CBA v Clune & Anor

CATCHWORDS : Summary judgment - amend defence and cross claim - set aside default judgment

Contracts Review Act 1980 LEGISLATION CITED : Uniform Consumer Credit Code - s 70 Uniform Civil Procedure Rules 2005 (NSW) - r 13

Adams v Kennick Trading (international) Ltd & Ors (1986) 4 NSWLR 503 Cohen v McWilliam (1995) 38 NSWLR 476 Crowe v The Commonwealth Bank of Australia [2005] NSWCA 41 Cuttle v Brandt (1947) 64 WN (NSW) 96 CASES CITED : Davies v Pagett (1986) 10 FCR 226 Evans v Bartlam [1937] 2 All ER 646 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Vacuum Oil Pty Limited v Stockdale (1942) 42 SR (NSW) 239 West v AGC (Advances) Ltd (1986) 5 NSWLR 610

Commonwealth Bank of Australia - Plaintiff PARTIES : Louise Marie Clune - First Defendant Daniel Clune - Second Defendant

Mr M Groben, SOLICITORS : Gadens - Plaintiff

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

12890/2006 - COMMONWEALTH BANK OF AUSTRALIA v LOUISE MARIE CLUNE & ANOR

JUDGMENT (Summary judgment; amend defence and cross claim; set aside default judgment) 1 HER HONOUR: There are three notices of motion for determination. The plaintiff seeks that the second defendant's defence be struck out and summary judgment. The first defendant seeks that default judgment be set aside. The second defendant seeks to file an amended cross claim and defence. The plaintiff is the Commonwealth Bank of Australia (the Bank). The first defendant is Louise Marie Clune. The second defendant is Daniel Clune. Daniel Clune is Louise Clune's father. 2 For the purposes of these applications, I shall take the defendants' evidence at its highest.

(1) Summary judgment 3 Rule 13.1(1) of the Uniform Civil Procedure Rules (UCPR) provides: 13.1(1) If, on application by the plaintiff in relation to the plaintiff's claim for relief or any part of the plaintiff's claim for relief: (a) there is evidence of the facts on which the claim or part of the claim is based, and

(b) there is evidence, given by the plaintiff or by some responsible person, that, in the belief of the person giving the evidence, the defendant has no defence to the claim or part of the claim, or no defence except as to the amount of any damages claimed,

the court may give such judgment for the plaintiff, or make such order on the claim or that part of the claim, as the case requires." 4 Rule 13.4(1) of the Uniform Civil Procedure Rules 2005 (NSW) UCPR) provides that the court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are if the proceedings are frivolous or vexatious, or no reasonable cause of action is disclosed, or the proceedings are an abuse of the process of the court. 5 Rule 14.28(1) of the UCPR provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 6 Rule 14.28(1) provides that the court may receive evidence on the hearing of an application for an order under sub-rule (1). 7 In the well known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ at 129 stated: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'" 8 The issues for determination overlap so I shall firstly, determine the issue of whether the default judgment should be set aside as against the first defendant. In that process, I will cover the issue of whether or not the first defendant has an arguable defence, the result of which will determine the summary judgment application. The defences raised by the first and second defendants are similar.

(2) Setting aside default judgment 9 On 3 October 2006 the notice of motion seeking to set aside default judgment was filed. Originally Ms Clune filed a submitting appearance. Nothing turns on this because the Clune's solicitor has deposed that this was an error on her part in that she completed the new form having followed the incorrect precedent. Ms Morgan was never given instructions by the defendants to file a submitting appearance. A proper notice of appearance has since been filed. 10 On 11 August 2006 default judgment was entered against Louise Clune in the sum of $901,373.10. It is this judgment that Ms Clune seeks to have set aside. 11 The authorities on setting aside default judgment are Evans v Bartlam [1937] 2 All ER 646; Vacuum Oil Pty Limited v Stockdale (1942) 42 SR (NSW) 239; Cuttle v Brandt (1947) 64 WN (NSW) 96 at 97; and Adams v Kennick Trading (International) Ltd & Ors (1986) 4 NSWLR 503. 12 One of the considerations to be taken into account when determining whether default judgment should be set aside was expressed by Priestley JA in Cohen v McWilliam (1995) 38 NSWLR 476 at 481 quoting from the Federal Court in Davies v Pagett (1986) 10 FCR 226: "It is, however, another question whether concern about the extent of delays, either in a particular case or generally, should, in the absence of prejudice in the particular case, be taken into account in exercising a discretion to set aside a default judgment. The fundamental duty of the court is to do justice between the parties. It is, in turn, fundamental to that duty that the parties should each be allowed a proper opportunity to put their cases upon the merits of the matter. Any limitation upon that opportunity will generally be justified only by the necessity to avoid prejudice to the interests of some other party, occasioned by misconduct , in the case, of the party upon whom the limitation is sought to be imposed. The temptation to impose a limitation through motives of professional discipline or general deterrence is readily understandable; but, in our opinion it is an erroneous exercise of the relevant discretion to yield to that temptation…" 13 For the defendant to succeed in his or her application to set aside default judgment, they must give an adequate explanation for the delay in filing their defence and show that they have a defence on its merits. A Court, when hearing such an application, must be mindful of its fundamental duty to do justice between the parties.

