ANZ Banking Group Limited v Masood Falamaki

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13124/00 ANZ Banking Group Limited v Masood Falamaki

JUDGMENT 1 DOWD J: This is an application by Dr Falamaki to set aside a judgment obtained by the Australia and New Zealand Banking Group Limited ("the Bank") for possession of property in the name of Dr Falamaki and for a certain debt. 2 Before dealing with the substantive matter, Dr Falamaki has submitted to the court that this application should be heard before a jury and as such he relies on, firstly, the Magna Carta, the Petition of Right and the Common Law Procedure Act No 49 1900. 3 The entitlement to a jury trial is governed by the Jury Act 1977 (NSW) which repealed the previous Acts relating to juries. That Act entitles the matter to be heard by a jury in certain circumstances after the pleadings in the proceedings are closed. This is a procedural matter for the setting aside of a judgment. Where the judgment has been entered on default, there is no entitlement under the Jury Act for a jury to hear the matter and at the beginning of this application, no such request was made.

Facts 4 In July 1995 the Bank agreed to advance to Dr Falamaki the sum of $100,000 to acquire land and to construct a dwelling thereon. Dr Falamaki acquired the subject premises known as 11 Arter Avenue, Figtree Heights and executed a mortgage which was registered on the subject title to the Bank in respect of that advance on 11 August 1995. The sum of $51,300 was so advanced for that purchase. 5 Subsequently, further arrangements were made between Dr Falamaki and the Bank on 11 December 1996 for the Bank to advance, in addition to the sum of $51,300 and interest that had accrued thereon, a further $100,000 under what the Bank has entitled "a Home Loan Agreement". Advances under that home loan agreement were made from time to time by the Bank on proof of expenditure and construction work on the subject property by Dr Falamaki who was operating under a Contractor Licence, as an owner builder. A further account described by the Bank as an "Access Account" was opened through which, from time to time, further sums were advanced to Dr Falamaki. 6 Dr Falamaki is a director of an organization called the Illawarra Building Research Centre. He is a Doctor of Engineering with some 24 years of international practice experience and 17 years of academic experience with qualifications in structural engineering, including post-doctoral research work in Australia. 7 As a result of a dispute with the relevant local government authority, Wollongong City Council, proceedings were taken in the Land and Environment Court which resulted in orders being made on 17 February 1999 in the following terms: "1. The building partly constructed on the property known as 11 Arter Avenue, Figtree Heights, be demolished and the land restored to its pre-development condition. 2. Order 1 is suspended and to have no effect until further order provided the respondent complies with the following directions and orders: i) Working drawings for the floor slabs of levels 1 and 2 confined within the retaining walls of the structure to be lodged with Wollongong City Council on or before 3 March 1999 and to be accompanied by a certificate by a suitably qualified and independent structural engineer that: (a) The working drawings are in accordance with the certified calculations and design documents for the proposed residence; and (b) The works when carried out in accordance with the working drawings for the floor slabs of levels 1 and 2 confined within the retaining walls of the structure and the working drawings of the proposed retaining walls and drainage shown in drawing No 979-1, 979-2 and 979-3 dated 25 January 1999 together with the existing structure will retain the surrounding lands. 3. The applicant pay the costs of the respondent in respect of the Notice of Motion returnable 11 February 1998 and any costs thrown away by the respondent following vacation of the hearing dates in February 1998. 4. Subject to Order 3, each party pay their own costs up to 18 June 1998. 5. The respondent pays the costs of the applicant after 18 June 1998."

8 From the above it will be seen that the order to demolish a partly constructed building was suspended on certain terms and conditions. 9 Dr Falamaki appealed from that decision to the Court of Appeal, which appeal was dismissed on 4 April 2001. A special leave application has been made to the High Court of Australia to be heard on 17 September next. 10 In March 1999 a request was made by Dr Falamaki to the Bank for certain additional funds to complete the building. The Bank then, in a letter of 30 March 1999, set out certain requirements by the Bank before additional finance could be provided. Those are: "Copy of Full Costings from a licenced builder. Copy of Council approved plans - you have advised you are in the process of completing these yourself. Copy of plans & costings to complete retaining walls.

