Appellants v First Respondent

3 Mr and Mrs Popal also maintained a personal account with the second respondent, National Australia Bank. This personal account had no overdraft facility, and had never been overdrawn. In circumstances which are not presently relevant, Mr Popal signed a direct debit request in favour of Westpac, authorising National Bank to debit the personal account with adjustments, fees and chargebacks due to Westpac under the merchant facility.

4 On 3 November 2003, Westpac called on the direct debit authority for an amount of $19,634, in respect of chargebacks allegedly due under the terms of the merchant facility. National Bank honoured the call and the resulting debit placed Mr and Mrs Popal's personal account into overdraft in the sum of $17,932.

5 Mr and Mrs Popal did not pay the overdraft amount. With overdraft interest and bank fees, the debt grew to $28,761. The overdraft debt was assigned to the first respondent, Accounts Control Management Services Pty Ltd. Accounts Control then commenced proceedings in the Magistrates' Court against Mr and Mrs Popal, seeking to recover the whole of the overdraft debt.

6 Mr and Mrs Popal contended in the Magistrates' Court that their direct debit request did not authorise National Bank to debit their personal account with any amount which would place the account in overdraft. Further they denied that Westpac had been entitled to demand the chargebacks. They obtained leave from the Magistrates' Court to join both National Bank and Westpac as third parties to the proceeding. However, they elected to join National Bank only. They put forward no explanation as to why Westpac was not joined as a party.

7 Once joined, National Bank also obtained leave to join Westpac as a party to the proceeding but, like Mr and Mrs Popal, elected not to avail itself of that leave. There is no explanation from National Bank as to why it did not do so.

8 Following a trial, on 5 May 2009 a Magistrate found that Accounts Control was entitled to judgment for the full amount of the overdraft debt; and that Mr and Mrs Popal were entitled to recover damages from National Bank for breach of its contractual duty to exercise reasonable care and skill in administering their personal account. In essence, the Magistrate found that National Bank should not have allowed the personal account to be overdrawn in the absence of a request for overdraft facilities and an assessment of their ability to pay. Although the Magistrate determined National Bank's liability as one for damages arising for breach of duty, an essential step in that decision was his finding that the Popals had not authorised any overdrawing of their personal account.

9 However, the Magistrate did not assess Mr and Mrs Popal's damages as equalling the debt due to Accounts Control. The Magistrate found that awarding them the full amount would unjustly enrich them. Three reasons were given. First, because Mr Popal agreed in evidence that, in the absence of the direct debit authority to National Bank, Westpac could have debited the Westpac cheque account with any amount which it contended was owing under the merchant facility. Secondly, because Mr and Mrs Popal had previously received the proceeds of the disputed transactions underlying the chargebacks from Westpac. Thirdly, although the evidence did not allow any finding as to whether Westpac was entitled to claim the chargebacks, the Magistrate nevertheless found that Mr and Mrs Popal would be 'double dipping' if they recovered the amount of the chargebacks from National Bank, 'because they have already had the benefit of having that amount credited against their indebtedness to Westpac'. In these circumstances, the Magistrate assessed damages at the total amount of interest and bank fees charged by National Bank on the unauthorised overdrawing of Mr and Mrs Popal's personal account. This left them to pay the amount of the unauthorised debits in respect of chargebacks.

10 In reaching this conclusion, the Magistrate said that if Mr and Mrs Popal wished to challenge Westpac's entitlement to the chargebacks, they should have acted on the leave they obtained and joined Westpac as a party to the proceeding. He noted that it was still open to Mr and Mrs Popal to bring proceedings against Westpac to recover the chargebacks which they denied owing. Although he did not expressly say it, the effect of the Magistrate's conclusion on the damages issue was to place the onus upon Mr and Mrs Popal to prove that Westpac was not entitled to the chargebacks under the terms of the merchant facility.