(i) Explanation for delay 14 In about January 2006 Ms Clune attended Balmain Lawyers and provided initial instructions to Mr Warren, solicitor, in relation to concerns that she had in her dealings with the Bank. Ms Clune's essential concern at the time was to seek legal advice in relation to a multitude of attempts over an 18 month to two year period to obtain bank statements in relation to loans entered into with the Bank. It was her belief that the Bank had erroneously duplicated a loan. 15 Ms Clune expressed her concerns to Mr Wells whose advice was "the banks are never wrong" and that she should refinance or sell the property jointly owned with her father, Daniel Clune. This advice was offered without reference to any source documents and in the absence of any Bank statements covering the period. Despite many meetings between Ms Clune and Balmain Lawyers these issues raised remained unresolved. 16 On about 21 June 2006 the statement of claim was served upon Ms Clune by a process server. She again attended Balmain Lawyers for advice. She received advice from Mr Wells in relation to the statement claim that "there is no defence". He did not explain the implication of the statement of claim, nor discuss matters in relation to the filing of a defence. Ms Clune was not advised that if she did not file a defence within 21 days the Bank could enter default judgment against her. Nor did she receive a letter from the Bank warning her that it was seeking default judgment (Aff, 29/09/2006). Essentially Ms Clune was not given proper legal advice by her former solicitors. Once she changed solicitors and received proper advice, she acted expeditiously and took steps to have the default judgment set aside. 17 On about 26 September 2006 Ms Clune withdrew her instructions from Balmain Lawyers and instructed Jane Morgan, of Morgan Lawyers. Following some initial enquiries made in the Supreme Court Ms Morgan advised Ms Clune that on 11 August 2006 judgment had been entered against her in the sum of $901,373.10. Ms Clune's former solicitor had not advised her of the judgment. 18 On 11 October 2006 the notice of motion to set aside default judgment was filed. It is my view that Ms Clune has provided a satisfactory explanation for the delay.

