- Unreported Judgment
- Appeal Determined (QCA)
SUPREME COURT OF QUEENSLAND
Palermo v National Australia Bank Ltd  QCA 321
Appeal No 3190 of 2017
DC No 4267 of 2014
Court of Appeal
General Civil Appeal
District Court at Brisbane – Unreported, 3 March 2017 (Andrews SC DCJ)
22 December 2017
11 September 2017
Fraser and Morrison JJA and Mullins J
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGMENT – where the appellant was one of two defendants to a claim by the respondent bank – where the claim related to three securities held by the bank over the appellant’s property, co-owned with the second defendant, her husband – where the respondent applied for summary judgment – where the appellant did not appear at the summary judgment hearing – where the appellant had filed an inadequate defence that asserted that the bank had been unconscionable in the execution of the mortgages and guarantees – where the appellant had failed to amend her defence when directed and had not filed an application in response to the summary judgment application – whether the defence had real prospects of success – whether there is a need for a trial – whether the learned primary judge was correct to order summary judgment
Uniform Civil Procedure Rules 1999 (Qld), r 292
Coulton v Holcombe (1986) 162 CLR 1;  HCA 33, cited
Deputy Commissioner of Taxation v Salcedo  2 Qd R 232;  QCA 227, applied
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87;  HCA 25, considered
National Australia Bank Ltd v Palermo  QCA 118, related
The appellant appeared on her own behalf with J Palermo assisting
M Trim for the respondent
The appellant appeared on her own behalf with J Palermo assisting
Gadens Lawyers for the respondent
- FRASER JA: I agree with the reasons for judgment of Morrison JA and the orders proposed by his Honour.
- MORRISON JA: The appellant, Mrs Frances Palermo, and her husband Frank Palermo were the only two shareholders of Palermo Seafoods Pty Ltd, Mrs Palermo holding 50 of the 150 shares. Frank Palermo and their son Joe Palermo, were the only directors.
- Prior to July 2012 Palermo Seafoods had loan facilities from Suncorp, secured by (amongst other things) a mortgage granted by Mr and Mrs Palermo over their property at 56 Midway Terrace, Pacific Pines on the Gold Coast.
- In July 2012 Palermo Seafood sought new finance facilities from the respondent, National Australia Bank (NAB), to replace those of Suncorp. NAB offered an overdraft of $40,000 plus a Market Rate Facility of $450,000, each of which was accepted by Palermo Seafoods. As security for the loans, the directors (Frank and Joe Palermo) were required to give guarantees, and Mr and Mrs Palermo were required to give a mortgage over their property, as well as Mrs Palermo giving her own guarantee.
- Further loans were made, and two more guarantees were given by each of Mr and Mrs Palermo, and Joe Palermo.
- Palermo Seafoods defaulted, the loans were called up and demand made under the guarantees and the mortgage. Nothing was paid. Mr Frank Palermo became a bankrupt. The NAB were given leave to proceed against Mr Palermo and eventually it sought orders to recover possession of the mortgaged property, as well as judgments for the outstanding debt. By then Mr Palermo’s defence had been struck out.
- The NAB applied for summary judgment under r 292 of the Uniform Civil Procedure Rules 1999 (Qld). Mr Palermo’s trustee in bankruptcy did not oppose that relief. Mr Palermo appeared on his own behalf but not for Mrs Palermo. The learned primary judge granted judgment, holding that Mrs Palermo had no demonstrated defence. The relevant orders required Mrs Palermo and her husband to deliver possession of the property.
- Mrs Palermo appeals against the orders granting summary judgment. The appeal concerns allegations of unconscionable conduct by NAB at the time the mortgage was granted, including claims that Mrs Palermo was not aware of her obligations arising under the mortgage.
Sequence of events
- Essential to a consideration of the issues on appeal is the precise sequence of events in the lending to Palermo Seafoods by the NAB, and the granting of security by Mr and Mrs Palermo. Though the securities granted by Mrs Palermo included three guarantees, the main focus was a mortgage granted by Mr and Mrs Palermo over their residential property, being registered mortgage No. 714667789.
- On appeal the submissions for Mrs Palermo accepted that Palermo Seafoods’ existing loan facilities with Suncorp were taken over by those from the NAB. That was evidently a reference to what the NAB pleaded in paragraph 2(b)(ii)(A) and (C) of the Reply, namely that the NAB loans were to refinance facilities that Palermo Seafoods previously held with Suncorp, secured over the same property by registered mortgage No. 712193170, granted by Mr and Mrs Palermo.
