortgage documents had been forged by the wife and that the matter had been reported to the police. Mr Barnett at that time was unaware of the entry of default judgment. The Sydney solicitors for the plaintiff responded on 16 June 2008, informing Mr Barnett that judgment had been entered the previous September, and asserting that the husband was liable under the judgment and under the mortgage.

20. Counsel for the plaintiff referred me to a recent decision by Hall J in the Supreme Court of New South Wales, Perpetual Trustees Victoria Limited v Cipri [2008] NSWSC 1128. The facts were remarkably similar to the present case. The claim was for possession of a house registered in the names of a husband and wife, following default in repayments under a registered mortgage. The plaintiff also sought judgment against the husband and wife for a money amount, but did not press the claim for monetary relief against the husband. It was accepted that the husband’s signature on the loan agreement and the mortgage had been forged. The wife did not defend the proceedings. The Court accepted that the husband had been completely unaware of the loan and the mortgage. He had never received any money from the plaintiff and had not given his wife any permission to use the certificate of title for the purposes of a mortgage. The terms of the loan agreement and the mortgage were generally, though not verbatim, in the same terms as in the present application. Hall J held that the mortgage, by reason of its definition of secured money, operated to secure the obligation of the wife to pay amounts owing under the loan agreement, and did so by reference to the interests in the property of both the husband and the wife.

21. His Honour distinguished a number of earlier reported decisions which had involved forged mortgages with single borrowers. In such cases, the loan agreement was void and no obligation arose under it. These were distinguishable from a case involving joint owners who were expressed to be jointly and severally liable under the loan agreement.

22. The central facts were that there was a contract (between the lender and the wife) and that the husband was not a party to the contract. It was of fundamental importance also that the mortgage had been registered and had the effect given to it by the applicable legislation (ss 40 and 42 of the Real Property Act 1990 of NSW). The question remained what estate or interest in land or what obligation was part of or was secured by the estate or interest in land claimed by the plaintiff mortgagee.

23. The terms of the mortgage made it clear that it secured all moneys, presently owing or owing in the future, by both or either of the defendants to the plaintiff. Additionally, the loan agreement provided for joint and several borrowing. Hall J found that the wife was obliged to repay to the plaintiff all amounts under the loan. By reason of the definition of secured money in the mortgage, the mortgage itself secured her indebtedness under the loan. That debt was money payable or owing by her, she being severally, as well as jointly, liable to the plaintiff. Given that the mortgage secured her indebtedness, and as the whole of the property was subject to the mortgage, the plaintiff was entitled to enforce it against the interests of both of the defendants in the property.

24. This was different to the position at common law, under which a mortgage purportedly signed by two joint tenants might not be enforceable against the joint tenant whose signature had been forged. The fact of registration conferred on the mortgagee an indefeasible interest in the land the subject of the mortgage, irrespective of whether the mortgage was a forgery. In support of that conclusion His Honour cited Breskvar & Anor v Wall & Ors [1971] HCA 70; (1971) 126 CLR 376; Perpetual Trustees Victoria Limited v Tsai [2004] NSWSC 745; and Chandra v Perpetual Trustees Victoria Limited [2007] NSWSC 694.

25. The plaintiff, Hall J held, was accordingly entitled to enforce the mortgage, and to exercise a power of sale conferred by the NSW Real Property Act.

26. The husband in Perpetual v Cipri also pleaded an equitable defence in personam. Hall J concluded that the circumstances of the case did not establish the claimed personal equity, there being no evidence that the plaintiff had any actual or constructive knowledge of any wrongdoing or impropriety, or of any misuse of its power, or of any breach of an obligation on its part. Hall J referred in this regard to comments by Hayne J in Vassos v State Bank of South Australia [1993] 2 VR 316 to the effect that an innocent owner whose signature has been forged on a mortgage has no right in personam against the lender unless the lender has acted unconscionably.

27. In order to succeed in setting aside all or part of the default judgment, the defendant husband is required to provide an explanation for the delay in filing a notice of intention to respond and defence, and in making an application to set the judgment aside. The applicant is also required to show an arguable defence on the merits.