11 Mr Popal was unhappy with the Magistrate's decision. He swore that he immediately instructed his previous solicitor to institute an appeal, and understood for two or three months that an appeal was underway. In fact, no appeal proceedings were ever instituted by the previous solicitor. After a lengthy delay, Mr and Mrs Popal consulted their present solicitors, and an appeal was commenced. Because the appeal was commenced well outside the relevant time limit, it is deemed to be an application for leave to appeal.[1] An Associate Justice dismissed that application. Mr and Mrs Popal appeal against that dismissal. The appeal is a re-hearing de novo.[2]

12 By s 109 of the Magistrates' Court Act 1989 ('the Act'), parliament has enacted stringent limits upon the right to appeal to this Court from a decision of the Magistrates' Court in its civil jurisdiction. Relevantly, an appeal must be instituted not later than 30 days after the final order complained of is made. Any appeal instituted after that time is deemed to be an application for leave to appeal. In the absence of leave being granted, the appeal cannot be proceeded with.

13 Section 109(5) of the Act gives this Court a discretion to allow or refuse leave to appeal. Once enlivened, that discretion is unfettered. However, no discretion arises unless the applicant for leave satisfies the Court of two things. First, that the failure to institute the appeal within the 30 day period 'was due to exceptional circumstances'. Second, that the case of any other party to the appeal would not be materially prejudiced because of the delay.

14 The Rules of Court are also relevant. Under r 58.10(7), applications for leave to appeal are to be determined by an Associate Justice. Under r 58.10(8) the Associate Justice has a discretion to dismiss an appeal on a number of grounds, including that the notice of appeal does not identify the relevant question of law, that the appellant has no arguable case, or that the refusal of leave would impose no substantial injustice on the appellant. Accordingly, in considering an application for leave to appeal out of time, the Court has some regard to the merits of the appeal; to ensure that the question of law has been sufficiently identified and that the appeal is not hopeless.[3]

15 The principles to be applied in determining whether an applicant for leave to appeal has satisfied the onus of establishing exceptional circumstances have been discussed in a number of cases. The relevant principles were recently summarised by J Forrest J in Burlock v Wellington Street Investments Pty Ltd.[4] The following principles emerge from that case:

(1) The onus lies on the applicant to satisfy the test of exceptional circumstances.[5]

(2) 'By use of the expression "exceptional circumstances", the legislature intended to place a considerable bar in the way of an applicant before leave will be granted.'[6] The bar is a 'significant hurdle', which requires a 'persuasive explanation',[7] to be demonstrated by 'clear and cogent' proofs.[8]

(3) In order to qualify as exceptional circumstances, the circumstances will usually be such that they can be said to 'rarely occur and perhaps be outside reasonable anticipation and expectation'.[9]

(4) The enquiry as to exceptional circumstances is confined to the circumstances relevant to the applicant's failure to appeal within the 30 day period. It is the circumstances during this 30 day period which the applicant must prove are exceptional.[10] However, in conducting this enquiry the Court may consider events outside the 30 day period.[11]

16 In addition to the above summary, I would add that no exhaustive test for determining whether exceptional circumstances exist can be stated. Each case must be assessed according to its own facts. The concept of exceptional circumstances cannot be defined in the abstract.[12]

17 As appears above, s 109 places an onus upon an applicant for leave to appeal to demonstrate both exceptional circumstances and the lack of any material prejudice to the other parties. However, even if both limbs of this onus are satisfied, the Court retains a discretion to grant or refuse leave. Section 109(5) provides that the Court 'may grant leave' if the two elements are established. This discretion is unfettered, and the Court may take into account all relevant circumstances, within and outside the 30 day period.

18 Against this background, I proceed to consider the evidence and apply the law. As the review of the applicable law demonstrates, the Court must answer three questions in order to determine Mr and Mrs Popal's application:

(1) Have exception circumstances been demonstrated?

(2) Will the grant of leave cause material prejudice?

(3) If there are exceptional circumstances and no material prejudice: Should the Court exercise its discretion to grant leave?