First loan - overdraft
- The first advance by the NAB was an overdraft for Palermo Seafoods. The $50,000 overdraft was advanced on 16 July 2012.
First loan – Market Rate Facility
- The first loan by the NAB was offered on 27 July 2012. Palermo Seafoods had already received the overdraft of $50,000 and this was the formal offer for that facility as well as a Market Rate Facility of $450,000.
- The offer stipulated that the required securities included a mortgage over the Palermos land and a guarantee by Mrs Palermo.
- Mr Palermo signed the offer on 27 July 2012. However, the $450,000 loan was not advanced until 30 August 2012.
- The mortgage was signed by Mr and Mrs Palermo as mortgagors on 27 July 2012, the same day as Mr Palermo’s acceptance of the first loan facility. That was 11 days after the overdraft had been made available. The mortgage was executed on 30 July 2012 by the mortgagee (NAB). The mortgage was registered on 11 September 2012.
- The mortgage charges the land with “repayment/payment of all sums of money referred to in item 5”; item 5 refers to the definition of “amount owing” in the Standard Terms Document No 713941669.
- The Standard Terms define “amount owing” as: all amounts … which at that time NAB has advanced or paid, and for which you … may become actually or contingently liable to NAB for any reason including all amounts for which you may become liable to NAB in respect of any … guarantees …”. Of course that refers to amounts owing by Palermo Seafoods.
- The first guarantee was executed on 23 August 2012. Mrs Palermo signed as a guarantor. The signature was witnessed by Mrs Palermo’s solicitor, Mr Sambrook. He certified that he had “explained the effect of this guarantee and indemnity to the guarantor who appeared to be aware of and to understand the nature and effect of obligations of the guarantor under this guarantee and indemnity, and executed it in my presence”.
- Frank Palermo also signed on 23 August 2012, as did the witness to his signature, Mr Sambrook.
- Joe Palermo signed on 31 July 2012, as did his witnessing solicitor, Mr Spamer.
- The guarantee contained warnings on page (i) and page (v), that independent legal advice should be sought and that the guarantee did not have to be signed. It also listed the documents received by the guarantors as including the loan offers and agreements with Palermo Seafoods. It guaranteed payment to a limit of $500,000.
Second advance – Market Rate Facility
- The second advance by the NAB was under the Market Rate Facility. The sum of $450,000 was advanced on 30 August 2012. By that date the total advanced was $500,000.
- The second loan was offered by the NAB on 6 September 2012. Palermo Seafoods sought to borrow $40,000 under a Business Options Interest Only Loan. Its term expired on 31 January 2013.
- It was accepted by Mr Palermo on 11 September 2012. The funds were advanced on about 10 September 2012.
- The terms of the offer included that the mortgage over the land and a guarantee by Mrs Palermo were required security.
- The second guarantee was signed on 11 September 2012. Mrs Palermo signed that day, and the witnessing signature was from a NAB banking officer, Mr Hinchliffe. Mr Palermo signed the same day, as did Joe Palermo.
- The guarantee was in the same form as the first except the limit for repayment was now $540,000. That matched the increase in borrowings by $40,000 under the second loan. The guarantee contained warnings on page (i) and page (v), that independent legal advice should be sought and that the guarantee did not have to be signed. It listed the documents received by the guarantors as including the loan offers and agreements with Palermo Seafoods.
- The third guarantee was dated 25 October 2012. Mrs Palermo signed as guarantor that day, and her signature was witnessed by NAB bank officer Ms Pohlner.
- Like the first and second guarantees, it contained warnings on page (i) and page (v), that independent legal advice should be sought and that the guarantee did not have to be signed and listed the documents received by the guarantors as including the loan offers and agreements with Palermo Seafoods.
- It was in the same form as the first and second guarantees, except that the limit for repayment was now $547,500.
- The third loan was offered on 24 January 2013. Palermo Seafoods sought to borrow $40,000 under a Business Options Interest Only Loan, for a term of six months. It was accepted by Mr Palermo on 31 January 2013. The actual advance was not a new advance, in that the previous loan of $40,000 continued.
- The terms of the offer stipulated that the mortgage and a guarantee by Mrs Palermo were required as security.
