(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.