Have exceptional circumstances been demonstrated?

19 In his affidavit in support of the application, Mr Popal gave the following explanation of the circumstances surrounding the failure to appeal within 30 days:

After the decision was made by [the Magistrate], I expressed inside the courtroom to my Previous Solicitor that I was not happy with the outcome. I instructed him to appeal and he advised that he would. Later that week I again met with my previous solicitor and enquired as to how the appeal was going and he replied that "everything was OK, just leave it to me". I did not hear from my Previous Solicitor for the next few weeks. I did not have any reason to doubt that he would not lodge the appeal. My solicitor was holding funds in trust.

In or about late May 2009 I tried to contact my Previous Solicitor. I put several telephone calls to him both at the office and his mobile. His mobile did not allow me to leave a message. However, I did leave messages for him on his office telephone number. I made all phone calls during business hours.[13]

20 The emphasised sentence in the above passage from Mr Popal's affidavit contains an obvious grammatical or typographical error. Reading the affidavit as a whole, the sentence should be read as stating: 'I did not have any reason to doubt that [my previous solicitor] would lodge the appeal'; or, perhaps: 'I did not have any reason to [believe] that [my previous solicitor] would not lodge the appeal'. The effect is the same. Counsel for Mr and Mrs Popal submitted that the sentence should be read to this effect, and this was not contested by counsel for either of the respondents.

21 The emphasised sentence is relevant for a second reason. It was submitted by the respondents that the sentence was so implausible that the Court should reject it in determining whether exceptional circumstances have been demonstrated. It was submitted that Mr Popal had good reason to doubt that his previous solicitor would (within time) lodge an appeal in accordance with his instructions, because he swore later in his affidavit that his previous solicitor had previously failed to follow his instructions to join Westpac as a party to the proceeding. I do not accept that submission. By the sentence in question, Mr Popal was stating that he believed his previous solicitor had accepted his instructions and would lodge an appeal (within time). In the absence of cross-examination, I am not prepared to reject unchallenged evidence to this effect.

22 In my opinion, Mr and Mrs Popal have satisfied the onus upon them to demonstrate that their failure to lodge an appeal within the 30 day period was due to exceptional circumstances. In circumstances where Mr Popal gave unchallenged instructions to his previous solicitor to lodge an appeal, which must mean a valid appeal filed within time, and the previous solicitor said to him during the 30 day period that 'everything was OK, just leave it to me', Mr Popal was entitled to expect that an appeal had been lodged. This finding is reinforced by the unchallenged evidence that the previous solicitor was holding funds in trust. Further, it is reinforced by the subsequent statement made by the previous solicitor to Mr Popal, outside the 30 day period, that he made a deliberate choice not to lodge an appeal: 'I did you a favour by not lodging the appeal as I am 100% sure that you would have lost the case'. Although this statement was made outside the 30 day period, it relates to a decision made by the previous solicitor during the 30 day period and may be taken into account in determining whether there were exceptional circumstances during that period.

23 In summary, it is in my view an exceptional circumstance that a solicitor would accept instructions to appeal and then, without consulting the client, make a conscious choice to refrain from lodging the appeal because the solicitor believes it would have been hopeless and, instead, that another legal avenue should be pursued. Such conduct must necessarily be rare and outside the reasonable expectation of a client.

24 It was submitted on behalf of the respondents that I should reject Mr Popal's evidence, although unchallenged by cross-examination, because the previous solicitor was not called to give evidence. It was submitted that I should apply a Jones v Dunkel inference,[14] and infer that the evidence of the previous solicitor would not have assisted Mr and Mrs Popal's case. I do not accept that I should draw such an inference. Although no direct explanation was given for the failure to call the previous solicitor, the reason for not calling him was obvious. It is likely that the previous solicitor would have denied that he made a deliberate decision to ignore express instructions to appeal. Given the nature of the allegation, there was nothing preventing the respondents from calling the previous solicitor to give evidence to that effect. By the allegation, the previous solicitor ceased to be 'in the camp' of Mr and Mrs Popal.