Demand for possession and Notice of Exercise of Power of Sale
- The first demand for possession, together with a Notice of Exercise of Power of Sale, was issued on 27 May 2014, and served thereafter. The letter sending the demand:
- listed Palermo Seafoods as borrower, the loans and Mrs Palermo as guarantor;
- enclosed a Demand for Possession and a Notice of Exercise of Power of Sale; and
- the Notice of Exercise of Power of Sale listed the guarantee dated 25 October 2012 given to “secure advances and accommodation made and afforded by the mortgagee to Palermo Seafoods …”.
Steps in the District Court proceedings
- The statement of claim was filed on 30 October 2014. It pleaded that the mortgage had been granted, and that it secured money due under the third guarantee given on 25 October 2012, there was default and the NAB was entitled to possession.
- On 28 November 2014 the Palermos’ defence was filed by solicitors then acting for them. It admitted that the NAB was registered mortgagee, but pleaded defences against the mortgage and guarantee, including that: (i) the Palermos did not intend to create a mortgage; (ii) the NAB acted unconscionably in procuring the mortgage and guarantee, because the Palermos were under special disabilities, including their age, English not being their first language, their lack of education, lack of knowledge of the legal system, and incapacity to understand the meaning and effect of the mortgage and guarantee; (iii) the Bank’s manager knew or ought to have known of those disabilities, and did not give them an explanation nor a chance to get legal advice.
- On 16 December 2014 the NAB’s Reply was filed. It contested the allegations of unconscionable conduct, pleading that: (i) the mortgage and guarantee were entered into voluntarily; (ii) the Palermos understood that the mortgage and guarantee secured the loans because, inter alia, those loans and securities were given to take out similar loans and a mortgage was previously given to Suncorp over the same land; (iii) the Palermos were experienced in granting mortgages as they had previously granted mortgages over the same property to Suncorp and the NAB, and over other property in Queensland and Victoria to the NAB; (iv) they were given a chance to get legal advice, and understood English without difficulty; (v) they were experienced in giving guarantees as security for loans, having done so on 12 separate occasions between 1997 and 2007; (vi) they were given an explanation of the nature and effect of the guarantees, and a chance to seek legal advice; and (vii) on the guarantee given on 23 August 2012 the Palermos were given advice by their own solicitor.
- On 20 March 2015 the Palermos’ solicitor served a list of documents. On 15 September 2015 those solicitors were granted leave to withdraw as solicitors for the Palermos. Thereafter the Palermos acted on their own behalf.
- On 10 November 2015 the NAB’s supplementary list of documents was delivered.
- On 3 December 2015 the NAB sought directions which included provision of witness statements by the defence, to be provided by April 2016. No response was made. Then, on January 2016 the NAB sent a UCPR r 444 letter seeking the same directions. Again there was no response.
Bankruptcy of Frank Palermo
- Mr Frank Palermo became bankrupt on 25 January 2016. On 16 March 2016 the NAB sent a letter to Mrs Palermo, asking what she was doing in relation to the defence. There was no response.
- In July 2016, the Federal Circuit Court granted leave to the NAB to continue their proceedings against Mr Palermo despite his bankruptcy.
Service of orders by Bowskill DCJ
- On 15 September 2016 Bowskill DCJ made orders: (i) granting leave to proceed against Frank Palermo; (ii) adding the trustee in bankruptcy as a party; (iii) striking out Frank Palermo’s defence; and (iv) directing when amendments to the pleadings had to be made. The orders of Bowskill DCJ were served on Mrs Palermo on 28 September 2016. The orders required that Mrs Palermo file any amended defence by 21 October 2016.
- Mr Palermo’s trustee in bankruptcy was joined to the proceedings but indicated he would not defend the proceedings.
First demand under the guarantees
- The first demand under the guarantees was made on 28 September 2016. It noted that Palermo Seafoods was the borrower, the two loans and that Mrs Palermo was guarantor. It demanded $707,699.57 under the “guarantee and indemnity dated 23 August 2012”. This was the first guarantee, which, as noted above, was properly witnessed and explained to Mrs Palermo by her own solicitor, Mr Sambrook.
Second demand under the guarantees
- The second demand under the guarantees was made on 28 September 2016. It listed Palermo Seafoods as the borrower, the three loans and that Mrs Palermo was guarantor. It also demanded $814,883.26 under the “guarantee and indemnity dated 11 September 2012” (the second guarantee).