Tax returns for the business RMS & F and your personal returns for the 1997 & 1998 tax years to allow assessment of repayment capacity & to ensure no outstanding tax is payable which may impinge on repayment capacity in the future." The Bank, in that letter, made the following observations: "1. There appears to be slippage on the site which has undermined the rear fence. 2. A pipe is highly exposed on the side embankment and further erosion may cause rupture. 3. Given that $75,000 has been spent to date to erect vertical pylons and crossbeams on the lower two floors it is difficult to see how a further $175,000 would complete the project based on the plans in our file. 4. Will you be in a position to continue if you lose the appeal in the Supreme Court or costs are awarded against you. 5. The Court Orders state that construction must commence by 3 April 1999 - thirty days after production of plans to Council for retaining walls & rectification of the site. (a) Have you complied with the orders given? (b) Are you in a position to commence? 6. Our borrowings should we advance a further $175,000 will be approximately $300,000 on completion. The plans and costings mentioned above will be required to ascertain a total on completion valuation of the property which will need to be in the order of $400,000 to allow lending of 80% or $300,000.

These issues will need to be resolved if we are to proceed. I would be pleased if you would respond at your earliest convenience. This may either be in writing or verbally when you meet with our Regional Manager, Mr Phil Newsome." 11 There was a subsequent meeting with the Regional Manager of the Bank for the New South Wales South Coast Region, Mr PJ Newsome, on 1 April 1999 in relation to the structure of the loans that then existed, as I have detailed above. The amount owing to pay out the original advance and accrued interest, together with an early repayment figure, was $52,088.51 as at 16 April 1999. As at 27 April 1999 the amount then owing under the account entitled "the Home Loan", was $79,736.60. 12 In August 1999 Dr Falamaki lost his employment with BHP. Dr Falamaki failed to pay an instalment on the original loan on 11 September 1999. No payments have been made since then. 13 In evidence before the court is a document prepared by Mr Peter Cronin who is the Relationship Manager at Wollongong handling this loan, setting out the history of the matter. There was, subsequently admitted in evidence, a memorandum from a Mr Leon Donnellan, also dealing with the history of the matter, such memorandum being an internal Bank memorandum transferring the handling of the account from one department to another. The first memorandum purports to be a summary of the history of the transaction which, somewhat imperfectly, sets out that history. 14 The result of the two memoranda and whatever other internal arrangements the Bank made, was that a Notice of Demand was issued for the then cumulative debt of the "Land" Loan, the Home Loan and an Access Account for $146,250.98 and subsequently, proceedings were commenced against Dr Falamaki by the Bank for possession of the property and for judgment for $147,011.62. 15 Dr Falamaki employed certain solicitors to defend the proceedings who, without me going into the detail of the matter, failed to carry out their instructions. As a result, after a letter from the Bank's solicitors of 3 January 2001, Dr Falamaki was advised that 14 days would be allowed to file a defence and on 22 January 2001 default judgment was entered, awarding the plaintiff possession of the property, judgment in the sum of $152,395.47 and costs of $2,387.00. 16 The obligation of Dr Falamaki to set aside the judgment requires him to show that he has a defence on the merits and that he has an excuse for his delay. Clearly, on the evidence, there is a valid excuse for his delay in failing to file a defence and the Bank has indicated that there is no issue before the court that there is an excuse for the delay in filing the defence. The issue before this court is to determine whether Dr Falamaki has a triable defence by way of defence, set off or cross-action. This is a discretionary matter for the court, the onus lying on Dr Falamaki. The court is obliged to determine whether the defence that Dr Falamaki brings is bona fide and that there is an arguable, triable issue. 17 There is no formal defence or cross-action filed before the court. However, Dr Falamaki is not qualified in law and he has not been represented, as his attempts to obtain representation have been unsuccessful. He also labours under the difficulty that English is his second language. Notwithstanding the fact, however, it is noted that Dr Falamaki is also clearly intelligent and has a fair appreciation of the issues before this court. 18 Although there are contentions made concerning the actions of the Wollongong City Council and its officers that has not been asserted as a basis before this court for this application. In any event any third party proceedings against the Council does not constitute a defence or cross-action against the Bank proceedings. 