(ii) Proposed defence 19 The main issues that the first defendant proposes to raise in her defence are firstly that there was no contract established for the May 2002 funding, but even if there was the plaintiff is estopped from asserting any alleged right to unilaterally increase the repayments for the May 2002 funding from $880 per month to $2,628 per month in October 2004. Alternatively, if a contract is found in relation to the May 2002 funding, relief is claimed under the Contracts Review Act 1980 (CRA). 20 Although it is trite law, I remind myself that the CRA is a remedial piece of legislation which should be interpreted liberally, free from the fetters imposed by analogous legal and equitable doctrines. (see West v AGC (Advances) Ltd (1986) 5 NSWLR 610) and Crowe v The Commonwealth Bank of Australia [2005] NSWCA 41. 21 Section 9(1) of the CRA says that in determining whether a contract is unjust in the circumstances when the contract is made, the court is to take into account consequences and results of non-compliance, having regard to whether or not, and when independent legal or other expert advice was obtained by the party seeking relief under the Act, the extent to which the provisions of the contract and their legal and practical effect were explained, and whether any undue influence, unfair pressure or unfair tactics were exerted or used against the party by another person appearing or purporting to act for another party to the contract. The court may decide at a trial to set aside the mortgage in whole or in part. 22 It is not disputed that the defendants entered into the first home loan with the Bank in January 2001. The Bank expressly relied upon the assets and income of the second defendant and did not consider the assets of first defendant. On 2 February 2001 an amount of $363,500 was advanced by the Bank to purchase the Leichhardt property, secured by the mortgage (the first home loan). The Clunes held the property as tenants in common, Louise Clune with a 7/10's share and Daniel a 3/10's share. 23 A couple of months later the Bank advised the defendants that an error had been made in calculating the required amount to effect the purchase, and that an additional $15,000 would need to be advanced. In June 2001, the amount of the loan was increased to $388,500 together with a further amount to the defendants of $10,000 for minor repairs. The defendants say that the Bank represented to them that the additional borrowings would be effected by increasing the amount of the first home loan. 24 In fact, the Bank established the second home loan to supersede and replace the first home loan. But the Bank never discharged the first home loan which had incorporated in it a redraw facility. It is alleged that this was not effectively communicated to the defendants. The defendants proceeded on the assumption that their only agreement with the Bank was the first home loan for the increased amount. At this time the repayments of the loan were at the rate of $880 per month. It was the redraw facility that the Bank used to provide further funds to the defendants and these funds were used to buy the Perth property. 25 During early 2002 Mr Clune was living in Montreal aware that he was to receive a bonus of $150,000 from his employer. He and his wife (Louise's mother) were planning to return to Perth in a few years and wanted to buy a property for between $250,000 to $275,000. He asked his daughter Louise to make some enquiries with the Bank. It was Mr Clune's intention to give Louise the anticipated $150,000 and buy out his share of the Leichhardt property. 26 On 11 April 2002 Louise contacted the Bank telephone home loan centre to enquire about requirements for a further loan. She said to the bank officer "I already have a home loan with you, but would like to enquire about a further loan to purchase a property in Perth." The bank officer took her details and said "You already have approval to borrow up to $340,000." Ms Clune said "How could we have approval I have not requested the loan before?" He said "I don't know, you approval for that amount." On 17 and 18 April 2002 Ms Clune made follow up calls to confirm approval and was told the same thing. 27 On 10 May 2002 Louise spoke to Megan Stokes from the Bank and was advised that the loan had already been approved and that she was not going to be using all the money at once that a MISA account would be set up. That way Ms Clune could transfer some of the moneys to the MISA account and it would reduce the amount of interest that she paid and enable her to make multiple withdrawals. Ms Clune was told that when she was ready to purchase the property she could access the fund by going to the Annandale branch of the Bank and they would organise a bank cheque for her. Ms Clune asked if she needed a copy of the application, the contract and loan documentation so that she would know what the interest rate was. Ms Stokes replied that she would chase those up for her and that in the meantime the next statement would show the interest rate. 28 Ms Stokes then said that she would arrange an authority for Ms Clune to sign to transfer funds into the MISA account and would $120,000 be okay. Ms Clune agreed but said that they would not need that much to begin with. A day or two later Ms Clune attended the Annandale branch and picked up a letter of authority. She signed where indicated and sent the document to her father to sign. From this and further conversations with Ms Stokes, Ms Clune believed that as an existing customer they had received pre-approval for this new loan and the paperwork would follow to formalise it. She though pre-approval had been given on the basis of information previously provided to the Bank. 29 Between 31 May 2002 and 5 July 2002 Ms Clune made numerous enquiries as to what would be the repayment of this new loan. Each time she was told to wait to receive her next statement. The loan repayments which had remained at $880 per month were kept up to date. 30 On 5 July 2002 the Clune's signed a contract to purchase a property in Perth for $265,000. Unfortunately, on 18 July 2002 Daniel Clune was diagnosed with cancer and given three months to live. This would dramatically alter their financial resources. 31 On 19 July 2002 Louise Clune sent a fax to Megan Stokes stating: "I have left several telephone messages over the past 2 weeks following up your earlier verbal commitment to "get this loan sorted out" and forward loan documents as you promised. As you are aware, I have serious concerns with regard to how the above loan nbr (sic) has been conducted by the CBA including: when the account was opened, security offered, principal borrowed & the monthly repayment required (not statements) and full terms and conditions - in particular the interest rate. Due to change of circumstances since we last spoke, it's now extremely urgent I have these documents as my father has been diagnosed with terminal cancer with an expectancy of 3-6 months. He is no longer earning or has access to funds and I am now self-employed. In order to proceed with the Perth purchase, my father has agreed to sell his share to my partner who is willing and able to pay $350k for a 50% share in Leichhardt. As I am unable to service these loans alone, it's imperative you provide relevant loan documents before we can re-finance. Also, please re-confirm that if we do not proceed with Perth purchase then as advised in May by yourself, Dan Clune and I are only liable for the $120k funds or any monies drawn from MISA loan (as advised by you in May 2002). To access any balance we must transfer and then withdraw from the MISA account? I would appreciate you also send MISA terms and conditions with our MISA loan contracts…" 32 In January 2003 Ms Clune received the next statement and the minimum monthly repayment was again stated to be $880. She immediately contacted the Bank and spoke to a bank officer. Ms Clune said to the bank officer "I have just received a statement stating the minimum monthly repayment is $880. Is this right?" The bank officer said "All you have to do is keep making the repayment. If it is not correct the bank will contact you straight away." Ms Clune said that she still had not received the loan documentation that she had requested six months ago. The bank officer told her that she would have to contact the loans department. 33 Based on these conversations and the statements Ms Clune arranged her finances to meet the total monthly repayments of $3,400 for both loans. Her business was doing well so she decided to make additional payments towards the 2002 loan to reduce it. This meant that the actual payments made exceeded the minimum monthly requirement. Having regard to her father's health, Ms Clune felt it would be sensible to provide a buffer for the repayments. Although her partner no longer contributed she was still able to service both loans. By December 2003 Ms Clune calculated that additional repayments in excess of $10,000 had been made and had reduced the principal by approximately $30,000. 34 In about August 2004 Ms Clune received a call from the Bank. The officer said "I'm calling to advise that as a result of a bank error your monthly repayment for loan account number 222346605 is to be increased from $880 per month to $2,628." Ms Clune replied "What do you mean bank error?" She was informed that the repayment was wrongly calculated. Ms Clune said to the officer "But I have been making that repayment for two years I can't possibly pay $2,628 per month I simply don't have the funds. I can only manage the $3,400 that I am paying for both loans now." The officer told her that if she did not pay $2,628 per month that her account would go into default. Ms Clune told the officer that she would need them to put it in writing and provide her with an explanation of the bank error. This was never put in writing, nor was any explanation provided. 35 The defendants submitted that the Bank's conduct, in advancing the money to Ms Clune despite being informed orally and in writing that she lacked the financial resources to meet the repayments and it's awareness that Daniel Clune was financially incapacitated, was unjust and unconscionable. They further submitted that the injustice was compounded by the Bank, as it failed to do the things it said it would do (including to provide copies of loan documentation) to enable Ms Clune to bring in a co-borrower to help service the loan, knowing that she relied upon that when entering into the loan. 36 The defendant also submitted that similar considerations are relevant to a finding that the May 2002 funding facility was unjust within the meaning of s 70 of the Uniform Consumer Credit Code. Additional factors included that the Bank failed to explain the provisions of the May 2002 funding facility or to take any measures to ensure that the defendants understood the nature and implications of the transaction, and at the time the Bank purported unilaterally to increase the monthly repayments from $880 per month to $2,628 per month, it knew or could have ascertained by reasonable enquires that the defendants could not pay without substantial hardship. 37 Taking this factor into account, it is my view that the defendants have an arguable defence. That being so, the plaintiff's notice of motion seeking summary judgment should be dismissed.