- On 30 September 2016 the NAB filed an amended statement of claim. It added the following: (i) reliance upon two other guarantees, the first guarantee dated 23 August 2012 and the second guarantee dated 11 September 2012; (ii) the second loan of $40,000 made on 6 September 2012; (iii) that the first guarantee was the subject of independent advice by the Palermos’ own solicitor; (iv) the demand under the first and second guarantees and the failure to meet the demands; (v) that those breaches amounted to default under the mortgage; (vi) Frank Palermo’s bankruptcy; and (vii) the entitlement to possession and the amounts due under the guarantees.
- The Palermos did not file an amended defence.
Mrs Palermo’s affidavit
- Mrs Palermo swore an affidavit for use in the District Court. It was sworn on 12 October 2016 and filed on 18 October 2016. It sought that she be removed from the proceedings because she did not sign the loan documents.
First letter to Mrs Palermo
- On 4 November 2016 the solicitors for the NAB sent a letter to Mrs Palermo. That asserted that the defence was inadequate and that an application for summary judgment was to be made. The letter was sent by email and express post. Points made were: (i) NAB were going to enforce the mortgage; (ii) new parts of the amended statement of claim had not been defended, including the facts relating to the 1st and 2nd guarantees and the entitlement to possession; (iii) no amended defence had been filed; (iv) the affidavit by Mrs Palermo was not a defence; (v) she was deemed to have admitted the new parts of the pleading; (vi) NAB was going to apply for judgment; and (vii) she should get legal advice.
- There was no response.
Second letter to Mrs Palermo
- The NAB’s solicitors sent a second letter to Mrs Palermo on 6 February 2017, again by email and express post. It advised that an application for judgment was to be made. It also suggested that Mrs Palermo obtain legal advice. Once again there was no response.
Application for summary judgment
- On 13 February 2017, an application for summary judgment was filed. Despite being served with the application material on 17 February, Mrs Palermo did not file any material in response to the application. Mr Palermo attended the hearing, but Mrs Palermo did not.
- The material established clearly that Mrs Palermo had been duly served.
- The transcript reveals that Mr Palermo did not appear on Mrs Palermo’s behalf. At the start he was asked who he appeared for:
“HIS HONOUR: … Mr Palermo, you wish to appear for yourself?
RESPONDENT: Yes, your Honour.
HIS HONOUR: You’re not seeking to appear for anyone else at the moment, just yourself?
HIS HONOUR: And I’m just going to confirm, you’re the first defendant?
RESPONDENT: That’s correct.”
- The only other person there on the respondents’ side was a Mr Fern, acting as McKenzie friend for Mr Palermo alone.
- Shortly thereafter, but still before any substantive argument was entertained, the learned primary judge identified that there was a “party missing”, namely Mrs Palermo, and that therefore her name should be called outside court. That was done and the Bailiff announced that there was no appearance.
- Thereafter the learned primary judge and Counsel for the NAB proceeded on the basis that Mrs Palermo was an “unrepresented litigant”. In my view, they were right to do so.
- Notwithstanding that, Mr Palermo made submissions that Mrs Palermo should not have been on the mortgage, that she did not sign the loan documents, and that she did not know what she was signing. Then Mr Palermo couched it as “Why did I let my wife sign those papers when she had nothing to do with the business?”
- Summary judgment for NAB was ordered on 3 March 2017.
- Mr Palermo appealed against that judgment in so far as it ordered that the NAB recover possession of the property against him. The NAB brought an application in this Court to have his appeal dismissed for lack of standing as Mr Palermo was bankrupt. On 6 June 2017 that application succeeded and Mr Palermo’s appeal was dismissed.
Mrs Palermo’s appeal
- Mrs Palermo’s appeal against the order for summary judgment continued and was heard before this Court at an oral hearing. Mrs Palermo appeared in person with her son’s assistance.
Submissions on appeal
- The grounds of appeal and submissions were disjointed, no doubt because Mrs Palermo was unrepresented, and appeared only with her son’s assistance. The primary submissions were that NAB engaged in unconscionable conduct and the orders for summary judgment should be set aside due to non-disclosure and lack of duty of care. I have attempted to organise the arguments below:
- Mrs Palermo did not have an active role in Palermo Seafoods; she was not involved in the business and knew nothing of its financial status and the securities;
- Mrs Palermo was not given an opportunity to obtain independent legal advice before she signed the mortgage; she did not understand the transaction and was not assisted to understand the transaction; and
- the loan agreement is not valid because the NAB used incorrect lending practices and did not fulfil its obligations under the law and terms of the loan document.
