HER HONOUR: These are proceedings for possession and judgment in a money sum brought by ANZ Bank against Mr Gary Kurzer and Ms Virginia Aghan. The proceedings were commenced by statement of claim filed 6 January 2012. On 10 October 2013, default judgment was entered in favour of the bank. By notice of motion filed 9 December 2013, the defendants seek to have the default judgment set aside or alternatively stayed. This judgment determines the defendants' application.
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Background
The relevant loan agreement was entered into in 2008. By September 2011, the defendants were encountering difficulty meeting their repayments due under that agreement. The difficulties were due primarily to an expensive and protracted dispute between the defendants and the Australian Taxation Office. That dispute appears to have caused significant financial and emotional stress to the defendants. However, it is not suggested to have anything to do with the bank.
On 28 September 2011, the defendants lodged a dispute on the grounds of hardship with the Financial Ombudsman Service seeking "lenience and support" from the bank to address the difficulties caused by the hardships resulting from the dispute with the ATO. The defendants at that point owned three properties: one at Bondi, one at Terrigal and one at Port Douglas. In support of the resolution of the hardship dispute, they offered to sell the Port Douglas property but it appears that sale did not proceed at that stage. The dispute was resolved and closed by the Ombudsman in November 2011.
On 6 January 2012, the bank commenced these proceedings. The relief sought included possession of the properties at Bondi and Terrigal. The statement of claim was served personally on Mr Kurzer on 20 January 2012. Ms Aghan was evidently overseas at that time and was not served until considerably later.
On 31 January 2012, Mr Kurzer lodged a further dispute with the Financial Ombudsman Service on behalf of both defendants complaining as to the commencement of legal proceedings. As required by the provisions governing such complaints, the bank instructed its solicitors to place all legal action on hold. The dispute asserted that the defendants had a buyer for the Port Douglas property in late 2011 but that the sale had not proceeded. The dispute sought to resolve the legal proceedings by sale of both the Port Douglas property and the Terrigal property.
In late April 2012, the second dispute was resolved on terms that required the defendants to sell both of those properties, with proceeds of both sales to be applied in reduction of the outstanding debt. It was agreed that in the event that the arrears were cleared in full or both of the sales were effected successfully, a notice of discontinuance would be filed in these proceedings.
The sale of the Terrigal property was completed in June 2012. In anticipation of the sale, the defendants sought to have the settlement agreement varied so as to release the Port Douglas property from its terms. The bank subsequently agreed to consent to the sale of that property for $141,000.
Upon completion of the sale of the Terrigal property, the bank received a sum in the order of $770,000 which was applied in reduction of the debt.
On 9 July 2012, the defendants lodged a third dispute with the Financial Ombudsman Service, again based on hardship. The dispute sought release of the Port Douglas security in return for a resumption of regular mortgage payments. The bank again instructed its solicitors to place all legal action on hold. However, on 8 October 2012 the bank was notified that the Financial Ombudsman Service had closed the dispute as being outside its terms of reference on the basis that it had previously been dealt with by the service.
By that time, the statement of claim (which had not yet been served on Ms Aghan) was no longer valid for service. The bank applied to the Court for an order extending the time for service of the statement of claim until 19 April 2013.
On 22 October 2012, following the closure of the third dispute, the bank's solicitors, Gadens, wrote to each defendant demanding payment of arrears in the sum of about $32,000 within 28 days, failing which it was warned that legal enforcement action may continue without further notice. Both letters were sent to Ms Aghan's post office box at a time when she was still overseas. Mr Kurzer complained that he did not receive the letter until a few days before 9 November 2012. By email sent that date, he requested an extension of time "to reach an equitable solution". In a letter also dated 9 November 2012, Mr Kurzer set out details of the hardship he was encountering due to his dispute with the ATO and urged the bank not to take any further unilateral action in "selling up" before he had time to resolve those difficulties. The letter included a copy of a letter from the Australian Government Solicitor confirming that the ATO had offered Mr Kurzer $70,000 to bring his dispute to a close. The letter also attached medical evidence supporting Mr Kurzer's contention that he was suffering from severe anxiety and depression as a result of the dispute with the ATO. Correspondence continued in that vein between Mr Kurzer and Gadens.
In late November 2012, Gadens sought an order for substituted service of the statement of claim on Ms Aghan, who was still overseas. Ultimately, however, she was personally service with the statement of claim on 8 January 2013.
On 11 January 2013, the Australian Justice Tribunal (a body established to provide pro bono legal assistance to victims of injustice) wrote to the bank confirming that it was assisting Mr Kurzer in his claim against the ATO and urging the bank to await the outcome of those proceedings before taking any further action against him. Gadens was subsequently instructed to hold legal action to allow Mr Kurzer to provide to the bank a copy of his statement of claim in the Federal Court against the ATO. Following receipt of the draft statement of claim, the bank undertook an internal assessment of Mr Kurzer's circumstances. An aspect of that process was to seek a statement of financial position from Mr Kurzer but that was never returned by him.
In May 2013, the Court sent Gadens a notice of inactive proceedings, prompting the relisting of the proceedings. Mr Kurzer subsequently lodged a fourth dispute with the Financial Ombudsman Service and Gadens was again instructed to place all legal action on hold. The fourth dispute related to Mr Kurzer's credit card and was resolved when he accepted assistance offered by the bank with respect to that debt.
The proceedings came before the Court for directions on 12 June 2013. On that date, Ms Aghan appeared but Mr Kurzer did not. Ms Aghan raised concerns as to alleged inaccuracies in the statement of claim and the amount due. The registrar ordered her to provide information to the bank of those allegations and stood the proceedings over to 6 September 2013.
On 6 September 2013, neither Mr Kurzer nor Ms Aghan appeared. The proceedings were stood over to 13 December 2013.
