Westpac v Kekatos [2015] NSWSC 1629

A husband and wife were accountants and the wife provided a mortgage over their home for its purchase and also for the purchase of their accountancy business premises. The wife refinanced the loans a number of times, the last refinance being provided by the bank, in addition to a loan to the wife as company director of the trustee of a trust, which she personally guaranteed. The wife and her company defaulted on the loans. The bank obtained default judgment for possession. However the judgment was set aside on the basis of the wife’s affidavit that she did not sign the mortgage. The wife then filed a defence and cross-claim that made no mention of this defence of non est factum and only claimed unjustness and unconscionability on the basis of emotional pressure by her husband.

The bank sought summary judgment for possession of the home on the basis that the mortgage over the home was a refinance. The wife then said that the signatures on the mortgage and the previous mortgage were not hers and she therefore received no benefit from the earlier discharge because that earlier mortgage was itself unenforceable. On this basis, summary judgment was refused. The bank raised the discrepancy between her evidence and defences and the court directed the wife to serve a further affidavit to explain the discrepancy. The wife then accepted that the evidence was false and the signatures on the mortgages were hers. The bank argued that it agreed to default judgment being set aside on the basis of the wife’s false evidence and argued that default judgment be reinstated. Alternatively the bank sought summary judgment because that had been refused on the basis of false evidence. The wife argued that there was no basis for default judgment because she had claimed unjustness in her defence, abandoning her defence of unconsionability. The wife also argued that the consent order setting aside default judgment was a contract and bank would need to bring separate proceedings to set the contract aside and prove by direct evidence that it had relied upon the wife’s innocent misrepresentation. The court rejected this.

Reinstating default judgment

The court found that reliance by the bank in consenting to have default judgment set aside could be inferred. The court found that the communications between the bank and wife’s solicitor were sufficient to prove that the bank had consented on the basis of the wife’s false evidence. The court found that it had an inherent power to reinstate default judgment and did so.

The court said:

Any other course would lead to an undesirable multiplicity of proceedings.
The proposed consent orders were neither an enforceable contract per se, nor based on an enforceable contract. 
In my view, in order to retain the benefit of the setting aside of the default judgment, the [wife]was, in effect, obliged to explain why she swore two affidavits a year apart (26 March 2014 and 26 March 2015) denying that she executed the [bank] mortgage, and then swore an inconsistent affidavit (3 September 2015) admitting that she had executed the [bank]mortgage. Further, the [wife]was also, in my view, required to provide sworn evidence of a bona fide defence on the merits, that being the usual requirement for setting aside default judgment.

The court said:

The [wife] was prepared to swear two affidavits, a year apart, in which she denied executing the [bank] mortgage, although she subsequently admitted that this denial was not true. How she came to swear two affidavits which are relevantly inconsistent with the truth remains unexplained.
The [wife’s]reiteration of her sworn evidence a year later means that the earlier affidavit cannot fairly be regarded as a momentary aberration.
The present application is not principally an application for summary judgment: it is an application for a default judgment which was set aside by mistake, or on a false basis, to be reinstated. It was incumbent on the [wife] to show that she is entitled to resist its reinstatement by demonstrating a bona fide defence on the merits and explaining her affidavits. Her defence under the Contracts Review Act is inconsistent with her evidence that she did not sign the document (and that therefore the signature, although apparently hers, was forged). The affidavit she filed in purported compliance with the directions of [the court] did not explain how this had happened. I am not satisfied that the defence has been raised bona fide. Moreover, an unjustness defence will not usually give rise to relief where the [wife] has obtained an incontrovertible benefit from a loan, since such enrichment is generally unjust. In the present case, the bank has established that, at least in respect of the refinancing of the loans, the [wife] obtained a benefit. The [wife] did not challenge this evidence.

The court found that the bank did not have to discharge the onus on an applicant for summary judgment but found that it was entitled to summary judgment in any case. The court found that the wife obtained the benefit of at least the monies used to discharge the earlier mortgage, that she executed the mortgages, that she was an experienced accountant, and that her affidavit in which she denied signing the mortgage was inconsistent with her proposed defence of unjustness. In her affidavit, the wife gave evidence that supported three possible defences that were inconsistent, namely that she did not sign the mortgage, that if she did, she did not know what she was signing and that if she did, it was because she was forced to by her husband. The court found the its earlier refusal of summary judgment did not provide any basis for now refusing summary judgment given the only reason it had been refused was on the basis of the wife’s false evidence.

The court said:

There is considerable support in the authorities for the proposition that a contract will not generally be found to be unjust in so far as it confers a benefit on the borrower by way of the discharge of an antecedent debt which was not in itself unjust.

The court said:

The [wife] admitted the incontrovertible fact that she obtained the benefit of the discharge of the [earlier] mortgage. She has adduced no evidence that indicates that she is vulnerable or unaware of the commitments she was undertaking. The defendant has not provided any basis for a conclusion that the detriment to [the bank] as a result of the delay between the entry of default judgment and her correction of the record can be undone otherwise than by either the reinstatement of at least part of the default judgment or an order for summary judgment.
The court reinstated default judgment, namely possession and judgment for $2.5m.

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