- The particulars of these arguments changed throughout the hearing before this Court, but Mrs Palermo’s key contention was that she did not understand the mortgage or guarantees and the documents are therefore not binding. This is consistent with Mrs Palermo’s pleaded case that NAB engaged in unconscionable conduct by failing to address her special disabilities, which prevented her from understanding the transactions.
- The bulk of the NAB’s submissions were similar to those advanced below. First, Mrs Palermo had made a number of admissions (express and deemed on the pleadings) that made it difficult for her defence to be sustainable. Secondly, there was no affidavit establishing the basis of the defence. The NAB submitted at the application hearing that Mrs Palermo failed to establish that she was under a special disability and that there was no inequality between the parties.
- Thirdly, Mrs Palermo should be prevented from raising issues not raised in the proceedings below because of the rule in Coulton v Holcombe, and other High Court authorities. Fourthly, Mrs Palermo’s submissions did not identify an issue or error which would justify allowing the appeal.
Relevant legal principles
Raising a point not raised below
- Ordinarily, an appellate court is not permitted to consider evidence and issues not raised by the parties in the primary proceeding. The rationale is to prevent unfairness to respondents where an appellant is allowed to depart from the case conducted at trial. The majority in Coulton v Holcombe said:
“The first respondents must be bound by the conduct of their case at the trial. It would not be fair to the appellants to subject them at this stage of the proceedings to what is virtually a new trial on an entirely different issue to that which has been litigated. In the pursuit of such a course, the interests of expedition, finality and justice are denied.”
- It may be thought that the interests of finality of litigation are of particular significance here, given that Mrs Palermo failed to appear at the hearing below. Consequentially, the current case is quite different from Coulton, where the appeal was brought after a trial, and all issues were to be determined by way of re-hearing.
- UCPR Rule 292 allows a plaintiff to apply for summary judgment, which may be given if the court is satisfied:
- the defendant has no real prospect of successfully defending all or a part of the plaintiff's claim; and
- there is no need for a trial of the claim or the part of the claim.
- The primary consideration when applying the UCPR is the objective in r 5. As McMurdo P said in Deputy Commissioner of Taxation v Salcedo:
“UCPR r 292 and r 293 should be applied using their clear and unambiguous language and keeping in mind the purpose of the UCPR to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.”
- That purpose must be achieved in support of the well-established principle that a case for summary judgment is one where it is clear that a trial is unnecessary, and that it is better to end the proceedings, than to proceed to a contest. Consequently, it has been accepted that summary judgment for a plaintiff should be granted where it is clear that any available defence has no prospects of success, in the sense that there is no real question to be tried, or because a defence would be bound to fail. The standard against which the defence must be measured is whether it has a real, as opposed to fanciful prospect of success. This approach is consistent with the UK legislation on which the rule was modelled.
- Turning to how that assessment is made, Fancourt v Mercantile Credits Ltd is authority for the proposition that the court may draw inferences from the available material and surrounding circumstances. As Williams JA said in Salcedo, the principles in Fancourt are not incompatible with r 292, so long as the rule is applied in the modern way. That is, in the purposeful way discussed above.
The proceedings before the learned primary judge
- As a consequence of the pleadings, Mrs Palermo was deemed to have made a number of admissions at the time of the application for summary judgment. Those admissions formed the basis of the primary judge’s conclusion that summary judgment in favour of NAB should be granted. The learned primary judge noted that the state of the pleadings meant that Mrs Palermo admitted the existence of the loans, mortgage and guarantees, and was deemed to have admitted that she received an explanation of the terms of, at least, the first guarantee.
- The defence below was that NAB engaged in unconscionable conduct in breach of s 20 of the Australian Consumer Law and that the Palermo’s were entitled to an order declaring the securities void under sections 257(1) and 243(a) of the Australian Consumer Law. The key particulars were that the Palermo’s suffered a special disadvantage due to their age, limited education and English skills, and a lack of understanding of the legal system and the securities and banking process generally.
- On 15 September 2016, Bowskill DCJ ordered that an amended statement of claim and defence be filed. The NAB filed an amended statement of claim on 30 September 2016. The amended defence was due on 21 October 2016, but nothing was filed. The amended statement of claim included making Mr Palermo’s trustee in bankruptcy a party, and pleading the giving of the first and second guarantees, and default under them.