19 What is alleged by Dr Falamaki is an act of negligence against the Bank in failing, in March or April 1999, to advance the balance of the sum of $25,000 at that time to permit him to carry out certain remedial works on the subject premises to comply with the Council's requirements to permit him to bring the property to the stage that it could be sold and the Bank loan paid out. 20 The mortgage which supported the loans made to Dr Falamaki by the Bank contained a provision which incorporated a registered common form of Bank mortgage which contained a provision that if there is a "material adverse change" the Bank can require immediate repayment of all money owing by the Bank and by definition, "material adverse change" includes any reduction in value of property mortgaged to the Bank as security for the loan but also includes failure to supply information. 21 There is no challenge in these proceedings to the fact that the mortgage is clearly in default, as are the loan agreements, there having now been no payments for some three years by Dr Falamaki. The Bank required additional information, particularly contained in the letters of 30 March 1999 and 6 April 1999, which information has not been supplied. There is clearly default on the part of Dr Falamaki under the loan. 22 The issue raised by Dr Falamaki is that there was a duty on the part of the Bank to advance the balance of the funds under the Home Loan of the sum of between $20,000 and $25,000, being the balance then owing at various stages between March and November 1999. Dr Falamaki contends that his application for the additional funds was in March and April 1999, as that was the time within which he wished to comply with the Council's conditions as set out above. 23 In April 1999 Dr Falamaki obtained and forwarded by fax a quote from a building contractor to complete the necessary work for $15,000 and he was also advised by the Council's solicitors that Orders 2(i) and (ii) of the conditions imposed by the Land and Environment Court on 17 February 1999 have been complied with. However, because of his failure to commence the works and to obtain a certificate from a suitably qualified and independent structural engineer, one should have been obtained. 24 Dr Falamaki's case is that it was at that stage in April 1999 that that request was made and that the evidence from the Bank that he was still seeking the $25,000 in November 1999 is a misconstruction of the facts by the Bank. 25 It seems to me that whenever the application for approximately $25,000 was made, that it is clear, on the evidence, that the property with a Land and Environment Court demolition order affecting it was diminished in value and in any event, that Dr Falamaki had not replied to the Bank's request particularly as set out in the letter of 30 March 1999, to comply with its requirements. 26 I do not see any contractual or other duty on the part of the Bank to advance funds to enable him at that stage to complete the work. There were clearly, at the time, problems or potential problems affecting adjoining owners but the overriding issue is his failure to comply with the Bank's fairly reasonable requirements as set out above. 27 That is not to say that the Bank's actions in advancing the sum of $59,000 for an owner builder to construct a four storey building is an obviously responsible way of going about a Home Loan, nor for that matter the subsequent advancing of $100,000. Clearly, a property in the course of construction of an unusual nature, if it is on a site requiring structural work and covering four storeys, is unlikely to be capable of being finished with an advance of $100,000 on top of the Land Loan. Evidence before the court shows that, in fact, to complete the property a quote was obtained for $391,000. 28 Dr Falamaki says that, as he was relatively new to the country, he did not know what the cost of construction would be and implies that the Bank had some duty to him in approving the advances for relatively inadequate sums to complete the home. 29 I do not see that there is any arguable defence or cross-claim which can be raised on the evidence before me by Dr Falamaki. In the light of the evidence before me it is unlikely that the Bank, which must be now owed a sum nearer to $200,000, will recover all of that money unless there has been a considerable escalation in the value of the property. 30 I therefore consider that, notwithstanding that there is an excuse for the delay, because of the failure to show an arguably triable cause of action or cross-action, the respondent therefore succeeds and the application is dismissed. 31 The Bank has applied for an order for costs, it having succeeded on the application. I order that the applicant pay the respondent's costs of this application. 32 I order:

Firstly, that the judgment be stayed until 5.00 p.m. on 20 September 2002;

Secondly, that in the event of the applicant succeeding in the High Court special leave application, that he have liberty to apply, on two days notice, to either me or the Duty Judge to extend that stay. 33 I will make no order in respect of the other applications.

Last Modified: 09/27/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.