28. It seems to me that the reasoning of Hall J in Perpetual v Cipri is correct. There is no relevant difference between the indefeasibility provisions of the Land Titles Act 1925 and those of the NSW Real Property Act applied by Hall J. Nor is there any effective difference in the loan or mortgage documentation. Although intuitively it might seem to many unfair that an innocent person in the husband’s position can find that an interest which he holds in property has been subjected, without his knowledge, to a mortgage, it seems to me that I must find that that is the legal effect of what has happened. In the face of Perpetual v Cipri, it does not seem to me that the applicant second defendant has an arguable defence on the merits to the claim for possession.

29. The position is different in relation to the money judgment. Indeed, counsel for the plaintiff did not seriously argue that the applicant did not have a good defence on the merits to that portion of the claim.

30. I see the explanation for the delay as a relatively weak one. The second defendant took no steps in relation to the Court or the plaintiff’s solicitors when served with the originating claim. His explanation is that he relied on an offer by his wife to attend to the matter, and assumed that she would do so. The arrangement she offered seems to have been to bring the payments under the mortgage up to date, rather than to instruct a solicitor or to take any steps in relation to the court proceedings themselves. The second defendant’s confidence in his wife can now be seen to have been misplaced, but having regard to her admissions to him, it was naïve of him in the extreme to rely on her to put matters right, and no reasonable person in his position would have done so.

31. Default judgment was entered on 14 September 2007, though I accept that the second defendant did not become aware of this until after 18 June 2008 when his solicitors were sent a copy of the judgment by the plaintiff’s solicitors. Nevertheless, his explanation for the delay between entry of judgment and June 2008, a further nine months, is also very weak. He concedes that he was told by an employee of the plaintiff in January 2008 that his wife had sent the plaintiff two cheques totalling $50,000.00 and that both cheques had been dishonoured.

32. Counsel for the second defendant submits that the plaintiff was under an obligation to give notice, presumably by letter, to the second defendant prior to entering default judgment. The authority relied on for this proposition is St. George Bank Limited v O’Reilly (1999) 150 FLR 27 per Higgins J. I am not satisfied that this is authority for the asserted proposition. In O’Reilly, the defendant was represented by a solicitor to the knowledge of the plaintiff. The defendant’s solicitor, after service and before judgment, had sent correspondence to the solicitors for the plaintiff. The correspondence went back and forth. The plaintiff’s solicitors, presumably on instructions, proceeded to have judgment entered notwithstanding the correspondence and without notice to the solicitor for the defendant. The solicitors for the defendant had asked for an extension of time for the delivery of a defence pending the supply of particulars. As His Honour said, it was not reasonably open to the solicitors for the plaintiff to ignore that request. This would have been unreasonable and contrary to the usual expectations within the legal profession. To ignore a request for an extension of time and to proceed to the entry of judgment without further notice puts a plaintiff at risk of a finding that such a judgment was entered irregularly.

33. That decision, which deals with communications between solicitors after service and before entry of judgment, has no application to the present case.

34. The present case is one where the Court must balance the interests of the parties between a rather poor explanation for delay and a strong available defence on the merits. In determining an application to set aside default judgment, the Court exercises a discretion. It must do so judicially, but the outcome remains within the discretion of the Court. It will be a rare case where a defendant can persuade a court to set aside a default judgment where the explanation for the delay in responding to the originating process after service, and the delay in applying to set aside default judgment, is as meagre as in this application. At the same time, the Court will rarely allow to stand a default judgment in circumstances where the defendant would have had a very strong defence on the merits if a defence has been delivered in time.

35. The present application is one of those where the interests of the parties are finely balanced. On balance I am persuaded that the second defendant should have the opportunity to defend the monetary claim on its merits.

36. The application by the second defendant to set aside the judgment against him for the monetary amount plus interest and costs will be set aside. I direct the second defendant to deliver a defence within twenty-one days.

37. In the absence of an arguable defence on the merits, notwithstanding the explanation for the delay, the second defendant’s application to set aside the judgment for possession will be dismissed.

38. I shall provide the parties with an opportunity to be heard as to costs.

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date: 21 November 2008

Counsel for the plaintiff: Mr JB Simpkins SC

Solicitors for the plaintiff: Gadens Lawyers by their Canberra agents Pamela Coward Higgins Lawyers

Counsel for the second defendant: Mr CS Ward

Solicitors for the second defendant: Rod J Barnett & Associates

Date of hearing: 14 November 2008

Date of judgment: 21 November 2008