- The learned primary judge’s reasons were brief, but made the following observations:
- the allegations made by Mrs Palermo in the original defence still applied, insofar as they were relevant to the new, amended statement of claim;
- the unconscionable conduct alleged by Mrs Palermo was not established by any affidavit material;
- Mrs Palermo admitted the existence of the guarantees and the signatures on the first guarantee (23 August 2012) were witnessed by a solicitor, Mr Sambrook, who gave an independent legal advice certificate; and
- Mrs Palermo also admitted the existence of the mortgage and its terms.
- The learned primary judge’s reasons must be seen in light of the fact that: (i) Mrs Palermo did not appear at the hearing (in person or by any representative), notwithstanding that she had been duly served with all the material; (ii) there was no affidavit filed to support her pleaded defence; (iii) no arguments were addressed to the court on her behalf as to a reason why judgment should not follow.
- It is therefore not surprising that the learned primary judge concluded that Mrs Palermo’s material was incapable of proving the particulars alleged by her defence when determining whether the alleged unconscionable conduct was a defence with prospects of success.
- There are a number of difficulties confronting the appeal.
- First, no error in the approach of the learned primary judge was identified. Mrs Palermo’s contentions have to be understood in the context that notwithstanding that she had been served with the material upon which the summary judgment application was based, she did not appear on the hearing and filed no relevant affidavit. Mr Palermo was quite clear that he was not representing her. Consequently nothing was advanced below to support an argument that the defence had substance or that judgment should not follow.
- Further, Mr Palermo’s defence had been struck out. Therefore there was no case mounted that his execution of the mortgage or guarantees was affected by any relevant disabilities leading to unconscionable conduct.
- Before this Court Joe Palermo sought to say that Mrs Palermo had not realised that she was a party to the District Court proceedings. That suggestion should, in my view, be dismissed. She was a named party to the proceeding, sued on the basis that she had signed the mortgage and the three guarantees upon which reliance was placed. A defence was filed on her behalf at a time when experienced litigation solicitors were acting for her. The NAB sent her letters making demands, and letters expressly dealing with the foreshadowed application for judgment: paragraphs  and  above. Her outline on the appeal said that “I have always, since gaining independent legal advice, notified the plaintiff and the Courts and also sent written statements explaining my position…”. That legal advice was accepted to be from the firm of solicitors acting for Mrs Palermo when the defence was filed. Finally, as noted in paragraph  above, Mrs Palermo filed an affidavit in the District Court proceeding, in which she asked that she “be removed as a party to these proceedings”.
- A second proposition made was that Mrs Palermo did not realise that she signed a mortgage over the property. Once again that is not a matter which was the subject of sworn evidence below, or before this Court. For that reason alone it should also be rejected, but there are other considerations. One is that it was accepted that the NAB loans were to take out the loans which Palermo Seafoods previously had with Suncorp. And, it was accepted that part of those arrangements was that a mortgage over the same property had been given by the Palermos to Suncorp. The inference to be drawn is that at the time she executed the NAB’s mortgage Mrs Palermo knew what a mortgage was and that it would secure borrowings by Palermo Seafoods.
A new issue?
- However, an issue raised on appeal by this Court was the significance, if any, of the fact that the mortgage was signed before independent advice was obtained in respect of the first guarantee. For the reasons given above the issue was not explored at the hearing of the summary judgment application.
- The mortgage was executed on 27 July 2012, and on the face of the material that was before the learned primary judge, Mrs Palermo obtained independent legal advice in relation to some of her obligations. The mortgage was one of three co-existing securities: the charge over Palermo Seafoods’ property, the guarantees and the mortgage.
- The first guarantee was executed on 23 August 2012, a month after the mortgage was executed. The Palermos’ solicitor witnessed Mrs Palermo’s signature, and gave a certificate that he had he had “explained the effect of this guarantee and indemnity to the guarantor who appeared to be aware of and to understand the nature and effect of obligations of the guarantor under this guarantee and indemnity and executed it in my presence”.
- For the purposes of considering this issue let it be assumed that there was no explanation to Mrs Palermo of the nature and effect of her obligations under the mortgage. For several reasons I am not persuaded that circumstance would avail Mrs Palermo in terms of providing a viable defence to the action on the mortgage.
