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Supreme Court 8 June 2000

Cox v Esanda Finance

[2000] NSWSC 502

Fraud & dishonesty
BANKER AND CUSTOMER MISLEADING CONDUCT FRAUDULENT REPRESENTATION DEED OF RELEASE WHETHER VOID FOR UNDUE PRESSURE BONA FIDES OF SALE BY MORTGAGEE

Citation: Cox v Esanda Finance [2000] NSWSC 502 revised - 12/07/2000
Court: Supreme Court of NSW, Equity Division, Commercial List
Date: 8 June 2000
Judge(s): Hunter J

Background

The plaintiff was a private individual who sought to subdivide and develop a coastal property near Narooma, NSW into premium residential allotments. He obtained bridging finance from a major bank for the land purchase and development finance from the bank's related corporation, a specialist property financier. The relationship between the plaintiff and the financier deteriorated as the project progressed.

The plaintiff alleged that the financier unreasonably refused to provide additional finance, engaged in misleading conduct, and made fraudulent representations. He also challenged the validity of a deed of release he had signed, claiming it was void for undue pressure. When the financier ultimately exercised its power of attorney under the mortgage to register a new mortgage over certain allotments and then proceeded to sell those allotments, the plaintiff contended those steps were improper.

The plaintiff represented himself throughout a hearing that ran across eighteen days. After evidence closed, he sought to amend his pleadings to raise a fresh fraud case and to discontinue against the bank. The court declined both applications.

  • Whether the financier unreasonably refused to provide additional finance for the subdivision project
  • Whether the financier engaged in misleading conduct or made fraudulent representations
  • Whether a deed of release signed by the plaintiff was void for undue pressure (effectively, economic duress)
  • Whether the financier validly exercised a power of attorney under the mortgage to execute a new mortgage over specific allotments after a statutory notice of default had been issued
  • Whether the registration of that mortgage after the section 57 notice but before transfer of the allotments under power of sale was sufficient to render the subsequent sales effective
  • Whether the mortgagee's sales of the allotments were conducted in good faith
  • Whether the financier's conduct amounted to conversion of the allotments

Decision

Hunter J dismissed all of the plaintiff's claims. The court found that the causes of action either were not made out on the evidence or, to the extent any supporting evidence existed, had been released under the deed of release signed by the plaintiff.

On the procedural applications, the court declined to allow a late amendment to plead fraud, finding the additional material the plaintiff had obtained did not support such a case. The court also declined to permit withdrawal of the claim against the bank given the lateness of the application and the importance of finality. The court noted that the inspection of documents during the hearing had proceeded unsatisfactorily due largely to the plaintiff's failure to inspect subpoenaed documents before the hearing commenced.

On the power of attorney issue, the court held that the plaintiff had granted the financier a power of attorney under the principal mortgage authorising it to execute the additional security. The financier was entitled to exercise that power and did so. Relying on established authority, the court confirmed that registration of the mortgage after the section 57 notice and before the execution of transfers under the power of sale was sufficient to make those sales effective. The court found there was ample opportunity for the plaintiff to have taken steps to prevent the sales if his position had merit.

Orders Made

  • The Further Amended Statement of Claim (Further Amended) was dismissed
  • The plaintiff was ordered to pay the defendants' costs of the proceedings
  • The first defendant's cross-claim was dismissed with no further order as to costs (the cross-claim having been contingent on the deed of release being set aside)

Key Takeaways

  • A power of attorney contained in a mortgage can authorise a mortgagee to execute a further security document over subdivided allotments, and exercise of that power is effective even where the mortgagor protests and refuses to execute the document personally.
  • Under the Real Property Act 1900, registration of a mortgage after the issue of a section 57 default notice but before the execution of transfers under a section 58 power of sale is sufficient to support the validity of those sales, following Midland Montagu Australia Ltd v Cuthbertson (1989) 17 NSWLR 309.
  • Where a plaintiff has signed a deed of release, causes of action that otherwise might have had some evidentiary support may nonetheless be extinguished, provided the deed is not set aside.
  • A late application to amend pleadings to raise a fraud allegation will be refused where the evidence does not support the proposed case and granting the amendment would require recalling witnesses without any utility.
  • In dismissing the claim in its entirety, the court proceeded directly to judgment on liability without requiring the parties to address quantum, given no finding was made in the plaintiff's favour.

Legislation and Cases Referenced

Legislation
- Real Property Act 1900 (NSW), ss 57 and 58

Cases
- Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
- Westpac Banking Corporation v Cockerill (1998) 152 ALR 267
- Equiticorp Finance Limited (In Liq.) v Bank of New Zealand (1992) 29 NSWLR 260
- Midland Montagu Australia Ltd v Cuthbertson (1989) 17 NSWLR 309
- Mathieson v Mercantile Finance & Agency Co Ltd (1891) 17 VLR 271 (Full Court of Victoria)