Will the grant of leave cause material prejudice?

25 Neither of the respondents contends that their case would be materially prejudiced by the delay in seeking leave to appeal. In these circumstances, exceptional circumstances having been demonstrated, the Court's general discretion is enlivened.

Should the Court exercise its discretion to grant leave?

26 It was submitted on behalf of National Bank that the Court should refuse leave because, as a result of the delay, applicable periods of limitation have expired. National Bank contends that it can no longer seek contribution or indemnity from Westpac in the event that Mr and Mrs Popal are successful in their appeal, and they are held liable to them for the full amount of the overdraft debt. I do not accept that submission. National Bank, like Mr and Mrs Popal, made a deliberate decision that it would not join Westpac to the Magistrates' Court proceeding. No doubt there were legal and tactical reasons for the parties' decisions in this regard. National Bank made its decision in circumstances where the limitation of actions period was due to expire on 3 November 2009. It proffered no evidence that it ever had an intention to reserve its position against Westpac, should it fail in its defence of the third party proceedings brought by Mr and Mrs Popal. Indeed, the evidence demonstrates that National Bank did fail in its defence, albeit not in whole. There is no evidence that it has taken any steps to recover anything from Westpac as a result. National Bank had ample time to commence proceedings against Westpac following the Magistrate's decision in May 2009, if it wished to do so. I am not satisfied that this matter should cause me to exercise the discretion to refuse leave to appeal.

27 It was further submitted on behalf of National Bank that the Court should exercise its discretion to refuse leave to appeal because the appeal was doomed to fail. I am not satisfied that this is the case. If leave were granted, the appeal is in my view sufficiently arguable. Reading the Magistrate's reasons for decision as a whole, it is arguable that the Magistrate placed the onus upon Mr and Mrs Popal to prove that they were not indebted to Westpac for the chargebacks which were debited to their personal account, and that they failed to satisfy that onus. As I have said, although the Magistrate based his decision upon breach of contractual duty by National Bank, a step in that decision was a finding that Mr and Mrs Popal had not authorised any overdrawing of their personal account. In these circumstances, it is arguable that the Magistrate erred in law. For example, in Crantrave Ltd v Lloyds Bank PLC,[15] the Court of Appeal in England held that a bank which debits a customer's account without authority has the onus of establishing that it should not be liable on grounds of unjust enrichment, because the unauthorised debit discharged an existing debt of the customer and there was accordingly no loss.[16]

28 It was submitted on behalf of National Bank that the Magistrate was correct to place the onus of proving that the Westpac chargebacks were improperly made upon Mr and Mrs Popal, because the basis of the Magistrate's decision against it was breach of a contractual duty to exercise reasonable care and skill in the administration of the personal account. That argument may find favour on appeal, but I am not satisfied at this stage that it must. The matter requires full argument.

29 It was submitted on behalf of Accounts Control that the position in Australia is different to that in Crantrave. Reliance was placed upon the decision in Majesty Restaurant Pty Ltd (in liq) v Commonwealth Bank of Australia Ltd.[17] That decision will clearly be relevant on appeal. However, in the absence of full argument, I am not prepared to hold that it renders the appeal hopeless. For present purposes, it is sufficient to note that the case proceeds on the factual basis that the payments made were both authorised and had the actual effect of discharging the customer's trade debts, thus enabling it to continue trading. There are no equivalent concessions in this case.

30 It was further submitted on behalf of Accounts Control that the statements in Crantrave can have no application to this case because the direct debit authority signed by Mr Popal gave full authority to National Bank to debit the personal account with any amount claimed by Westpac under the merchant facility. That submission may be inconsistent with the Magistrate's finding that the direct debit authority did not constitute a request for an overdraft facility. Again, this issue requires full argument for its determination.