- First, Mrs Palermo did not appear at the hearing below or file any affidavit material that would support a defence based on the absence of such an explanation, nor anything to support the alleged disabilities that led to the unconscionable conduct defence.
- Secondly, the only advance made before the guarantee was signed was the overdraft of $40,000. The Market Rate Facility of $450,000 was not advanced until seven days after the guarantee was signed. At the same time she had the benefit of her own solicitor giving her an explanation of the nature and effect of the guarantee and her obligations under it. Given that the NAB loans and the required security were part of the steps to have the Suncorp mortgage released, it can, in my view, be inferred that: (i) the Suncorp mortgage was not released until Suncorp’s finance facilities were paid out, probably on the $450,0000 advance; a working overdraft of $40,000 seems unlikely to have been the source of that release; (ii) at that time Mrs Palermo’s solicitor gave her an independent explanation as to the nature and effect of her obligations under the guarantee; (iii) that explanation would have included the nature and effect of her obligations under the guarantee in terms of the mortgage security. Those circumstances do not suggest unconscionable conduct on the part of the NAB, which remains registered on the title as mortgagee.
- Thirdly, the state of the pleadings meant that there were relevant admissions exposing Mrs Palermo to liability. I have endeavoured to summarise them:
- the NAB was mortgagee under a mortgage registered over the Palermos’ property;
- the mortgage was subject to the terms in the Standard Terms and Conditions document;
- the mortgage secured the money due under the first guarantee (23 August 2012) and the second guarantee (11 September 2012);
- the first loans, and their terms;
- Palermo Seafoods had breached the first loans by not paying the amount demanded;
- the second loan;
- the third loan;
- Palermo Seafoods had breached the third loan by not paying the amount demanded;
- the first guarantee was duly given on 23 August 2012, signed in the presence of the Palermos’ own solicitor, who explained the nature and effect of their obligations under it; and that it guaranteed payment by Palermo Seafoods to a limit of $500,000 plus additional amounts;
- the second guarantee was duly given on 11 September 2012; it guaranteed payment by Palermo Seafoods to a limit of $540,000 plus additional amounts;
- demand was made on Mrs Palermo under the first guarantee on 28 September 2016;
- Mrs Palermo was in breach of the first guarantee;
- demand was made on Mrs Palermo under the second guarantee on 28 September 2016;
- Mrs Palermo was in breach of the second guarantee;
- those breaches had the result that Mrs Palermo was in default of her obligations under the mortgage; and
- the NAB was therefore entitled to possession of the property as against Mrs Palermo, under the first or second guarantee, and the mortgage.
- Fourthly, in so far as the same defences had been raised by Mr Palermo, they had been struck out and the trustee in bankruptcy was not prepared to litigate them. Therefore the co-mortgagor was no longer alleging that the mortgage was executed under circumstances of disability, or that the NAB acted unconscionably. The mortgage granted by Mr Palermo was granted when he was a joint tenant of the property. The registered mortgage was as to the whole of the property, not a divisible portion. Once Mr Palermo became a bankrupt the joint tenancy was severed and thereafter the Trustee and Mrs Palermo held the property as tenants in common, in equity until the trustee became registered on the title. But that could not convert a registered mortgage over the whole title into something else.
Conclusion and disposition of the appeal
- For the reasons above it cannot be established that the learned primary judge was in error to order summary judgment. I would dismiss the appeal. I propose the following orders:
- Appeal dismissed.
- The appellant pay the respondent’s costs of the appeal.
- MULLINS J: I agree with Morrison JA.
 Appeal Book (AB) 34, 148; paragraph 3 of the Statement of Claim (AB 702), paragraph 2(a) of the defence (AB 711).
 Appeal transcript T1-14 line 41, 1-17 lines 27-37.
 AB 718.
 Affidavit of Hollas, paragraph 20, AB 412.
 AB 53, 80; sent under a letter dated 24 July 2012: AB 52.
 AB 56.
 AB 82.
 Affidavit of Hollas, paragraph 20, AB 412.
 AB 34.
 AB 148. This was 19 days after the first guarantee was signed.
 Those Standard Terms appear at AB 115.
 AB 134.
 AB 568.
 AB 574.
 AB 573.
 AB 575. Mr Spamer was from the same firm as Mr Sambrook.
 AB 572.
 Affidavit of Hollas, paragraph 20, AB 412.
 AB 505. Affidavit of Hollas paragraphs 21-25: AB 413.
