Casmif Pty Ltd v Farrow Mortgage Services Pty Ltd & Ors [1993] QSC 347

(,_ ( ( ·~"~[. State Reporting Bureau TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION KIEFEL J No 1136 of 1990 CASMIF PTY LTD and FARROW MORTGAGE SERVICES PTY LTD and ROBERT JOHN FRED BURNS and GREGORY MICHAEL MOLONEY No 628 of 1992 FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) ACN 006 125 757 and COLIN MICHAEL MciLVEEN and BERVERLEY ANNE MciLVEEN BRISBANE .. DATE 08/10/93 .. JUDGMENT 1 REViSED COPIES IS5UE:.D Slate ReporUilg Bureau D~!G .2f_, I IO 1q ~ Plaintiff First Defendant Second Defendants Plaintiff First Defendant Second Defendant 4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: (07) 227 4360. Facsimile: (07) 227 5532 -- 1 of 5 -- 081093 gc (Kiefel J) ·HER HONOUR: 'The defendants in action 628·of 1992-propose amendments to their defence to set up pleas of illegality. Such· amendments ·are·very late and are not, I consider, within the terms of the leave that I granted. I propose, however, to deal with them as if -they were pleaded as-on an application to 10 strike out and to deal with action 1136 of 1990 as if application had been made by the plaintiff in similar terms. The application has been effected by written submissions by consent of the parties. Indeed, the questions which arise are of the~r nature able to be-so dealt with. For that reason, and because of the number of authorities on the,same questions, I consider it appropriate to deal with the c questions summarily. 30Mr Jackson QC has outlined the issues arising from the pleas and Mr Morton has taken no issue with that summary. In essence, it is alleged that Farrow Mortgage Services Pty Ltd, now in liquidation, was the agent of certain b4ilding societies. Mortgage management agreements were entered into 40 between it and the societies whereby the societies purchased mortgages held by Farrow. Casmif Pty Ltd borrowed moneys from Farrow Mortgage Services and the Mcilveens guaranteed those transactions. It is alleged that Farrow was agent at all times for the societies. 50 The illegality is said to arise by reason of various contraventions of sections 52, 55, 56 and 57 of the Victorian Building Societies Act of 1986. The contraventions are listed at p 3 of the applicant's submissions: 60 '•.1 JUDGMENT 2 -~--------~------------------ -- 2 of 5 -- ( ( \ 081093 gc (Kiefel J) ''(a) the secu~ity was not land under Land Act 1958 (Victoria); (b) the societies purchased the mortgages of land not being land unde~ Land Act 1958 (Victoria) and not approved by registrar; (c) the societies acquired mortgages where the total of assets exceeded 6% of the value of total assets · contrary to s 52(1)(k); (d) the societies failed to give Casmif or Mcilveens statements of interest and charges; (e) the societies failed to obtain valuations prior to making relevant loan; (f) the societies lent amount exceeding 66 2/3% of value of land (s 57(1)(b)) without indemnity under s ~7(2); (g) the societies purchased where· they could not have made an advance to Casmi f ( s 57 ( 4)) . " The result is,it is contended,that the guarantees given and now sued upon are unforceable. None of the sections referred to expressly prohibit the making of contracts of loan. The 10 20 sections do, however, contain requirements and impose limits 30 which are said to have been breached or contravened. I cannot infer, however, that the intended consequence of a failure to comply with any of those provisions was that the contract and any agreements guaranteeing performance of them be altogether avoided. The penalty provision (s 133) does not indicate such 40 a consequence. It is notable that where the Act ·does intend a particular consequence to follow a breach (see, for example, s 74 and its requirement of an indemnity) it is able to provide for it. These questions are usually, as McHugh JA pointed out against Hurst v. Vestcorp Ltd (1988) 12 NSWLR so p 394, determined by reference~ to the consequences that would follow holding the contracts void. ·Here the odd result could be that the society could not recover its loan, a windfall for the borrowers and its guarantors and a catastrophe for the JUDGMENT 3 60 -- 3 of 5 -- 081093 gc (Kiefel J) ·members.of the_societies whose interest the Act is no doubt intended to protect (see Bosnjak v. Farrow Mortgage Services Pty _L~d (in liqqidation), a decision in, action 40479 of 1991 in the New South Wales Court of Appeal, 29 June 1993, p 22.) I agree with the conclusion expressed by._ Cripps JA at p 20 (end) with whom other members of the Court agreed. I should add that s 57(1) in providing in terms that a building society ."must not" advance beyond .a certain limit does not .. take the matter any further. That phrase does not, I . . ' . . . consider __ , c_onvert what might be a resultant breach of the se9tion to a comple~.e prohibition on entry into a contract with the consequence that it is to be treated as void. WhetherL in any event, the Court.would permit the resultant contract and guarantees to be enforced since they are associated with the proscribed activity is a matter well canvassed in Bosnyak's case and in the decision of the Full Federal Court in Farrow Mortgage Services Pty Ltd (in 10 20 () c 30 liquidation) y. Edgar (1993) 114 ALR, p 1, and I agree with ( the conclusion Their Honours reach and their respective 40 reasonings. cj Mr Morton sought to distinguish Edgar's case on the basis that the Court did not treat Farrow Mortgage Services as an agent of the society. The conclusion Their Honours reached would 50 not, I think, have been affected by that .. _ In any event, in Bosnjak's case the Court of Appeal did so treat the parties. Mr Jackson of Queens Counsel for Farrow brought to my attention that these cases, and all those which follow them, 60JUDGMENT < 4 -- 4 of 5 -- .( ( ~ 081093 gc (Kiefel J) do not expressly deal with the contraventions listed at (a) and (b) above. I accept his submission that there is no discernible ground of distinction in the application of the principles as to the consequence of the contraventions. Mr Morton, I note, did not suggest to the contrary. The appropriate orders then seem to be those set out in the applicant's written submissions: that is to say, in the Mcilveen action, number 628, pa~agraphs 17C(e) and (f),· and paragraphs 25 through to 37, and the prayer for relief in the counterclaim be struck out and an order that the defendants in that action pay the plaintiff's- costs of and incidental to the application to be struck out; and in the Casmif action, number 1136 of 1990, to refuse an application to amend the statement of claim in those terms and order that the plaintiff pay the defendant's costs of and incidental to the application. With respect to the summons for leave to withdraw, I make an order under Order 14 rule 3B that Messrs Lyons have ceased to be the solicitors acting for Colin .Michael Mcilveen and Beverley Anne Mcilveen in action 628 of 1992 and as the solicitors for Casmif Pty Ltd in action 1136 of 1990. JUDGMENT 5 10 20 30 40 50 60 -- 5 of 5 --