(iii) Prejudice 38 As to prejudice, the Bank submitted that two loans are secured by only one property. However, in November 2006 it received the sum of $200,000 from the defendants being part of the proceeds of the sale of the Perth property. 39 I am satisfied that the first defendant has provided a satisfactory explanation for delay and has demonstrated that she has an arguable defence. The prejudice does not outweigh the first defendant's right to have a trial on its merits. It is my view that the default judgment entered against Ms Clune on 11 August 2006 ought to be set aside. I make an order that the defendants have leave to file an amended defence and an amended cross claim within 14 days. The plaintiff's notice of motion of 12 October 2006 is dismissed. 40 Costs are discretionary. The Plaintiff sought its costs particularly in so far as the costs relate to amendments to the defences for cross-claim. The Defendants seek their costs. 41 It is my view that the arguments concerning the summary judgment and setting aside the default judgment were intertwined. The Plaintiff lost that argument and could have consented to having the default judgement set aside but elected not to do so. That being the case, the Plaintiff should pay the Defendant's costs of its motion dated 12/10/06 and the costs of the first Defendant's motion seeking to set aside the default judgment. 42 The second Defendant should pay the costs of this motion seeking to amend the default judgment and cross-claim.

(1) The default judgment entered against first defendant on 11 August 2006 is set aside.

(2) The defendants are granted leave to file an amended defence and an amended cross claim within 14 days.

(3) The plaintiff's notice of motion of 12 October 2006 is dismissed.

(4) The plaintiff is to pay the defendants' costs of its motion seeking summary judgment and the costs of the defendant's motion seeking to set aside default judgment. The second Defendant is to pay the Plaintiff's costs of his motion.

(5) A Status Conference is to be allocated as soon as possible. The Registry is to notify the parties.

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.