In the meantime, the bank determined to move for default judgment. On 17 September 2013, Gadens advised the defendants of the December listing and informed them that unless payment was made within seven days, the bank may apply for judgment in the proceedings. On 10 October 2013, the bank applied for and obtained the default judgment. The application for default judgment sought judgment for possession of the Bondi property and judgment against both defendants in the sum of $1,141,787.31.
The bank did not seek possession of the Terrigal property which had by then been sold. However the judgment included judgment for possession of the Terrigal property, evidently due to inadvertence within the registry. Monetary judgment was entered in the sum of claimed.
Shortly after the default judgment was entered, Mr Kurzer lodged a fifth dispute with the Financial Ombudsman Service. That dispute was closed as being outside the terms of reference of that service on the grounds that it was a matter that had been dealt with by a court.
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Defendants' contentions
In support of the application to have the default judgment set aside, each of the defendants relied upon a lengthy affidavit. The affidavits address the background of the dispute with the ATO in detail. They also make a series of assertions in respect of the various disputes lodged with the Financial Ombudsman Service and the defendants' various requests of the bank for concessions on the grounds of hardship. The defendants make a series of complaints as to the conduct of the bank at various stages. It is not necessary to refer to the detail of those complaints, save in one respect.
The defendants assert that, when the proceedings came before the Court on 12 June 2013, Ms Aghan asked the registrar whether she had to appear on 6 September 2013. According to the defendants, the registrar replied that she did not. It is difficult to believe that was said. If that is what Ms Aghan believed, it must have been due to a misunderstanding. The evidence further asserts that, in response to the registrar's direction made 12 June 2012 (requiring Ms Aghan to provide information to the plaintiff in respect of the claim and the inaccuracies in the statement of claim by 31 July 2013), she immediately handed to the solicitor the settlement documents for Terrigal, dated 18 June 2012, and her contact details "thus complying with the Court order". How the provision of those documents would have explained any contended inaccuracy in the statement of claim was not explained.
The defendants assert that they were not at any time informed that they were required to appear on 6 September 2013 and that they had no forewarning of the application for default judgment on 10 October 2013. They contend that the default judgment was entered without their having an opportunity to lodge a defence or to appear. On that basis, the defendants contend that the judgment was entered irregularly, illegally, or against good faith contrary to r 36.15 of the Uniform Civil Procedure Rules 2005 (NSW).
Shortly before the hearing of the application to set aside the default judgment, the defendants filed a statement of claim against the bank. The statement of claim has the appearance of having been drafted by the defendants without the benefit of legal assistance. It asserts that the defendants have suffered "economic and personal damages because of the unfair and conscionable (sic) dealings of [the bank]." In summary, the pleading asserts that the defendants were not in a position to make independent decisions at various points in the chronology set out above and that undue influence and coercion was brought upon them by the bank.
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Principles relating to setting aside default judgment
In opposing the application, the bank relied on the judgment of Simpson J (as her Honour then was) in Balanced Securities Ltd v Oberlechner [2007] NSWSC 80, which has been cited with approval in a number of decisions of this Court. Her Honour identified three elements to be established in an application to set aside default judgment (at [19]):
an explanation for the failure to defend at the appropriate time;
a good (arguable) defence on the merits;
that it is in the interests of justice to allow the proposed defence to be litigated.
The defendants' explanation for the failure to defend at the appropriate time the claim lies in their evidence as to the misunderstanding on 12 June 2013 and the fact that they were not aware they had to appear on 6 September 2013.
The difficulty is that the matters they contend would have been raised by way of defence to the bank's claim amount to a complaint that, in circumstances in which they were suffering considerable hardship, the bank enforced its securities. It may be accepted on the strength of the evidence relied upon by the defendants that they suffered considerable hardship during that period, primarily caused by their ongoing dispute with the ATO. Mr Kurzer tendered a report of a psychiatrist (Ex A) which eloquently establishes the severe emotional hardship suffered by him on account of that dispute and I have no hesitation accepting that evidence. The detail of the defendants' complaints as to the concessions they allege the bank ought to have allowed in response to those hardships is set out in the statement of claim filed shortly before the hearing. However, none of that establishes a good or arguable defence on the merits to the bank's entitlement to enforce the loan and the security held in respect of that loan. So much was, in effect, accepted by Mr Kurzer during argument.
As to the contention that the judgment was entered irregularly, illegally, or against good faith, I do not think that contention is made out. The defendants had ample opportunity over a lengthy period of time to file a defence to the claim. It may be accepted that, it in light of the many concessions granted from time to time by the bank, the critical period to be focused on is the period after the directions hearing on 12 June 2013. However, even after that date, and even accepting the possibility of some confusion as to whether they were required to appear on 6 September 2013, the defendants were sent a further letter by the bank on 17 September 2013 advising them of the December listing and warning that the bank may apply for judgment in the meantime. In any event, even if the defendants were not given adequate notice at that point, in my view, it is clear that there is no good or arguable defence on the merits. Accordingly, there would be no utility in setting aside the default judgment.
For those reasons, I am not persuaded that there is any basis for setting aside the default judgment apart from the need to correct the registry's inadvertence in entering judgment for possession in respect of the Terrigal property.
The circumstances I have recited indicate the prospect of some basis for a stay of any writ of possession issued by the bank. As noted on behalf of the bank at the hearing, however, it would be premature to determine that issue, since a writ has not yet issued. No basis has been established for granting a stay of the default judgment.
For those reasons, I make the following orders:
1. The default judgment entered 10 October 2013 is varied so as to rescind the order for possession of the Terrigal property.
2. The defendants' notice of motion is dismissed with costs.
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Decision last updated: 25 June 2015