31 Finally, it was submitted on behalf of the respondents that, even if the requirements of s 109(5) of the Act were satisfied and the Court determined that the appeal is sufficiently arguable, leave to appeal should nevertheless be refused on discretionary grounds; because Mr and Mrs Popal chose to accept the advice of their previous solicitor to abandon any rights of appeal and instead commence proceedings against Westpac to recover the amount of the chargebacks. This submission was based upon evidence by Mr Popal that in late July or early August 2009, well after the expiry of the 30 day period for appeal, he spoke with his previous solicitor about a request from Accounts Control for payment of the judgment sum. Mr Popal swore in this regard:

I was puzzled by this and asked him why as it was my understanding that the matter was being appealed. My Previous Solicitor then stated that "I did you a favour by not lodging the appeal as I am 100% sure you would have lost the case". He then further informed me that he had not lodged the appeal and was instead going to bring a claim against Westpac. I could not understand why my Previous Solicitor was acting in this manner, as I had originally instructed him to join Westpac to the proceedings and he had acted contrary to my instructions and had not joined Westpac. Now, my Previous Solicitor was again acting contrary to my instructions. My Previous Solicitor informed me that this was the best course of action and would produce the same result.

For the next few months I was under the belief that my solicitor had done as he had said. Throughout this period I was experiencing ill health caused by a cancerous growth on my chest. I did not suspect that my Previous Solicitor had acted improperly until I received the bankruptcy notice, at which point I again tried to contact my Previous Solicitor but he would not take or return my phone calls. When I eventually did contact him, he informed me that he hadn't even lodged the claim against Westpac yet. I then decided to go to my current solicitors.[18]

32 The bankruptcy notice was served on Mr Popal on 28 January 2010.

33 As I have said, Mr Popal was not cross-examined. Unless it is inherently improbable and unreasonable, I should accept this evidence. Although highly unusual, I am unable to say that the evidence is so inherently improbable or unreasonable that I should reject it on that ground. Indeed, the respondents asked me to accept this aspect of Mr Popal's evidence, as constituting an election to abandon any right to appeal.

34 This aspect of Mr Popal's evidence reveals further exceptional circumstances, outside the relevant 30 day period. Although the evidence shows that Mr Popal acquiesced in the course of action suggested by his previous solicitor, and in that sense elected to pursue Westpac rather than appeal, there is no evidence that Mr Popal communicated this election to the respondents.

35 On balance, in the exceptional circumstances of the case, both during the relevant 30 day period and thereafter, I have decided that this aspect of Mr Popal's evidence should not lead to the refusal of leave to appeal. The evidence demonstrates that Mr and Mrs Popal were the victim of extremely poor, and misleading, legal advice. In the absence of material prejudice to the respondents, the appeal should be allowed to proceed. I will accordingly grant leave to Mr and Mrs Popal to appeal. I will hear the parties as to costs and as to any necessary directions.

[1] Magistrates' Court Act 1989 (Vic), s 109(4).

[2] Supreme Court (General Civil Procedure)Rules 2005, r 77.06(7).

[3] Shire of Carnarvon v Klein Corporation [2008] VSC 24, [28].

[4] [2009] VSC 565.

[9] Ibid, [27]; citing Owen v Stevens, unreported 3 May 1991, per Hedigan J, 16-17. See also Schwerin v Equal Opportunity Board [1994] VicRp 60; [1994] 2 VR 279, 287-8.

[10] Ibid, [27], [31]; citing Hughes v Morgan & Anor [1998] VSC 147, [18].

[12] Owen v Stevens, unreported 3 May 1991, per Hedigan J, 17. See also Schwerin v Equal Opportunity Board [1994] VicRp 60; [1994] 2 VR 279, 287-8.

[13] Affidavit of Kabir Popal sworn 23 March 2010, [17]-[18]. Emphasis added.

[14] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

[15] [2000] QB 917.

[17] (1998) 47 NSWLR 593.

[18] Affidavit of Kabir Popal sworn 23 March 2010, [20]-[21].