 AB 505. Offer signed on 11 September 2012: AB 533.
 AB 535.
 Affidavit of Hollas paragraph 24, AB 413.
 AB 507.
 AB 585.
 Affidavit of Hollas paragraph 30, AB 413.
 AB 590. The evidence shows he was the NAB lending manager.
 AB 588.
 AB 585, 591.
 AB 589.
 AB 35, 602.
 AB 41. The NAB Reply pleaded that she was a NAB “Bank Officer”: AB 724.
 AB 41.
 AB 39.
 AB 605.
 AB 112, 536. Sent under a letter dated 23 January 2013.
 AB 114, 567.
 Affidavit of Hollas paragraph 28, AB 413.
 AB 86, 539.
 AB 145.
 AB 143.
 AB 700.
 Particularly paragraphs 3, 6, 21 and 29.
 AB 711.
 Particularly paragraphs 2, 5, 11 and 18.
 AB 717.
 Particularly paragraphs 2, 5, 11 and 18.
 AB 213, 215.
 AB 220.
 AB 212.
 AB 162.
 AB 160.
 AB 165.
 AB 167.
 AB 765.
 Paragraphs 6, 12A and 12B, 20A-20D, 25A-25D, 28A, 30A, 31.
 AB 247.
 AB 389, affidavit of Ms Ogden, Ex JSO-16.
 AB 406, affidavit of Ms Ogden, Ex JSO-17.
 AB 2 lines 30-42.
 AB 2 line 44, AB 5 lines 35-45, AB 7 line 3.
 AB 3 lines 8-31.
 AB 12 lines 22-27.
 AB 8 lines 14-15, 26-28.
 AB 8 lines 42-44.
 AB 15 lines 11-15, 25.
 AB 15 lines 34-35.
 Order No 2, AB 798.
 National Australia Bank Ltd v Palermo  QCA 118.
 Coulton v Holcombe (1986) 162 CLR 1, see also Water Board v Moustakas (1998) 180 CLR 491 and D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1.
 Coulton v Holcombe (1986) 162 CLR 1, 11.
  2 Qd R 232.
 See also Bolton Properties P/L v J K Investments (Australia) P/L  2 Qd R 202;  QCA 135 at .
 Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq)  1 Qd R 259 at 264-265.
 See part 24 of the Civil Procedure Rules (UK).
 (1983) 154 CLR 87;  HCA 24.
 Salcedo .
 The affidavit of 18 October 2016 said nothing by way of a defence.
 Appeal transcript T1-3 to T1-7.
 Here I set to one side the NAB’s pleaded case about the way in which the documents were executed and what was said or done on each occasion. None of that was the subject of affidavits by the NAB, no doubt because nothing relevant had been sworn by Mrs Palermo.
 Obviously granted by Palermo Seafoods.
 One by her, one by Frank Palermo and one by Joe Palermo.
 Independent of the NAB.
 Amended Statement of Claim paragraph 3; Defence paragraph 2(a).
 Amended Statement of Claim paragraphs 4 and 5; Defence paragraphs 3(a) and 4.
 Amended Statement of Claim paragraph 6; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraphs 7-10; Defence paragraphs 1 and 6.
 Amended Statement of Claim paragraph 12; Defence paragraph 1.
 Amended Statement of Claim paragraphs 12A and 12B; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraphs 13-15; Defence paragraphs 1 and 8.
 Amended Statement of Claim paragraphs 16, 18 and 20; Defence paragraph 1.
 Amended Statement of Claim paragraphs 20A – 20C; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 20D; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 25A; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 25B; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 25C; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 25D; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 28A; not pleaded to, therefore deemed admitted.
 Amended Statement of Claim paragraph 31(b) and (c); not pleaded to, therefore deemed admitted.
 Romeo v The Trustee Company  NSWCA 62, ; Sistrom v Urh (1992) 40 FCR 550; Lawrence & Hansen Group Pty Ltd v Pugliese  FCA 1278 at .
- Published Case Name:
Palermo v National Australia Bank Ltd
- Shortened Case Name:
Palermo v National Australia Bank Ltd
 QCA 321
Fraser JA, Morrison JA, Mullins J
22 Dec 2017
|Event||Citation or File||Date||Notes|
|Primary Judgment||DC4267/14 (No Citation)||03 Mar 2017||(Andrews SC DCJ)|
|Appeal Determined (QCA)|| QCA 321||22 Dec 2017||-|